SOCAP

From social enterprise to impact investing
Oct 05, 2010

http://www.socialedge.org/blogs/social-entrepreneurship-what-everyone-needs-to-know/topics/SOCAP
Social enterprise promises to be a powerful change strategy. Profitable businesses grow quickly and attract imitators. A successful new business can shake up an industry almost overnight. Businesses are also compelled to listen to their clients in a way that charities are not. The shift from “beneficiaries” to “customers” isn’t only a shift from “free” to “fee.” When done well, it can reorient the focus of an organization from its own needs to the needs of its clients.

To be sure, many businesses are poorly managed, and many social goods do not lend themselves to market approaches. In coming years, perhaps entrepreneurs will devise business models to provide affordable health insurance, quality education, or organic food to poor inner-city families. But so far, it hasn’t happened. In these areas, it currently seems more likely that people will create new enterprises that break even, earn a token profit, or require a partial subsidy.

Jed Emerson coined the term “blended value” to describe the commingling of social and financial objectives. As more organizations work in this gray area, they will require new kinds of financing, especially financing that crosses the borders between philanthropy, business, and the public sector. Social entrepreneurship used to operate in a binary world of pure grant making (-100 percent returns) and pure market investing (+5 percent returns, or better). This omitted a wide range of investment opportunities.

Today, as a result of initiatives such as Ashoka’s Social Financial Services program, the Acumen Fund Investor Gatherings, the Social Capital Markets (SOCAP) conferences, the South Asia Social Enterprise and Investment Forum, the Aspen Network of Development Entrepreneurs, and the Global Impact Investing Network, entrepreneurs and investors are learning how to combine the full spectrum of financing instruments, which include grants, equity, soft loans, and commercial debt, to maximize social impact. Good Capital, Gray Matters Capital, KL Felicitas Foundation, Investors’ Circle, Intellecap, Bridges Ventures, and the Deutsche Bank Eye Fund are examples of blended-value or “impact investors” that target social businesses.

In their 2009 report, Investing for Social and Environmental Impact, Jessica Freireich and Katherine Fulton of the Monitor Institute note that impact investing is moving from the “periphery” to the “core of mainstream financial institutions,” with major growth since 2001 in funds to promote clean technology, health care, microfinance, and small-business development, among other areas. Freireich and Fulton argue that for impact investing to thrive, a new industry will have to emerge to supply such missing pieces as metrics to evaluate success, new financial products, and social stock exchanges.