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Dismantling Invisible Barriers to Capital

Closing the Gap – a series of Oxford University postgraduate student insights to the Skoll World Forum 2018

Emily Durfee, 2017-18 MBA at Saïd Business School, reports on the Skoll World Forum session ‘Dismantling Invisible Barriers to Capital’.

The evidence is clear and condemning: investments of resources and support flow unevenly towards entrepreneurs who are white, male, and from wealthy countries.  These entrepreneurs have the “invisible capital,” the right skin color, gender, and nationality, to garner attention and resources from investors.  This inequity to capital perpetuates limits  to the financed perspectives and innovations within social impact, and perpetuates current inequalities and stereotypes.  The panelists in the Skoll World Forum session, “Dismantling Invisible Barriers to Capital,” posited that these disparities in investment are caused by a toxic “sameness,” and suggested three action steps to increase fairness in access to capital.

The detrimental effect of “sameness” permeated the stories of the diverse panel.  Chaired by Kathleen Kelly Janus, author of Social Startup Success, the panel included Cheryl Dorsey from Echoing Green, Marco A. Davis from New Profit, Vedika Bhandarkar from Water.org, and Halla Tomasdottir from Sisters Capital.  These speakers each focused on different issues, from incubating talented global entrepreneurs, entrepreneurs of color, or promoting female leaders.  Despite these different geographical and issue focuses, every panelist highlighted that the current system passes capital and support between people who are the “same,” either through the visible characteristics of race and gender, or through family privilege, education, or nationality.

The panel suggested that “sameness” manifests in the incubation, sourcing, and funding of entrepreneurs.  First, many entrepreneurs cannot pilot new innovations, because their families and communities lack the saved capital necessary to fund pre-investment experimentation.  Second, investors often use networks to source new investees.  However, these networks are usually homogenous, and investments based on existing networks perpetuate the power and resources of those already connected to funders and investors.  Finally, the processes for selecting entrepreneurs surface existing biases, whether for certain native language speakers, or names on resumes and pitches.  This is exacerbated by the “sameness” of internal funding structures.  For example, 94% of foundation presidents are white, 85% of their trustees are white, and 74% of their staff are white.

This “sameness” maintains and increases inequity across entrepreneurial systems, and blocks innovative solutions. To overcome it, and open investments and resources to a diverse entrepreneurship panel, the Skoll World Forum panel advocated for a multi-pronged approach of awareness, assimilation, and transformation.

First, funders must acknowledge and measure the types of inequality in their current systems.  Marco suggested that funders collect and publish data on the currently invisible biases in their systems, such as the diversity of their investment pipelines, the barriers faced by “un-same” applicants, and their own internal diversity metrics of the board, leadership, and staff.

Second, we must assimilate underrepresented groups into the current systems of funding and investment, breaking the cycle of “sameness”. Funders, incubators, and other ecosystem players must diversify the players in the room.  To do this, Hella suggested government bills to enforce diversity standards in board and leadership composition.  Hella and Marco also advocated for investor actions, such as simplifying language and requirements, providing unrestricted funding, and extending funding timelines, to improve accessibility of investments to diverse applicants.  Finally, Marco and Vedika promoted intermediary roles and events, such as “serendipity meetings” or pitch coaching, to introduce diverse entrepreneurs to existing funders.

Finally, we must transform the current systems by removing biases of “sameness”. This is a very challenging task, and there are no final or proven solutions.  However, Cheryl recommended some emerging opportunities, such as blind screening of initial applications, mindfulness training for investing staff, and leveraging AI and machine-learning algorithms to further decrease human biases.

The current invisible barriers to capital for entrepreneurs, driven by a pernicious bias towards “sameness,” prevent talented entrepreneurs from accessing critical capital and support, and limit the generation of creative and effective solutions.  The panel highlighted that the solutions to these underlying biases are multi-faceted, and evolving, and called each of us to act on the above steps, and to innovate new opportunities to overcome “sameness” and promote investment equality.

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Has Impact Investing Been Inflated?

Forging Common Ground – Series of Oxford Student Insights to the Skoll World Forum 2017.

Rareș Pamfil, Oxford MBA Candidate at the Saïd Business School, shares insight on the Skoll World Forum debate, “Has Impact Investing Been Inflated?”

Participating at this panel were:

  • Julia Sze, Director of Impact Investing at Arabella Advisors
  • Chris West, Partner, Sumerian Partners (formerly Director of Shell Foundation)
  • Mara Bolis – Senior Advisor, Private Sector Department, Oxfam America
  • Cathy Clark – Director of CASE i3, Center for the Advancement of Social Entrepreneurship at Duke University
  • Lisa Kleissner, Co-Founder, Toniic

This was a special session at the Skoll World Forum, because it centered around an Oxford-style debate on the motion “Has impact investing been inflated?” Chris West and Mara Bolis argued for the motion, Cathy Clark and Lisa Kleissner argued against, and Julia Sze moderated.

It should be noted that speakers on both sides of the debate are active in developing the impact investing space, with neither of them opposed to the practice. Nonetheless, today they took a firm position either for or against the motion being debated, for the sake of creating a more thought-provoking debate.

The argument from Chris West and Mara Bolis broadly followed the one made in their recently launched report: “Impact Investing: Who are we Serving” (blog by Mara Bolis). Their key concern with the field as it stands today is that there is a mismatch between the type of capital supplied and the type of capital needed. “Because this sector is trying to behave differently, this money should behave differently”, pleads Mara Bolis. Too frequently, the social entrepreneurs who are knowledgeable about the financing needs of enterprises which serve the poor in developing countries, are left out the conversation when impact funds and other investment vehicles are designed. This has lead to unrealistic expectations about returns, and risks undermining the sector.

What can be done? Chris West argues that more patient capital is required, as well as more realistic expectations about returns. Entrepreneurs also need to ensure that they accept investment only at the right time, from the right people, and under the appropriate terms. Otherwise, enterprises can end up with “schizophrenic boards”, which cannot agree on whether to prioritize financial growth of social impact. Participants from all sides agreed that social investment finance intermediaries have a key role to play in helping entrepreneurs raise the right kind of capital, as do resources developed for entrepreneurs seeking investment, such as the CASE Smart Impact Capital toolkit.

Nigel Kershaw, OBE Chair of The Big Issue Group, addresses the panel of speakers.

On the other side of the debate, Cathy Clark and Lisa Kleissner spoke about the progress that has been made in developing this field, emphasising that there is genuine commitment to social impact among many of the funders have in the field. For instance, in the Toniic 100% impact network, over 130 individuals have pledged to use 100% of their assets for positive social and environmental impact, amounting to a total of over $4.5 billion in assets. Lisa Kleissner, who is a member of the network, shared her personal perspective: “The money that we [received] was more than we had hoped for, so we were willing to take a risk.” Her approach has been to work closely with entrepreneurs, understand their business model, and provide a combination of grants, loans, and other investments as needed.

The T100 project will provide other personal journeys and insight from 50 Toniic 100% impact members. The early findings are that 83% met or outperformed financial return expectations (in a sample of 40 portfolios), and 87% of all respondents met or exceeded their impact return expectations. However, what constitutes an annualised market rate of return varies considerably among respondents, leading 53% of respondents to state that the discussion around financial returns needs to be re-framed.

What can we conclude from this this debate? By one metric, the side against the motion won. The small group of 7 audience members who felt that impact investing had not been inflated grew to over 15 after the speakers finished their remarks. But they remained a minority in the room. Nonetheless, many audience members commented that “Has [the promise of] impact investing been inflated?” was the wrong question to ask. Inflated according to whom? And is it not too early to tell? What is clear is that the field has developed substantially in the last 15 years. Regardless of whether early results meet or defy expectations, the recently created sector infrastructure (funds, advisors, measurement experts, and other intermediaries) will enable growth, better capital placement, and better impact outcomes in the coming years.

 

Social Entrepreneurship 101

 Continuing our series of posts by our University of Oxford students attending the Skoll World Forum, ampoule  Mark Hand and his colleagues give us their take on an introduction to Social Entrepreneurship.  As Mark says, doctor “happy enterprising!”

 

“Social Entrepreneurship,” according to one definition, “strives to solve social problems at a systemic level using innovative, sustainable, scalable, inclusive and measurable approaches.”

What?

Confused about social entrepreneurship? You're not alone. -Image by Debbie Levey

In the 1980s, Ashoka Foundation’s Bill Drayton started using the phrase social entrepreneur to describe the people he funded to fix the world’s problems. Thirty years later, we use the phrase (and its sister, impact investing) to encompass nearly all novel do-goodery. The result is that it takes a couple of years working in social entrepreneurship or impact investing before you can get a grip on who’s who and the various meanings that different players attach to the same words. And the upshot is a clear division between insiders and outsiders. This keeps insiders’ jobs safe, I suppose, but it also prevents a lot of smart people from contributing to some of the coolest work on the planet.

So, in an effort to demystify the world of social entrepreneurship and impact investing, here’s a primer edited from a post written during the 2012 Emerge Conference at Oxford. If you’re a veteran, you’ll recognize all these names–and probably roll your eyes at how often the same examples are trotted around stage. If you’re new, we hope this can be a useful starting point.

Why Should We Care About This Social Entreprenonsense? 

If you’ve gotten this far, presumably you are already interested in social entrepreneurship. There’s good reason to be. If you’re an entrepreneur, you’ll be competing for funding and spots at commercial incubators like Y Combinator with social entrepreneurs that have a head start on a compelling, convincing pitch. If you work at a nonprofit, you’ll be fighting for talent and money with a growing, exciting field. If you’re an investor, for-profit impact investors like Bamboo Finance will be pitching the same pension funds that you used to have a lock on. And if you’re a regulator, watch out: millions, and soon billions, of dollars are doing an end-around governments’ own poverty-alleviation and environmental agencies by going through foundations, private companies, and sometimes developed world aid agencies.

Broadly Speaking

To review: (1) Social entrepreneurship is opaque and ill-defined. But (2) It also matters right now and it will matter more in the future. None of that gets at our original question, though–what is it? How can we split up the things people include when they talk about social entrepreneurship?

Microfinance

Many of the leading funders of social entrepreneurship–Acumen, Gray Ghost Ventures, Unitus, Ashoka–cut their teeth on microfinance. In brief, microfinance is the provision of loans, often in the developing world, that are typically at smaller amounts and lower interest rates than existing banks and moneylenders. Kiva, an online marketplace for microloans, is probably the most well-known. Among the other pantheon of microfinance gods are the Grameen Bank (and Nobel Prize winner Muhammad Yunus), Accion, and BRAC. Microfinance splits roughly into three camps: first, nonprofit microfinanciers like Grameen; second, government agencies such as USAID and DFID that underwrote the sector for decades; third, for-profit microfinance funders like Unitus, which invested in the for-profit Indian microfinance bank SKS. The latter are the most controversial; in 2010 SKS became the second microfinance bank to list publicly (and make some investors a boatload of money) at the same time that the suicides of some of its clients pushed the industry to the brink of collapse.

Impact Investing

As microfinance’s golden age came and quickly passed, many funders moved in the early 2000s to the work of funding startups with high-growth potential and significant social impact. In 2007, these groups created the Global Impact Investing Network (GIIN) to promote their work. Today, this kind of investing is called impact investing. You might also hear the phrases patient capital, venture philanthropy, or social venture capital.

That work, broadly, is venture capital with a social or environmental twist. Ideally, social entrepreneurs will get seed funding from individual (angel) investors, then work through business incubators like Stanford’s D-Lab, the Unreasonable Institute, or Echoing Green, then receive capital from seed-funders such as the Unitus Seed Fund, the Mulago Foundation, and Village Capital; occasionally angel groups like Toniic and Investors’ Circle step in at this point. The next step up–talking here about amounts in the $500K-2m range–includes Shell Foundation, LGTVP and Skoll Foundation. Moving farther along the funding continuum means tapping deeper pockets like those of Omidyar.

It’s hardly that clean, of course. First, funders like the ones listed above often have multiple funds investing in different amounts, for example. Second, some of these funders give grants to nonprofits (which for-profit investors wouldn’t call “investing”), while others put equity into for-profits targeting mostly middle class consumers (which others wouldn’t call “impact”). Some will even give grants to for-profits while others make loans to non-profits. Third, the funding chain is hardly well-developed: speak to any entrepreneur on the hunt for investment and you’ll walk away more confused about the funding landscape than ever.

Social Enterprises

Still, the high-growth social enterprises that these groups fund (which are typically listed on the Our Portfolio section of their websites) make up a significant portion of the actual work going on in the arena of social enterprise. D.Light, Aravind Eye Care, Simpa Networks, One Acre Fund, DripTech, Embrace, Envirofit, and Grameen Phone are some of the household names within the social entrepreneurship family, along with Partners in Health, Riders for Health, Root Capital, FairTrade USA, and Teach for America.

What holds these companies together? They’re across the spectrum of developmental stage. Some are for-profit, some are non-profit, and some are hybrids. Some call themselves social enterprises; others blanche at the term. Some are successful and others–honestly–are struggling much more than they or their investors will admit. In large part, what binds these groups together is the network of linkages among the overlapping portfolios of each investors, the investor/donor list of each enterprise, and the incubators that gave them their first jolt. At their core, perhaps, all hearken back to our original definition of a social entrepreneurship: “innovative, sustainable, scalable, inclusive and measurable approaches” to big social and environmental problems. They’re selling more efficient cookstoves, solar-powered replacements for kerosene lanterns, eye surgeries, and irrigation systems to customers who would otherwise never have had access to potentially life-changing goods and services.

But wait! What about…

As social enterprise and impact investing have filtered into common use, a number of other sectors have piped up or piled in: “Hey! We’re already doing that–we’re impact investors, too” or “We’re social enterprises, but in a different way.” Community Development Finance Institutions have been pumping money into low-income communities for decades. Small businesses and the local banks that fund them argue fairly that deep impact is local impact. Fair trade organizations and worker cooperatives like FabIndia work to provide better wages to developing-world commodity farmers. Socially responsible investors have made huge strides in shifting mainstream capital into funds that exclude socially and environmentally hazardous investments.

Big bad governments, international bodies, and major corporations have been looking at market-based solutions to poverty for some time, as well. Major development banks provide capital to infrastructure projects in emerging markets, corporations have graduated from corporate social responsibility to innovative efforts like Vodafone’s M-Pesa and Avon’s “Ladies” in Africa. Traditional banks have, as well: JP Morgan has its own Social Finance unit; Deutsche Bank announced its Essential Capital Fund in September 2012. Bilateral aid organizations (USAID, DFID) were essential to the development of microfinance, and the World Bank and IFC have worked to pull capital and expertise into developing countries since their inception. In the last decade, a new form of finance, called social impact bonds, pulls together private, public, and social sector organizations to drive commercial capital to nonprofit activities.

Where to Show Up: Social Entrepreneurship Conferences and Meetings 

Great! You’ve got the lay of the land, and you’ve figured out what you think counts as legitimate social enterprise and what is rubbish. Where are you going to go to meet other people like you? Every year there are a few key conferences and gatherings. Their relative importance shifts over time, but here are the ones that might still matter in 2013. First, there’s SOCAP, the largest gathering of social enterprises and funders on the planet and a complete circus. The Skoll World Forum at Oxford is its upscale version, where heads of state meet the Skoll Foundation’s investees. Opportunity Collaboration is a cozier weekend that in part connects wealthy individuals with entrepreneurs. Other gatherings include: Sankalp, the Intellicap-hosted Indian version of SOCAP; the Emerge Conference, the Skoll World Forum’s younger cousin; and the Foro Latinoamericano de Inversión de Impacto.

What to Read

Congrats. You now know everything you need to know about social enterprise. What should you read to stay up to speed? A couple of years ago, the clearinghouse was Nathaniel Whittemore’s Social Entrepreneurship blog, and no single publication has stepped into that gap. So here’s your RSS feed: Stanford Social Innovation Review, Nextbillion.net, Huffington Post Social Enterprise, Triple Pundit, and Impact IQ.

If you really want to impress, there are a few books you should probably have on your shelf. For a bit of (always inspirational, sometimes fluffy) introduction, scan The Blue Sweater by Jacqueline Novogratz, Out of Poverty by Paul Polak, How to Change the World by David Bornstein, and Banker to the Poor by Muhammad Yunus. For a bit more meat, move on to The Fortune at the Bottom of the Pyramid by CK Pralahad, Impact Investing by Emerson and Bugg-Levine and Social Enterprise by Marc Lane. Can’t get enough? The University of San Diego’s Sara Johnson has put together a pretty solid list on impact investing for beginners, and the report on everybody’s tongue in 2012 was “Blueprint to Scale” by Acumen Fund and Monitor.

Happy enterprising,

Mark Hand, Joy Jauer, Sara Johnson, and Kshitij Khurana


Photo Credit: Debbie Levey

 

What Barack Obama and Social Enterprise Have in Common

With the new academic year kicking off, the debates and discussions are well underway.   Skoll Scholar Mark Hand takes a moment to reflect.

Image: "Watch" by famousafterdeath

During the 2008 US presidential election, then-candidate Barack Obama described himself as a human Rorschach test, an amorphous inkblot in response which Americans revealed their own motivations, biases, hopes and fears. Social enterprise, I have found, has similar inkblot qualities. In two years as an impact investor, I’ve met i-bankers looking to social enterprise to provide more meaningful work, nonprofiteers seeking rigor and efficiency (and/or higher paychecks), and college students spotting an opportunity to make a mark in a increasingly high-profile field. Within the world of social enterprise stand a number of Ayn Rand acolytes convinced that The Market–being the answer to everything–is the natural path to poverty eradication; in the same arena exist leftists with dreams of transforming the financial system through the Trojan Horse of patient capital. Conversations about social enterprise, like conversations about Barack Obama, can reveal more about speaker than topic.

That’s fine with me: I am much more interested in what attracts people to social enterprise than in nomenclature. What motivates them? What values do they hold dear? What issues do they care about? What kind of environment do they want to work in? How risk-tolerant are they in their career? What do they get a little nutty about? As befits an incoming MBA, I have spent much of that summer searching for my own answers to those questions. I have a long-held interest in the US’s relationship to Latin America and Hispanic migration to the US, for example. I enjoy teaching and learning in equal measure. I gravitate toward other people–especially entrepreneurs–that are building things and tackling issues where others won’t. I get energy from the tension that comes from putting disparate cultures, ideas, and people in conversation.

In social enterprise I spot one opportunity to pull those thing together. But those motivations are my own, and the motivations of my classmates are as diverse as the countries and industries we come from. Over the next year I look forward to hearing my classmates’ answers to these questions as we argue the parameters, promise, and pitfalls of social enterprise.

The Expanding Impact Investing Ecosystem: ImpactAssets 50

This post was writen by Skoll Centre Director, diagnosis Pamela Hartigan.

If you are an investor who has been wooed by impact investing and are looking for solid deals, capsule where do you go?

That was the challenge faced by Ron Cordes, order a wealthy New York based entrepreneur who was faced with the prospect of conducting due diligence on a myriad of possible social investment deals – without the time or expertise to do so.  But rather than give up, as many frustrated investors might do, Ron sought the help of the Calvert Foundation and together, launched ImpactAssets last year with capital from Ron Cordes’ Foundation, the Rockefeller Foundation, and other leading philanthropic and financial services sponsors.

ImpactAssets is a non-profit financial services company (I know that sounds like an oxymoron, but then, think of OneWorld Health, the first US non-profit pharmaceutical company).  It combines both philanthropy and asset management to mobilize capital for social and environmental impact.  At present, it has current assets of US$60 million and offices in San Francisco, New York, Seattle and Bethesda, Maryland.

I happened to be in New York this week and took advantage of a brief respite from meeting- mania to have coffee with my long-time friend and social investment pioneer, Jed Emerson.  In catching up with one another’s professional and personal lives, Jed told me about his involvement in ImpactAssets – which  in addition to him, has drawn upon some of the “greats” in the impact investing field, including Tim Freundlich as its President and as its Chairman, Wayne Silby, the creator of the Calvert Fund and Foundation.

As it turned out, I was serendipitously in the city for the launch of ImpactAssets 50, s a very cool initiative.  In short, Cordes invited a group of impact investing experts, of which Jed is one, to review and select the top 50 fund managers who are taking the best of the for-profit and not-for-profit structures and blending them to yield social, environmental and financial returns.  Criteria for consideration in this blue ribbon group include over three years experience in the impact investing field, a minimum of US$5 million under management, and a demonstrated commitment to social/environmental impact at the portfolio level.

In this way, wealth management advisors have a list of places to start their due diligence in looking for funds for their clients to invest in or products to place in their portfolios.

The full list of the top 50 is available here, online or in pdf.

The launch of ImpactAssets 50 was feted in Ron’s lovely Park Avenue apartment – and it again underscored how despite our sense that this field is expanding, it is still very small.

So many old friends and familiar faces – Asad Mahmood from Deutsche Bank, Jan Piercy from Shorebank International, entrepreneur and philanthropist Josh Mailman, social entrepreneurs Felipe Vergara from Lunmi and Jordan Kassalow from Vision Spring, Anthony Bugg Levine from Rockefeller, Cathy Clark from Duke, and on and on.

It will be exciting to see how ImpactAssets evolves in the coming years, how many fund managers will vie for the privilege of being selected among its Top 50, and how many entrants are spawned to compete with this very promising venture.