Omidyar Network Report: We’re At A Tipping Point For Impact Investing
By Devin Thorpe
Omidyar Network, an impact investing pioneer, recently published a new report entitled “Frontier Capital” on impact investing. Given the attention that has been paid to the Chan Zuckerberg Initiative, which parallels the structure of the Omidyar Network in some respects–critically allowing for both impact investing and traditional philanthropy–I’ve taken time with Paula Goldman, a report author and Senior Director, Global Lead for Impact Investing at Omidyar Network to get her take on the report.
Goldman makes three key observations about impact investing for 2016:
- We’re at a tipping point for impact investing
- The next generation is more socially minded and will push for change
- Capital and technology will drive innovation in emerging markets
Let’s take a look at each of these key issues through Goldman’s eyes.
She notes, “Interest in impact investing is at an all-time high with champions including the Pope and Bill Gates. However, to date, the amount of capital being deployed to impact investing is still relatively small – constituting less than 0.1% of total capital markets today. In 2016, we will see interest in impact investing convert into exponentially more action — taking a significant leap forward from an ‘unorthodox’ idea to more mainstream.”
She explains the parallels between the founding of Omidyar Network and the Chan Zuckerberg Initiative to help make that case that impact assets will grow dramatically.
Ebay and Omidyar Network founder Pierre Omidyar recognized early in his journey as a philanthropist that addressing big social challenges would require the use of multiple assets. His experience at eBay was that markets, in particular, are an incredible tool for positive social impact. As a result, in 2004 he created Omidyar Network as both a traditional foundation and an LLC so that he could invest in the right changemaker, regardless of whether it is a for-profit or nonprofit.
The recently announced Chan Zuckerberg Initiative is taking a similar hybrid approach in establishing an LLC that can make for-profit investments in addition to nonprofit grants. I expect others to follow suit in 2016 and beyond.
Goldman looks at the demographics of “NextGens” to drive much of that shift. She notes, “There are incredible demographic shifts underway, including the impending $41T wealth transfer to ‘NextGens.’ We’re also seeing more young investors really drive impact investing. The next generation of investors is more globally aware and connected, viewing investing in a fundamentally different way. 67% of Millennials see investment decisions as a way to express social, political, or environmental values versus only 36% of Baby Boomers – nearly twice as many.”
“For example, Millennial employees at BlackRock were a significant influence in the development of the company’s first impact investing fund. Major mainstream investment firms are responding to an increase in demand from Individual and institutional investors alike,” she adds.
Goldman sees emerging markets as a place where impact investing and technology will come together to lead innovation. She explains:
“2016 will be the year where entrepreneurs and investors leverage the ubiquity of smartphone technology and demographic shifts to fuel the next wave of innovation and impact in emerging markets. We’ve identified a $3 trillion opportunity just above the base of the pyramid to achieve both financial returns and social impact — what we’ve called “frontier capital,” which is early stage risk capital in emerging markets directed towards businesses that serve those earning between $2 and $8 daily. These people have greater purchasing power and a steadier income than the very bottom of the pyramid, but still benefit greatly from products and services that improve their lives. Companies like Lenddo and MicroEnsure are leveraging technology to create socially impactful businesses that directly serve this population, enabling them to scale more effectively and serve the bottom of the pyramid without subsidy.
This article originally appeared on Forbes.
EBAN is proud to present the Guidebook on “Fostering Business Angel Activities in Support of SME Growth”.
Written by EBAN for the European Commission as part of a series, this guidebook describes how business angel investments and co-investments can reach a critical mass across certain sectors, regions or countries. It discusses the various financial instruments policymakers and other stakeholders can implement to cultivate business angel investments, particularly the creation of co-investment funds.
A provisional copy of the guidebook can be downloaded here and will soon be available from the European Commission website.
By Bertil van Vugt, Inclusive Business Accelerator and Mirko Zuerker, SEED
The growth and success of green and inclusive business models with high impact potential is central to the challenges many emerging economies are facing. These enterprises not only spur development and market growth, but also ensure the preservation of the very base of our global economy – environmental and social resources. Thus, these small and medium-sized enterprises (SMEs) may just be the backbone of tomorrow’s global economy.
The considerable political and economic momentum that has been built around social entrepreneurial activity is therefore not surprising. And yet, a lack of access to finance for SMEs – described as “one of the greater challenges” by theWorld Economic Forum – has not yet been sufficiently addressed.
This financing gap is particularly problematic for social enterprises, as they not only find themselves stuck in the “missing middle” gap of the ‘post start up pre scale up’ phase with other SMEs, but moreover struggle to find an investor equally committed to their social mission.
Hot topic
Impact investing has become a hot topic and is increasingly being explored by the investor community. Numerous calls to action have spurred promising initiatives, but essential challenges remain: Firstly, high transaction costs prevent both investors and entrepreneurs from finding fruitful partnerships. Secondly, even promising new impact investing structures and vehicles still exclude a large group of investors and businesses focusing on early-stage ventures.
Investors often associate impact investing with high risk, unaware that a large number of social enterprises are profitable and have great potential. Moreover, research, due diligence and monitoring costs are high for a single investor. Even where venture capital could be mobilized, many still fear exiting may be a problem, as potential buyers are hard to find – especially when investing in social enterprises.
Struggle to find deals
Similarly, investors struggle to identify matching and promising ventures. In this emerging global market with very diverse actors, the likelihood of finding a mission and finance product match through one-on-one pitches is especially low. Currently huge potential is lost, making the “missing middle” gap and lack of low-scale, globally accessible impact investment structures a considerable drain for growth.
To tackle these issues initiatives for impact investor and entrepreneurial networks are valuable progress. Forums such as the Global Impact Investing Network, the Aspen Network, the Investors’ Circle and Toniic aggregate expertise, provide space to share knowledge, best practices and potential deals – mostly among investors, and offer valuable tools. Namely, the impact base online directory of investment vehicles, and a global dealflow platform.
High barriers
However, barriers to enter these organizations are high: be it in financing targets, membership fees or level of formalization. Financing targets of members exceed what many entrepreneurs can offer, despite their growth potential (which again showcases the “missing middle” gap). On the supply side, small actors who are just starting to consider becoming part of the impact investment space, may find the costs of joining these groups too high. This is certainly the case for small business ventures.
Thus, existing structures are valuable, but not effective enough in facilitating much needed partnerships at scale. Both small investors and businesses are especially in need of stronger facilitation and yet thus far left out of impact investment networking we see thus far. Geographically, existing structures, though building global networks and branching out to some extent, are thus far largely centered in North America and Europe, leaving other potential areas largely untapped.
Early stage finance and support
Networks should spread wider globally, and above all, a low-cost, easy entrance network including both parties is needed. Serving as a knowledge, best practice and deal flow platform like existing forums, it should focus especially on early-stage social enterprises and investors. It is this group that needs the most facilitation and support.
The emerging angel networks such as the Intellecap Impact Investment Network in India and the new African Business Angel Network (ABAN) to support the development of early stage investor networks across the continent are examples of promising initiatives in this direction. With their knowledge of the local markets angel investors will be able to play a crucial role in the development of starting inclusive business entrepreneurs as they offer both hard and soft capital. The angel-funded startup companies that are able to scale up fast then become interesting for the larger impact funds, which creates an exit possibility for the first investors.
In addition, interaction between early-stage social enterprises and investors cannot only spur co-investment but also allows both sides to get to better understand the needs of potential partners. Even the development of new finance vehicles at small scale and common impact measurement standards – each currently a key topic in addressing the “missing middle” gap – could be spurred by such a forum. A small scale, better accessibility and a higher level of interaction are key. Innovatively addressing these needs may just be the decisive step in scaling up impact investment, unlocking the potential of tomorrows flourishing SMEs.
SEED and the Inclusive Business Accelerator (IBA) joined forces to link selected social and environmental enterprises with both hard and soft capital that is required to scale their businesses. At the Nairobi Investor Forum on 9 September selected SEED Winners will pitch their enterprises. During a break-out session at theSEED Africa Symposium on 10 September investors will showcase their impact investing products in a reverse pitching and reverse matchmaking format. If you want to learn more or join us for those events, please contact us at invest@seed.uno or visit: https://www.seed.uno/symposium/programme.html
This article was published here.
10 December 2015 – London and Washington DC
LeapFrog Investments is set to receive up to $200m from the Overseas Private Investment Corporation, the OPIC Board of Directors announced today. This is the largest commitment in history to any impact fund manager. It also brings commitments to LeapFrog to over 1 billion USD, heralding the arrival of the first billion-dollar group dedicated to equity impact investing.
LeapFrog plans to invest the capital in financial services and healthcare companies, in both Africa and emerging Asia. By focusing on these underserved markets, LeapFrog portfolio companies recorded a 60% average revenue growth last year, and now serve 51.8 million people.
Elizabeth Littlefield, President and CEO of OPIC, said “LeapFrog’s innovative approach paired with sound commercial performance has helped spark high-impact business activity in emerging markets. Today millions more people across the developing world have access to financial tools, and tens of thousands have jobs because of fast-growing companies supported by LeapFrog. I look forward to the results of OPIC’s support to this exciting fund manager.”
Leading US investors in LeapFrog’s funds to date include AIG, J.P. Morgan, MetLife, Prudential Financial, RGA, and TIAA-CREF. Global investors in LeapFrog include Alliance Trust, AXA, HESTA, Partner Re, Swiss Re, XL Catlin and Zurich.
Many sophisticated investors are joining the move towards what LeapFrog terms “profit with purpose” investment strategies. U.S. pension plans and endowments in particular saw a recent shift in U.S. policy to enable them to consider a wider range of investment opportunities, combining financial reward and impact.
“This commitment marks a transformative moment for impact investing,” said Dr. Andrew Kuper, Founder and CEO of LeapFrog. “OPIC’s vision and capital are a magnet for other leading institutions, revealing how to invest in companies that reach billions of underserved consumers. The greatest financial and social opportunity of our era is to serve these real needs, tapping vast new markets, and achieving profit with purpose.”
The World Bank estimates that over 4 billion people worldwide are earning under $10 per day Purchasing Power Parity (PPP). This population is rising toward the middle class, but lacks access to essential financial tools and healthcare services.
Recognizing the power of the private sector to serve these needs, development finance institutions including the EIB, IFC, FMO, KfW/ DEG and Proparco were all early investors in LeapFrog.
OPIC’s historic commitment to LeapFrog marks a new level of recognition for the private sector as a source of social change. Since launching with President Clinton in 2009, LeapFrog has emphasized the need for scale and strong returns in impact investing.
This article originally appeared on LeapFrog´s website.
On Thursday morning, the European Investment Bank (EIB) Institute and the European Commission held the Social Innovation Investor’s Fair at the EIB in Luxembourg-Kirchberg.
Guy Clausse, Dean at the EIB Institute, welcomed everyone with Hedda Pahlson-Moller, CEO at Omsint and Tiime, talked about boosting social enterprise across Europe by creating social innovation structures that lead to systemic change. She added that various entrepreneurs have been chosen to present their projects in front of venture capitalists and other professional ventures, with the format including counter pitches which have been intended to stimulate creativity and making projects better.
Twelve projects have been chosen from the Social Innovation Tournament and the Social Innovation Competition which showcase European social impact projects. The former is a flagship initiative of the EIB Institute’s Social Programme and financially rewards projects which aim to fight unemployment, marginalisation of disadvantaged communities or promote access to education in a wide range of fields. The Social Innovation Competition invited Europeans to develop game-changing ideas which could advance Europe’s growth model by challenging current assumptions and conceiving of new solutions. The selected projects are now seeking investment in order to reach their targets.
The eight 3-minute presentations were as follows:
– Hand-in-Scan (Budapest, Hungary): The growing problem of infections which is not only a problem of HealthCare. They have developed a digital image-based analysis which can be immeditaely uploaded to servers. One single case cost €5,000; one model costs €10,000. They are looking for €2.45m in capital. Candace Johnson said a business plan is needed to show how the business will grow.
– Orti-Alti (Turin, Italy): an urban regenation project to grow plants and vegetables above street-level in regenerated spaces, rooves, etc. They are looking for €50k to market and grow the network to produce up to 6 tonnes of vegetables annually. Marcus Freiburg (FAST) acknowledged the proof-of-concept but urged the project to work more on the business plan and financial model.
– Progetto Ould (Italy): the project addresses textile waste, helping the fashion inductry to rebuild their image, by recycling. They collect discarded material and make up clothes which they sell in their own shops (2) and other sales outlets (10). Their aim is to double their 2015 turnover by 2019 and are asking for €150k investment to develop the eCommerce website. Candace Johnson suggested the presenter could have communicated a more positive message and value proposition, also encouraging the pop-up-store approach.
– Politeia 2.0 (Greece): to create a living laboratory for innovation and governance, reconnecting citizens with decision-making processes in Greece. Their open toolkit is being used by many mayors. They are looking for €50,000 to scale up and make a change, investing in democracy. Markus Freiburg urged the project to work on the business model which could also look for public money.
– Magdas Hotel (Austria): the hotel run by refugees, turning perceived disadvantages into advantages by turning a former retirement home into a hotel and recycling the former contents. The project received international media attention since opening 10 months ago. They are looking to expand the concept internationally. Candace Johnson urged the project to have a mission statement and a clear USP, as well as focusing more on the skills of the refugees.
– Mobilearn (Sweden): Approximately 1 billion people are misplaced world-wide today, needed food, shelter and information – tools for integration; without these, ghettoes are created. The project takes the most information from various administrations and translates them. They are asking for €250,000 to set up a presence in Brussels. Marcus Freiburg suggested the added value of the project be presented more clearly.
– Blue Badge Style (UK): a style guide for the less able, a commercial company with a social impact. Going out requires military planning and comes with anxiety due to a lack of information. The project informs people where to go by a website, an app and an online access brochure. The project is looking for €490,000 in seed funding to provide 12-18 months effort in Europe. Candace Johnson urged the project to think bigger, comparing the model adopted by egergy credits.
– Piano C (Italy): In Italy, more than 30% of women do not return to the workplace after maternity leave. Women should not have to choose between a career and a family. The project promotes back-to-work programmes for mothers. Marcus Freiburg urged the project to focus more on identifying the impact change and to look at added value for other stakeholders.
The four 1-minute pitches were as follows:
– Ufeed (Spain): the project uses mobile devices and social media to help people in need by encouraging brands to donate directly to approved NGOs, with the funds raised paying for projects around the world.
– Filsia (Greece): the project provides hardware and software for rehabilitation concerning muscoskeletal, cognitive and neurological disabilities.
– Adie (Faance): the projects fights unemployment by encouraging individuals to operate franchising solutions, with 3 services offered to provide 200 jobs already. The aim is to provide 3,000 joby by 2020.
– Mattecentrum (Sweden): the project stimulate interest in mathematics, offer social franchising internationally.
Dominik Dominik said he was impressed with the elevator pitches which he admitted are very difficult to achieve. He stressed the need to include a Call to Action in each pitch.
Nicolas Buck of NYUKO talked about social entrepreneurship in Luxembourg and acknowledged the high attrition rate, with only 10% becoming successful. He referred to the 1,2,3 GO Social competition where, since 2011, 18 successful social businesses have be borne out of 131 initial applications.
The Investor’s Fair took place as part of the 2-day conference on ‘Boosting Social Enterprises in Europe’ from 3 to 4 December 2015. The conference is organised by the Luxembourg Ministy of Labour, Employment and the Social and Solidarity Economy and aims to examine how social innovaton is created and can be systematically integrated into the creation of economic activities.
Photo by Geoff Thompson
Original article appears here.
