Although the trends we see as a New Year dawns aren’t always the ones that prevail in time, we continue to gaze into our crystal balls in the hope of enlightenment, or at least investable insights. The five trends – or potential trends – described below reflect my perceptions of the changing “state of play” in impact investment. The sixth item on the list is the trend I’d most like to see in 2013. I sense we’re making progress in that direction, but we’re not there yet.
1. More Early Stage Hoopla: Having correctly identified that one of the problems facing social enterprises and triple bottom line enterprises is the lack of early stage financial support, 2012 saw a plethora of incubators, accelerators, seed funds and angel networks inaugurated around the globe. New venture philanthropy models are starting to emerge around early stage social investment as well. All to the good, however, the social enterprise financing gap extends far beyond seed and early stage funding needs. If we don’t add a focus on growth financing, we risk creating a “fiscal cliff” of our own: more promising new ventures will launch only to wither and die in the absence of follow-on investment.
2. Gender Equity Initiatives and Investment Hook Up: Gender lens investing at the enterprise level gathered steam in 2012, but women seeking to build new financial services models were largely excluded. In 2013, I hope we’ll see more women entrepreneurs finding financing, more women coaching and mentoring female entrepreneurs, more women sitting on corporate Boards and more women structuring and managing investment portfolios. Golden Seeds, Calvert Foundation’s WIN-WIN, Criterion Institute’s “Women Effect Investments” program, startup Pique Ventures, pre-incubator Make a Wave — all embody different aspects of this trend.
3. Regulatory Cost, Complexity and Uncertainty: The development of new business models and the mobilization of new investment will move slowly as stakeholders wait for the SEC to issue enabling regulations related to Dodd-Frank and the JOBS act. For smaller enterprises and startups, especially those with double and triple bottom lines, compliance costs, both human and financial, are problematic. Mary Schapiro’s resignation as Chairperson of the SEC is likely to create further delays in issuing regulation. Patience and courage will be watchwords for all of us.
4. Crowdfunding Hits a Hiccup: Regulatory uncertainty, as noted above, plays a powerful role in constraining the development of crowdfunding. During 2012, crowdfunding donations through Kickstarter, IndieGoGo and others raised millions of dollars for new enterprise. For video gamers, dance troupes and app programmers, the results have been fantastic. Medical devices that can change the face of global healthcare, renewable energy ventures that target household level behavior and other social and environmental concerns have found it hard to build on-line constituencies and raise needed funding. A fragmented, nascent marketplace combined with regulatory uncertainty will inhibit the development of critical mass in the near term.
5. Platform Mania: We all recognize that impact investment spans a range of disciplines (community investment, socially responsible investment, small business, green investment, health, housing etc). In order to identify, screen and finance interesting ventures, we need appropriate marketplaces and engaged investor communities. In 2011 and 2012, numerous platform initiatives were launched in an effort to bring entrepreneurs and investors into shared communities. As I watch the increasing fragmentation of stock exchanges and trading platforms in mainstream finance, I can’t help but wondering how platform mania will play out for impact investment. Linkages, partnerships and aggregation will be needed in order to create a robust marketplace. Otherwise, we’ll see lots of small, isolated silos in search of scale. Time scarcity is a big challenge. Many impact investment managers are covering six or more sectors but lack the capacity to participate in that many online communities. Even multi-sector platforms (Mission Markets, Impact Assets, Gates Global Impact etc) find it difficult to mobilize investors and investable instruments simultaneously.
If the trends above reflect my views of what’s happening in the impact investment space, they nevertheless fail to capture my hopes and dreams. The trend I’d like to see most is convergence. By this I mean a growing understanding that all investment has social and environmental impacts as well as financial results. While the earth needs more ventures that create positive social and environmental outcomes, we also need to bring this awareness of shared space and resources into mainstream investments. Although you wouldn’t argue that Coca-Cola should be a social enterprise, you might agree that the company’s decision to reduce water use and energy consumption is a wise choice for the firm and for society as a whole. All enterprises have a triple bottom line even though social and environmental impact are often viewed as “externalities”. ESG, SRI, impact investment, community development are all part of the same paradigm. Figuring out how to balance triple bottom line concerns and optimizing overall impact versus financial profitability alone will ultimately be the key to sustainable economic development, a healthy planet and happy global citizens.
How do you think Impact Investment will develop in 2013? What trends are you thinking or worrying about today? Inquiring minds want to know
by Lauren Burnhill aka @LaurenOPV