The 2016 Wharton Social Impact Conference in San Francisco took place on December 13, and I had the pleasure of catching a couple of the sessions during the day.
Funding Models for Maximizing Impact
Moderator Dr. Amara Enyia noted the Rockefeller Foundation’s identification of a $2.5 trillion annual funding gap to achieve the Sustainable Development Goals (SDGs) in developing countries and framed the discussion by asking how we should access private funds to fill this gap.
The Omidyar Network (ON) is a pioneer in using different legal structures to maintain flexibility in addressing social goals and having an opportunity to scale solutions. Chief of Staff Elaine Chou described ON’s use of various forms of capital along the financial-social return continuum to achieve its goals and pointed to a recent article published in the Stanford Social Innovation Review – Across the Returns Continuum – that further describes ON’s views.
In this article, we present a framework for investing across the returns continuum—a continuum that extends from fully commercial investments at one end to philanthropic grants at the other. This framework reflects our belief that there is a broad range of viable investment profiles, some of which involve a trade-off between social return and financial impact, and many of which do not.
Chan Zuckerberg Initiative (CZI) Chief of Staff Caitlyn Fox also pointed to the desire for CZI to maintain flexibility in its investments and why that led to the choice of operating as a for-profit LLC as opposed to a nonprofit private foundation. But she noted the public perception/criticism tradeoff that came with such decision. CZI’s three main focuses are education, basic science research (including for the cure of diseases), and policy (including criminal justice reform and immigration reform).
This led to further discussion of ON’s and CZI’s public policy activities, which were not limited in the way they would otherwise have been had they adopted a private foundation form. However, Ben Mangan of Center for Social Sector Leadership remarked that philanthropy (private foundations), while restricted from lobbying and political campaign intervention, could do much to support public policy initiatives, identifying the Ford Foundation as a good example. Mangan also noted that the choice of the LLC form by “philanthropists” was not a rejection of traditional philanthropy but an appropriate addition. Michael MacHarg of Mercy Corps concurred, noting that we shouldn’t vilify or pigeon-hole certain legal forms and use the appropriate forms or tools as would be most effective and efficient in carrying out the blended purpose of the venture.
Enyla raised the issue of privatization of public goods, how that might go awry, and how that would impact public-private partnerships. Mangan responded by raising the problem of greenwashing and claiming the halo of being a social venture or social enterprise – terms that are not legally or consistently defined. Public agencies choosing for-profit partners that publicly touted social goals (for marketing and political purposes) but truly only had financial goals remain a problem.
Enyla asked how funding models for impact would evolve over the next ten years. MacHarg emphasized the need for more experimentation and the support of early stage enterprises, no matter what the form. He also called out for more current expenditures and less emphasis on creating endowments. Chou returned to the idea of accepting the spectrum of actors across the returns continuum.
The panel discussed getting and using data from multiple stakeholders, including intended beneficiaries, to inform their organizations’ funding decisions and activities. This prompted a question about investing in very early-stage ventures that have no impact data to show. The panel responded by referring to traditional investment criteria, including review of the management team, as well as the venture’s theory of change and how its hypotheses could be tested. Fox also mentioned CZI looked at segments where more risk capital might be needed (e.g., funding younger scientists).
Finally, the panel discussed the need for patient capital for social innovations that might take decades. Enyla noted how policy makers were typically driven by the need to show short-term results and how that stifled the ability to pursue important project.
Jon Jones of GSVlabs moderated this session exploring where we are with impact investing. Kathleen Berroth of Omidyar Network defined impact investing broadly, citing the Across the Returns Continuum article mentioned above.
The impact investing field, in our view, must move beyond the unproductive debate over trade-offs [between financial return and social impact] and instead focus on a more relevant question: Under what conditions should an investor accept a risk-adjusted below-market return in exchange for an opportunity to achieve social impact?
Victoria Fram of VilCap Investments, LLC (Village Capital’s affiliated for-profit investment fund) discussed her firm’s criteria on impact investments, all in for-profit enterprises (40% of the founders are women, 20% are people of color). Village Capital finds, trains, and invests in entrepreneurs solving real-world problems, and builds communities around entrepreneurs and their ventures to improve opportunities for growth and success.
Nelson Gonzalez of Declara is working on U.S. expansion of leAD the sports accelerator fund of the Adidas founding family. He discussed the spectrum between the “earnest” impact investors (with sincere and primary social impact goals) to the sophisticated pure financial investors putting lipstick on some old ideas (like greenwashing) and emphasized the need to create more investment opportunities in the middle.
Kunal Doshi of Capricorn Investment Group discussed some specific impact investments and how their financial and impact goals will not change even with the changing political environment. Capricorn manages the assets for Jeff Skoll, the Skoll Foundation and others who strive for extraordinary investment results by leveraging market forces to accelerate large scale impact.
Perhaps the most pressing question from the audience: How do the monies and ideas find each other? Omidyar looks for consistency with strategy though Berroth mentioned there are some funds for experimentation. Fram discussed the need for honesty and feedback when rejecting an entrepreneur, which can be of great value even if the entrepreneur’s venture is not funded. Gonzales identified the diversity issues when the focus tends to be in Silicon Valley and the coasts but optimistically asserted his belief that efficient markets would eventually fund ideas wherever they originated. Fram noted the still problematic differences between funding ventures with male founders over those with women founders.
- Invest Impactly: Genius is evenly distributed by zip code, opportunity is not @KaporCenter Dr Freada Kapor Klein
- Elaine Chou: Foundation endowments spend 95% of capital on gap-widening orgs then expect 5% in grants will fix problems @TheRealFreada