Call to Action: Joining Forces for Impact Investing

Submitted by: John Converse Townsend on 09/12/11

Ashoka Bridge (now in beta phase) is a channel that enables Ashoka Fellows, capacity builders, and investors to efficiently communicate and partner with one another, in order to broadcast their needs and find matching partners across the impact investing space. It is an effort to increase the visibility across the impact investment ecosystem by connecting social entrepreneurs, investors, and capacity builders.

Tina Browne shares insights from her conversations about Ashoka Bridge with leaders in the space, including Dan Crisafulli (Potrero Impact Advisors), Eliza Erikson (Calvert Foundation), Ron Gonen (RecycleBank), and Morgan Simon (Toniic).

Call to Action: Joining Forces for Impact Investing

“The industry's current challenge is to translate new interest into successful impact investments. This will require a collective commitment across the industry to develop an ecosystem that includes impact measurement systems, platforms for learning and collaboration, and support mechanisms, so that the most effective enterprises receive the capital they need to grow.”

Amit Bouri, Director of Strategy and Development, Global Impact Investing Network
Source: Katz, Rob. July 5, 2011 "Striking a Balance: GIIN Leader on Impact Investment's Role, Critics and Future," www.nextbillion.net/blog

Despite remarkable progress in a short period of time, impact investing faces many challenges, beginning with the basic ambiguity of the term. Folks in the traditional finance world tend to lump sectors or regions together when asking for examples of successful impact investments. However, there is no silver bullet for a successful impact investment.

Impact investing is defined by the intentions of the investor and/or investee. To me, the term encompasses all approaches to mixing profits and social impact, so long as impact can be managed responsibly and there are efforts to measure outputs with a clear outcome in mind.

This broad scope and the enormous pressure to succeed suggest the need for a systematic approach to realizing good investments. This is where Ashoka Bridge comes in, and serves both social entrepreneurs and impact investors in several important ways.

One way Ashoka Bridge benefits social entrepreneurs is through improving their business models, resulting in a larger impact. Ron Gonen, Co-Founder of RecycleBank, puts it this way: "The problem isn't deal flow, the problem is making sure entrepreneurs are communicating in a way that investors understand the value of their business."

One of the basic principles of impact investing is that the change the entrepreneur envisions can be magnified and long-lasting through a financially sustainable business model. By using market dynamics to address social problems, social entrepreneurs can create efficiency and competition, and solve entrenched social problems more effectively.

Another way Ashoka Bridge helps social entrepreneurs is through providing flexibility with capital requirement needs. A significant finding from last summer that resurfaced in many conversations that I had this year is that financing for social enterprises needs to be flexible and adapt to entrepreneurs' needs.

At SOCAP 2010, Matt Bannick, Managing Partner at Omidyar Network, said that instead of forcing a standard investment structure onto a social entrepreneur, it is better to recognize the needs of the entrepreneur and apply an innovative structure that aligns the incentives of both investors and entrepreneurs.

Morgan Simon, Co-Founder and CEO of Toniic, echoes this point:

Often, the primary relationship between investors and entrepreneurs/intermediaries is about helping to prepare entrepreneurs to meet the expectation of investors. This can sometimes feel like putting lipstick on a pig—I'd love to see Ashoka be proactive in working with entrepreneurs to determine the models of investment that will best support their needs, and present that vision to investors. Hence the Bridge would be not just moving entrepreneurs closer to the investors, but investors closer to the needs of entrepreneurs and affected communities.

Ashoka Bridge will assemble investors and entrepreneurs with diverse funding requirements and needs, and then connect the dots from a broad pool of opportunities. Dan Crisafulli, Managing Director at Potrero Impact Advisors and recent Director of Investments at Skoll Foundation, explained that while early stage support is important, "the impact investing field needs to apply patient capital in support of entrepreneurs with a proven model and help them get to significantly larger scale. The Bridge segmentation will address this critical gap in the field by working across stages of growth."

The focus of Ashoka Bridge is not just small and medium enterprises, but channeling capital to pattern changing social innovations. As entrepreneurs grow and their financing needs change, Ashoka will continue to connect them with investors who share their interests.

Ashoka Bridge offers many benefits for investors as well. Mapping the social capital markets last summer, the Ashoka Social Financial Services team found that investors' risk perception of impact investments can be high because of the emergent state of the industry and the added variable of impact to investment practices. Eliza Erikson, former Chief Lending Officer at Calvert Foundation, observes two main challenges with risk capital in the space: perceived risk and structural risk.

The perceived risk stems from difficulty in understanding social entrepreneurs' business models. However, the risk can be an arbitrage opportunity for those who are knowledgeable about the sector and in close proximity to the beneficiaries. Intermediaries and facilitators, such as Ashoka Bridge, allow for mitigation of risk and lowering of due diligence and transaction costs for hesitant investors.

The structural risk Eliza speaks of is exactly what Bridge is trying to solve:

At the heart of Bridge is a better organized market place, which currently seems to be quite fragmented. The more Ashoka can build these platforms, and have a convening mechanism where various parties are brought together with capital access as the goal, the better. This mechanism is about bridging investors with entrepreneurs and becoming more structured about capital access.

She goes on to describe the need for a "systematic sourcing of capital for enterprises. Investors can come together from all different circles in a systematic way." Ashoka Bridge is providing the structure for this systematic approach to deal sourcing. I hope that the unique collaboration intrinsic to this sector will lead to the success of Ashoka Bridge.

The impact investing sector is at an exciting time in its growth, and many are looking for proof of the market and concept. Stakeholders are learning through experience and from each other. Ashoka Bridge is not only about connecting leading social entrepreneurs with capacity builders to improve their investment readiness, but will also help investors learn from pattern-changing social entrepreneurs and from each other. We are all in this together, and it's time we come together in a systematic, collaborative way to help turn impact investing into a truly viable and socially beneficial space.

Christina Browne is involved in launching Ashoka Bridge and is a Summer Associate at the Global Impact Investing Network (GIIN). She worked with the SFS group to map the key challenges and opportunities in the social capital markets in Summer 2010. She recently graduated from business school and is determined to build a meaningful career in impact investing. She previously worked for Deutsche Bank in Sales and Trading and Equity Research, and Pro Mujer, a microfinance organization for women in Latin America. Christina received a B.A. in Economics from Harvard University and an M.B.A. from the University of Michigan Ross School of Business.