Moving Beyond The Money: Addressing the Demand for Social Finance

SoCap 09In the lead-up towards SoCap 2011, I’ve spent some time thinking about what I want to gain from this year’s conference. As an attendee to prior SoCap conferences, I have had the privilege to reflect on the key issues and opportunities that have surfaced each year (see my posts here, here, and here).

It is no surprise that there is a groundswell of interest in the topics of impact investing and social finance. The first conference boasted an impressive number of attendees, despite (or perhaps, as a result of) it taking place in the midst of the worst financial crisis in a generation. It also witnessed the launch of an influential report by the Monitor Institute that proposed a vision for the growth of the impact investment industry.

Along the way, we have many more milestones: a set of reporting (IRIS) and rating (GIIRS) standards, a global network (GIIN), and several influential industry publications (including those by JP Morgan on impact investing as an asset class [PDF], the Money for Good report by Hope Consulting, and Pacific Community Ventures on impact investing policy trends and considerations). We have also seen a coalescing of discussion and activity around topics (such as health, housing, agriculture, energy, water, climate change, etc), along asset class (see the ImpactAssets50 and this report by Bridges Ventures/Parthenon Group), and regions (we now have a SoCap Europe).

It can be useful to classify the social capital market as having 3 constituent parts: the demand for money, the supply of that money, and the intermediation function that occurs to connect the two. Much of the action over the last few years, as I’ve noted above, has taken place in the supply and intermediation realms – and rightfully so, as there have been key market deficiencies in these areas. Now, I believe, that now there are several markers to indicate that money is no longer the binding constraint – one could even argue that there is more money seeking a blended return than the existing opportunities to place this capital (it’s a problem that Kiva has faced in the past). I also believe that there is also more evidence to suggest that the intermediation capacity has generally improved, as I’ve outlined earlier, and there continues to be progress in building the infrastructure for the impact investing industry.

Yet there still remains a relative dearth of deal flow, and many social venture capital funds continue to struggle to source, screen, and complete deals with social enterprises or social businesses. And we know that there are many good organizations that could benefit froNESTm the kind of financing on the table, and in doing so, generate positive financial and social/environmental returns. We’re certainly further along than we have been in the past, but more needs to happen to address the issues and opportunities that are posed by the demand side (see these publications by the Schwab Foundation and NESTA for background reading).

For example, there is still much room for innovation in the nature of “patient capital” that is provided to fledgling social ventures, and how these ventures can become “investment ready” in ways that appeal to the range of impact-first (where social returns are prioritized over financial returns) and financial-first investors (where generating competitive financial returns takes precedence). There are a host of supports that early-stage entrepreneurs require beyond access to capital, but often these supports are not available or delivered consistently enough. And there is tremendous business model innovation in emerging markets that will shape the nature of capital seeking blended value returns.

Of course, at a conference devoted to the idea of building and catalyzing a social capital market, there will be lots to talk about around money, which I will look forward to. Beyond these discussions, I will be looking for evidence that we have made significant progress in our understanding of the demand for this blended value capital. I will be interested in understanding how the key intermediaries and providers of capital are sourcing and closing deals, and how entrepreneurs are communicating their need for capital and non-capital resources through a more nuanced discussion of their business models (see this discussion hosted by Cathy Clark at Social Edge earlier this year).  I want to see more evidence of approaches that are creating an “enabling environment” to stimulate social entrepreneurship, and more organizations recognizing their role in doing so through non-financial supports (e.g. technical assistance, mentorship, etc.). And, I hope to meet many social entrepreneurs who are actively engaging prospective investors and intermediaries in these types of conversations.

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