The Evolution of Social Impact Investing

Posted on July 12, 2018

Disruption is about challenging assumptions. It’s about questioning the things that are so established, they are no longer even discussed. Uber is a transportation company that owns no cars. IBM (International Business Machines) hasn’t sold hardware in over a decade. Innovation comes from thinking about old things in new ways.

In the investment community, the conventional view is that for-profit ventures are funded by angel investors and VC firms, while nonprofits are funded by foundations. But these lines are increasingly blurring.

In 2015, social innovation funder Echoing Green released a report called “Deviating from the Standard: Funding and Supporting Emerging Entrepreneurs” in which they revealed a surprising trend. Between 2006 and 2015, the applicant pool had shifted from primarily nonprofits (85%) to an even mix of nonprofits and for-profit or hybrid enterprises. Even more interesting, their report found that 42% of for-profit organizations were funded solely by grants. The landscape of social innovation investment vehicles has grown exponentially over the last decade.

Does the structure of a social enterprise matter? Traditionally organizations doing this type of work were organized as nonprofits, both for the tax benefits and to create a level of trust with donors and funders. Organizing as a nonprofit signaled an intent about where the resources and focus on the organization would lie.

Today the landscape of organizations doing impact work has expanded, crossing all industry sectors and structures from traditionally organized nonprofits to benefit corporations (b-corps) and beyond. It has created tremendous complexity, but also tremendous opportunity, as corporate social responsibility has evolved in new and exciting ways.

One of the leaders in the impact investing field, The Rockefeller Foundation has been instrumental in pushing the boundaries of how social ventures are funded.

“There has been a shift in the landscape of actors thinking about impact and revenue,” says Alyson Wise, associate director at The Rockefeller Foundation. “We are seeing more variety in the types of organizations doing impact work, which gives us more tools in the toolbox than in years past. We are focused on driving outcomes at scale and are happy to partner with all types of organizations to do that work.”

The Rockefeller Foundation began working with WorkLife Partnership in Colorado in 2014 as they were developing a strategy to try to engage employers to take on a larger role in driving positive employment outcomes for youth and specifically for Opportunity Youth—a cohort of more than six million young people who are not connected to either education or employment.

The relationship with WorkLife is a clear example of how The Rockefeller Foundation and other impact investing organizations are approaching sustainability. While foundations and other investment vehicles are still supporting traditional nonprofits, they are also working to identify organizations that are developing solutions that will ultimately become self-supporting.

“We recognized the potential for identifying organizations that were not only doing good work, but also doing it in a way that was ultimately sustainable,” says Wise. “We’ve always been interested in how to monetize work that corrects a market failure.”

96% of the for-profit organizations in the Echoing Green survey who received grant funding said they did not anticipate needing more grant-based capital after five years. These for-profit entities were thinking about profitability and sustainability from day one.

WorkLife Partnership founder Liddy Romero and her team saw the potential for a sustainable solution when they developed the Sustainable Workforce Model.

“We knew we could provide a structure that would provide both a tangible benefit to employees and a measurable return on investment to our employer partners,” says Romero. “It was always our goal to make this solution pay for itself.” 

In Grand Rapids, Michigan, a similar model was pioneered by Cascade Engineering, one of the largest certified b-corps in the world. In response to their own high turnover rate, Cascade partnered with the local Temporary Assistance for Needy Families agency to co-locate a welfare case manager at the employer worksite to address the personal and family challenges that were contributing to job turnover. Investing in helping their frontline employees had a positive impact on both productivity and retention at their worksite and for workers and families across the community.

“We knew we could provide a structure that would provide both a tangible benefit to employees and a measurable return on investment to our employer partners,” says Romero. “It was always our goal to make this solution pay for itself.”

For both the funders and the social impact entrepreneurs, it’s all about impact. Both groups agree that an open-minded approach has increased the interest and the ingenuity at work in the social impact space.


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twitterIn the #investment community, the conventional view is that for-profit ventures are funded by angel investors and VC firms, while nonprofits are funded by foundations. But these lines are increasingly blurring #impactinvesting

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As #corporateresponsibility has evolved in new and exciting ways, the landscape of organizations doing impact work has expanded, crossing all industry sectors and structures from traditional nonprofits to b-corps and beyond #impactinvesting


Topics: workforce equality,

 

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