An important step toward maturity was reached when Impact Investors bought equity in two social enterprises on the Mission Markets platform. Lumni, an international pioneer in what it calls “human capital financing” invests in higher-education for low-income students, raised $50,000. HotFrog, an online media portal that has yet to launch, raised $25,00.
The investments come from a Family Office and an accredited investor, people who believe creating the social capital market itself is important, along with investing in an enterprise. In addition, Better World Books, a $50 million plus revenue for profit social enterprise is using Mission Markets for a secondary offering. “Secondary liquidity is critical to driving a fast moving enterprise’s growth as it reaches scale, and we are the first in impact investing space to reach this milestone,” said BWB CEO, David Murphy. Better World Books is a Good Capital portfolio company.
The transactions are more important for what they represent than the dollar totals. They are a solid step away from the visionary social enterprise founder having to make endless rounds of sales pitches, losing focus on her company while she raises money. Things that had just been concepts and ideas are becoming real and institutionalized as the infrastructure of the market that wants to create a good world comes together.
By having a central place to see and invest in deals, we can move toward judging the enterprises on their real merits with more professional due diligence possible at lower cost. A market place, as it takes off, will make things easier for investors and for entrepreneurs. It won’t take the place of other due diligence, but it can ease the process of investors finding the best entrepreneurs and the best companies.
“This is a significant milestone for Mission Markets in realizing its goal of increasing transparency, efficiency, liquidity, and volume of capital flowing into the impact investment space,” said Mission Markets founder and CEO Mike Van Patten, and he is right. The concept has been proved and the reduction in friction it creates will be good for Mission Markets peers, the social capital stock markets being created in Europe by NeXii, in Singapore by Robert Kraybill and in London by Pradeep Jethii and Mark Campanale. Kraybill has assembled a team of 30 volunteers steadily working with him on cracking the regulatory process. NeXii’s co-founder Tamzin Ratcliffe seems to be making significant progress in doing the same thing in the EU for NeXii. And the Social Stock Exchange in the UK is moving ahead as well.
All are looking for money. Even though investing in infrastructure may get them toward their real goals of growing impact more than will an investment in a specific social enterprise, the investors who take this on are few and far between. Impact investors are like philanthropists; they want to put their money toward the people who are actually doing the work of fighting poverty using the market, not the important players who enable that work to go more smoothly.
Impact Investing needs some brand building; if you want to invest in impact, if you believe the market is a tool for good, then help build the tools that make it happen. We are working with Brian Walsh at Liquidnet to help all four marketplaces explain their stories, the differences and the nuances of their approach. Walsh and his team were behind the amazing infographics that explained the flows of the non-profit capital market for Socap10.
We hope to be working with our new partners, the European Venture Philanthropy Association on a metrics workshop at SOCAP/Europe involving GIIN and will be highlighting a lot of the other “sense makers” like the UK’s The SROI Network, and other intermediaries, like ANDE, which has scheduled a meeting to coincide with our conference May 30, 31 and June 1 in Amsterdam. Toniic and other groups are doing the same, and we are glad to be at the center of the industry’s coalescing on all its various platforms.
In the walkabout for SOCAP/Europe, which took some of the SOCAP and PYMWYMIC team from Amsterdam, to Copenhagen, to Malmo, to London, and then to Zurich, two things stood out. One was the quick rise of social capital market investment vehicles cropping up to deal with economic integration of immigrants from Asia and Africa and the Middle East. A handful of Dutch businessmen created Suikeroom, a foundation that vets non-white social entrepreneurs in the Netherlands and then invests in them. The founders did not like the way some of the respected media in their welcoming country were talking about groups like Somalis like they were a problem. So they took action. Similarly Lars Johansen of Social Capital, a well-connected and successful businessman in Copenhagen, got a foundation to let him invest a few million Euros in funding non-white entrepreneurs in Denmark.
UNICEF in Kosovo, Europe’s poorest country, is setting up a social enterprise incubator. They need to create a new future in a place where 70 percent of 17 to 25 year olds are unemployed, and 50 percent of young people say they want to go into organized crime, and another 30 percent say they want to be on the other side of the bribe, in government. This trend of investing in social enterprise to solve new problems that the social safety nets are not solving is happening all over the continent. These trendsetters – like the folks at the BBC Trust, who are highly successful in using a mix of mobile technology and media in ways that reach huge scale, 250,000 people reached in their various campaigns – are trying to figure out how to package and sell their services to impact investors without compromising their deep mission focus.
SNV, the enterprising Dutch development agency, has already done that in East Africa, getting a finder’s fee for bringing an investment to responsAbility, the Swiss Impact Investment Fund. The leader of the agency, Dirk Ellson, says if his thousands of people on the ground can’t use their development skills to sell technical assistance services to impact investors, then the agency might have to look at shutting its doors in six or seven years as funding dries up.
And there is a need for impact investors to improve their technical assistance. In David Bonbright’s survey of some of the best-in-class funds – those with at least six investments –technical assistance, and the things a funder brings that are more than and apart from money, were rated far lower by investees than any other category. The response to the survey reverses the traditional power dynamics of impact analysis. Usually, it’s the investor – in this case Acumen Fund, IGNIA, Venturesome, Root Capital, E+Co, and Grassroots Business Fund – who are analyzing the impact of the entrepreneurs. In at least one case, a loan fund in Grassroots Business Fund’s portfolio, the social enterprise took it one step further, and asked the people they are trying to help to rate them on how well they were doing. That feedback pointed out a gap in the market that the social enterprise will fill: providing business advising services around the loan.
That’s just another signal of the reduction of power of the investor and the rise in power of the entrepreneur. And it’s being facilitated by new platforms like Josh Tetrick’s 33needs, which crowdsources low-dollar investments to projects and enterprises, a Kickstarter for social enterprises. The flowering of an amazing class of candidates for the Unreasonable Institute’s second year, and our own Hub Ventures powered by Village Capital seed fund which is running out of Hub Bay Area, is the movement side of the social capital market. And it’s putting more power and money in the hands of younger people, more women, and earlier stage startups, some even pre-seed stage funds.
Nowhere is youth powered innovation rising up faster than in off-grid power, renewable energy for the developing world. A lot of the entrepreneurs are in the Bay Area, because these social enterprises often use a mix of hardware and software engineering that has gravitated to Silicon Valley to work in the Cisco and Intel orbits.
But it’s not only young people jumping in. E+Co is raising $100 million for two funds, one focused on Asia and, later, a second one on Africa. They also have a successful $40 million pipeline of developing world sustainable energy companies that they’ve made loans to as a non-profit lender.
Besides money and entrepreneurs, developing world sustainable energy is a category that’s also getting smarter, with infrastructure players entering like Ajaita Shah’s Frontier Markets(FM). FM is a sophisticated multi-line distribution and sales company focusing on Rajasthan in India, selling products like d.light and other solar lights for the household, along with a line of clean cookstoves. Think Sears and Roebuck salesmen back as America was being settled. A lot of the venture-backed solar lantern and other companies are hitting a wall through a lack of just that kind of market building infrastructure.
Similarly, new information startup Ayllu has two customers. The first one being the brain trust behind the Global Social Benefit Incubator at Santa Clara University. And the second, the Brazilian impact investor Artemisia, which is asking Ayllu to research the market offerings of sustainable energy focused social enterprises in India, and the gaps – reasons for failure – and winners in the country’s small and medium social enterprise market. Information intermediaries getting paid for researching market size and shape is another sign of a sector coming together. The World Resources Institute’s new decision-making support tool for development agencies that are working on climate change is another area where this sector is getting smarter faster, with these new information intermediaries providing the infrastructure to help it happen.
We are working with the UN Foundation to explain why some of the good deals happened in sustainable energy in the developing world (need an acronym, here, somebody come up with one and we’ll see if the market accepts it). They are layer cake deals: development dollars, government dollars, grants, and subsidies leading to debt and then equity as the market matures and the enterprises and the category moves to an investable company from something that’s more of a public good.
And, like everyone else, the shadow of the errors of microfinance looms in the background as I see the Social Capital Market becoming investable. I agree with Jacqueline Novagratz of Acumen Fund that we need to remember that the purpose of this movement was to be catalytic, to use the market to make the change that really makes a better world. Impact investing is in some ways an asset class, in that it you can do due diligence and make rational investments.
But it is really a movement that leaked into the capital market. That’s why we placed SOCAP at the intersection of money and meaning, not wholly in one place or the other. Preserving that position is what blended value means. Jed Emerson’s original platform that outlined this important principle was ahead of its time.