The Rich History of Impact Investing: Funding Social Entrepreneurship Moves More Mainstream

B Magazine
By Sarah Murray
November 23, 2016

From Colo­nial Quak­ers to Sil­i­con Val­ley Bil­lion­aires: How Eco­nomic Activism Has Grown Into Invest­ing for Good

When for­mer teach­ers Kristin Rich­mond and Kirsten Tobey launched a com­pany to pro­vide healthy, afford­able lunches to kids attend­ing inner-​​city schools, they didn’t forge their part­ner­ship over a kitchen table or in a teach­ers’ lounge. It was on cam­pus, at the Haas School of Busi­ness at the Uni­ver­sity of Cal­i­for­nia, Berke­ley. And Rev­o­lu­tion Foods, the enter­prise they cre­ated, isn’t a char­ity. It’s a com­mer­cial oper­a­tion that has served more than 50 mil­lion school meals and counts Steve Case, co-​​founder of AOL, among its investors.

Rev­o­lu­tion Foods is among a grow­ing cadre of enter­prises using ven­ture cap­i­tal to address social prob­lems. Rather than rely on phil­an­thropic dol­lars, founders of these for-​​profit enter­prises believe pri­vate invest­ment pro­vides more finan­cial sus­tain­abil­ity. Founders have the poten­tial to tap into cap­i­tal mar­kets for fur­ther fund­ing or to thrive using their own cash flows, and their busi­nesses can grow and do more good as they expand. Some investors are drawn to the idea of achiev­ing finan­cial returns while cre­at­ing ben­e­fits for peo­ple and the planet. In these matchups between purpose-​​driven enter­prises and aligned fund­ing, a new mar­ket­place has emerged. It’s often called “impact investing.”

Con­scious cap­i­tal­ism isn’t a new con­cept, but the move­ment is grow­ing quickly. In a 2016 sur­vey con­ducted by the Global Impact Invest­ing Net­work (GIIN), respon­dents reported mak­ing more than 7,500 invest­ments in 2015 focused on pos­i­tive impact. The col­lec­tive worth of these com­mit­ments was $15.2 bil­lion. Respon­dents said they planned to increase that amount by 16 per­cent in 2016. Of course, this fig­ure is tiny com­pared with the tril­lions of dol­lars deployed in global cap­i­tal mar­kets, but increased demand has Wall Street tak­ing note: Finan­cial giants includ­ing Black­Rock and Gold­man Sachs recently estab­lished impact-​​investing units.

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When it comes to attract­ing more main­stream investors, Pfund is clear. “Most investors need to make a return,” she says. “It’s not that con­ces­sion­ary funds don’t play a role, but it’s hard to get pen­sion funds and endow­ments at scale if that’s what you’re offering.”

The good news, she says, is the increas­ing evi­dence that impact invest­ments can yield impres­sive finan­cial rewards. DBL, for exam­ple, was an early investor in Tesla Motors and SolarCity, a lead­ing provider of solar-​​energy systems.

Case cites the pos­i­tive exam­ple of Rev­o­lu­tion Foods, in which her hus­band is an investor. “They have returns that would turn the head of any early-​​stage investor,” she says. “They’re demon­strat­ing that it’s a very real com­pany while bal­anc­ing the finan­cial inter­est of its investors with the social impact it wants to have.”
Some even argue that a day will come when these kinds of invest­ments will no longer need to be called “impact,” because all busi­nesses will take into account the effect they have on peo­ple and the planet.

Pfund looks for­ward to the day when the word “impact” is super­flu­ous. “That’s my goal,” she says. “That some­day peo­ple will inte­grate this approach into all of their invest­ing, because it leads to bet­ter returns. Why wouldn’t you want to do that, if you could?”

To read the full arti­cle, visit B Mag­a­zine.