Social Impact Investing: A Primer
Curious about the emerging field of social impact investing? Our writer spells out the basics and offers resources where you can learn more.
By Alicia Morga (Contributing Writer, Women 2.0)
You’ve no doubt heard a lot about social impact investing or as it’s also called, impact investing, mission related investing (MRI), or socially responsible investing (SRI). But what do these terms mean?
There isn’t a standard definition of social impact investing. Instead it’s a term given to any sort of investment where a social return is expected. Further, social impact investing expects a social return but social impact investors may or may not also expect a financial return.
Social impact investors can deploy their capital as grants, as debt, equity or what’s called program related investment (PRIs). PRIs are like grants but a slight financial return is expected. Many foundations use them.
How do you know if your company qualifies as a social investment? You need to be able to articulate clearly what the social impact of your business is. Social impact can be creating jobs in an underserved area like East Palo Alto or helping women in the developing world. Again, the definition can vary and every investor will have their own investment thesis. Your business does not necessarily have to be a non-profit to attract social impact investment. Your business can be a non-profit, a for-profit or hybrid structure (combination of for-profit and non-profit).
Dimple Sahni, an expert in social impact investment, says that many socially conscious companies start off as non-profits and get funding through grants but in order to be more self-sustaining and rely less on donors become for-profit or hybrid companies. She cites Embrace.org, founded by Jane Chen, and A World of Good started by Priya Haji and acquired by eBay, as examples.
If you have a company or product that you believe has a social impact there are programs that can help you think through how to proceed. Organizations like Endeavor and the Acumen Fund mentor entrepreneurs in local countries and offer grant capital, training, and expertise to help a company get established.
But be forewarned. This is an emerging area of investment philosophy and as a result the industry is not as organized as for-profit financial investment. Best practices are only now being established. Moreover, there have not yet been exits or evidence that if you invest with the social impact in mind a financial return will also result, which could affect how this industry evolves. As Dimple adds about impact investing, the “jury is still out given there hasn’t been enough data.”
To learn more about the social impact industry check out Investors Circle, SoCap, the Clinton Global Initiative, and the Global Philanthropy Forum. To learn more about social impact investing visit Mission Investors Exchange and the Global Impact Investing Network. These websites have a wealth of information and resources.
Want to learn more about innovations in funding? Check out the Future of Funding panel at our upcoming conference.
About the blogger: Alicia (@aliciamorga) is founder & CEO of No. 8 Media. Formerly, she founded a venture-funded digital marketing company focused on the Hispanic market, Consorte Media (acquired by Audience Science). She writes for Fast Company, the Huffington Post and the Christian Science Monitor. In her spare time, she created the app gottaFeeling and blogs.
Photo credit: Acumen Fund via Flickr.