Social Issue Talk: Impact Investing

Root Cause provides continuous education opportunities to raise our stakeholders’ sophistication around their philanthropy and organizational models in order to accelerate performance and create lasting social impact. Since joining Root Cause as a Program Assistant last June, I have experienced first-hand this intense drive to learn, teach, and improve. A robust example of Root Cause’s commitment to advancement was the Social Innovation Forum’s social issue talk on impact investing held in March at Root Cause.

Despite the buzz around impact investing and social enterprise, it is a relatively new space with many unanswered questions and untested methods. Therefore, I was excited to participate in planning and executing the Social Innovation Forum’s social issue talk on impact investing, which featured a distinguished panel comprised of Nicco Mele of the Harvard Kennedy School of Government and EchoDitto, Dan Pullman of The Spence Group, Jackie VanderBrug of US Trust – Bank of America, Andrew Wolk of Root Cause, and David Wood of the Harvard Kennedy School of Government. Additionally, Wednesday’s event highlighted the Social Innovation Forum’s 2013 Impact Entrepreneurs, four social enterprises chosen to receive pro-bono consulting and other supports from Root Cause: City Feed & Supply, Green City Growers, Global Research Innovation and Technology (GRIT), and Project Repat. Through hands-on work and a dedication to measuring impact, Root Cause is emerging as a leader in the field of impact investing. We were thrilled to offer our expertise and to gather this experienced panel to share insights and tackle important questions from an audience of philanthropists, investors, executives, and other community leaders.

In my experience, the first hurdle in communicating about impact investments is defining the term and understanding its many forms. These investments, designed to deliver both financial and social returns, can materialize in numerous ways including venture philanthropy, return of capital, market-rate loans, or even equity. Root Cause has been exploring impact investing over the last two years, so our CEO, Andrew Wolk, was pleased to engage with panelists and audience members at the social issue talk about the role of impact investing in addressing social problems and how it complements other approaches, such as traditional philanthropy.

Wolk opened the discussion by acknowledging an urgent gap in that investors perceive a lack of viable opportunities, or “deals,” while entrepreneurs perceive a lack of willing investors. He emphasized Root Cause’s efforts to close this gap by educating potential investors and providing capacity building to promising enterprises.

Jackie VanderBrug, fairly new in her role at Bank of America, drew upon her extensive experience in both the nonprofit and for-profit worlds to describe the role of philanthropy in bridging the gap between investors and deal-worthy organizations. VanderBrug said that although some believe philanthropy and social enterprise to be incompatible, “your philanthropic dollars may be your most powerful.” She stressed that philanthropy often provides entrepreneurs with a much-needed runway to get their business models off the ground and therefore has an incredibly important role to play in creating a pipeline of impact investing opportunities.

Once an organization has “taken flight”, it might look for more traditionally structured investments from impact investors who are also interested in social returns. Dan Pullman, who has experience investing in nonprofit organizations as well as for-profit companies, explained that the most immediately enticing investments are those that offer both liquidity and at least some level of return on investment.

However, the field of impact investing is still largely undefined and there must be clear communication between the investors and investees. David Wood, who serves as the Director of the Initiative for Responsible Investing at Harvard, pointed out that organizations pursuing impact investment must be aware of these funders’ potentially dissimilar levels of sophistication. In an area as new as impact investing, some people and organizations do not have the resources to conduct thorough due diligence while others will expect control over how their investment dollars are spent. Root Cause, aware of these likely challenges, is developing resources for both investors and entrepreneurs to better understand and work with one another. Root Cause’s Social Innovation Forum, in particular, is building expertise in vetting social enterprises across New England in order to connect some of the most promising entrepreneurs with our growing investment community.

We believe that it is important to learn from these promising entrepreneurs themselves in order to gather information on challenges, strategies, and best practices. Nicco Mele, a successful social entrepreneur, highlighted his company’s “triple bottom line” by which EchoDitto equally emphasizes 1) profitability, 2) employee satisfaction, and 3) social impact in determining its success and communicating that success to stakeholders.

Drawing on their wide-ranging academic, professional, and personal experience, the panelists also addressed the technical aspects of impact investing on the entrepreneur side – from determining a realistic rate of return to stakeholder management to performance measurement to exit strategies and profit expectations. In my own research, I have found that these very important technicalities are the same ones that are left unaddressed in the current impact investing literature. The panel explored these issues at a high level in order to provide genuinely useful information to one another and the audience.

As the morning’s panel discussion came to a close, the energy in the room was a testament to the valuable insights shared and the learning experience that had taken place. Mele declared it “the most useful panel I’ve ever served on” and a panel attendee stated that she left “thinking deeper, more strategic, more hopeful and thankful that [Root Cause] is there, convening the wild assortment of players.” As Root Cause continues to seek innovative solutions for today’s most pressing social problems, we are pleased to be among the forerunners in the field of impact investing and to provide our community with learning opportunities that will move all of us forward in the quest for a better