Jacquelyn Novogratz, head of Acumen Fund, a pioneering
impact fund that put $1.1 million into M-Kopa, is
unapologetic about the need for risk-reducing subsidies.
"The dirty secret is, I'm not seeing a lot of people making
money in this ?eld," she says. "There's so much desire, so
much talent, so much money. What we don't have is deals
on the ground.”
Acumen, along the consultancy Monitor Group, recently
issued a report calling for even more subsidies. Unlike
angel investing in advanced markets for technology or
health care, investments in new ventures for the poorest of
the poor can't promise outsize returns to outweigh the early
risk. "With an iPod, there are some early adopters who will
pay through the nose for it, says Monitor's Ashish
Karamchandani. "There are no early adopters will to pay
through the nose for a low-cost irrigation system.”
'I DON'T WANT TO BURY MODERN CAPITALISM’
To mitigate low and volatile returns, the report calls for
"enterprise philanthropy," in which foundations play the role
of seed investors and market-makers, staking
entrepreneurs to startup capital and stimulating customer
demand for new approaches or whole new categories,
plowing the ground for for-pro?t ventures.
"There's a lot of interest from investors and there are
certainly social needs that need capital, but the market is
not clearing," says Antony Bugg-Levine, co-author of,
"Impact Investing: Transforming How We Make Money
While Making a Difference," who as a program of?cer at
Rockefeller Foundation made early grants to build up the
?eld. Bugg-Levine, who now heads the Nonpro?t Finance
Fund, argued in a recent article in Harvard Business Review
that different types of investors can get paid in different
types of currencies -- charitable investors into a social
venture can reap their returns in lives saved or girls
educated, for example, leaving higher ?nancial returns for
more pro?t-oriented investors. You can think of that as a
subsidy, he says, or as a high-leverage strategy to bring in
additional capital and reduce the charitable outlay required
to get the equivalent result.
Just as in high-tech investing, many early-stage social
investments will fail. But the few that succeed may present
opportunities for truly sizeable investments in new products
and services for a global market.
There's a ?ne line between the "breathless maximizers"
who champion private impact investment as the cure for all
global ills and the "derisive minimizers" who dismiss the
whole opportunity, Elizabeth Little?eld, OPIC's chief
executive, said at the Global Philanthropy Forum in April.
The appropriate comparison for impact investing, she said,
is not to the entire global capital market, but to the pittance
that now goes to foreign aid and economic development. A
one percent shift in asset allocation toward sustainable
development would generate $2 trillion, she said, 10-times
the global budget for foreign aid
"It's not just new money. It's new money tied to newer, more
ef?cient, more innovative generations of technology and
infrastructure and services," Little?eld said. "I don't want to
bury modern capitalism. I want to cultivate it.”
This article available online at:
http://www.theatlantic.com/business/archive/2012/05/how
-?nancial-innovation-can-save-the-world/257920/
Photo: Chris Krichhoff
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