In order to start and grow social enterprise, capital is a critical part of the equation. In part one of this series, we discussed the basics of impact investing and greatest challenges to bringing the movement mainstream. While there are challenges, there are also many opportunities for social entrepreneurs to do what they do best – be disruptive and create opportunity from chaos. This week we hope to surface potential solutions to overcome these sometimes daunting challenges.
- Solution #1: Anchor Through Mission Lock – Ten years ago, certified B Corps and legal forms like Benefit Corporations did not exist, and there was a lot of friction in the marketplace about how to define and communicate impact. In a recent report performed by the Center for the Advancement of Social Entrepreneurship (CASE) at Duke and its new Initiative on Impact Investing (Accelerating Impact Enterprises) found that close to a third of a sample of over 350 domestic impact enterprises reported having product or company certifications. The data shows that this tangible impact commitment was the most statistically significant factor in the study in terms of correlating with basic measures of success. In other words, the certified companies were older, had more revenues, had more employees, raised more capital and were more profitable. In fact, they were four times more likely, on average, to have a positive correlation with successful financial and growth measures than non-certified companies who identified themselves as impact enterprises.
- Solution #2: Focus on Impact – Popular belief is that companies working to have positive social and environmental impact have a hard time growing as fast or being as profitable. However, the research mentioned above shows that at the enterprise level, a tangible commitment to impact (as expressed through specific, verifiable practices) is strongly correlated with overall business growth. This trend was statistically valid across all industry segments, company ages, and geographies.
- Solution #3: Support Network Creation – Some industries, like Financial Services, have relatively mature impact investing ecosystems. On the other hand, industries such as Health & Wellness are much less mature in terms of impact models. These less mature industries are in need of support services. These can take on the form of Centers of Excellence, which provide access to and relationships with the impact investor community. These networks should be able to capture learnings for a given industry and stage – specific best practices, capital needs and return expectations – and develop capital access roadmaps.
The good news: Each of the challenges presented in Impact Investing Series 1 of 2 can be influenced. By slowly bridging these gaps and by demonstrating a commitment to impact, social entrepreneurs can do their part in bringing impact investing into the financial mainstream and provide the necessary capital to scale enterprises.
Special thanks to fellow colleague and TrendSpotter, Matthew Allen, for sharing this information with our readers.