Impact Investments: A More Meaningful Bang for Your Buck
This post is part of our Student Summer Series, which highlights the perspectives of students working at the Beeck Center as they engage and explore ways to scale social impact.
July 30, 2018 | By Caprice Catalano, Student Analyst, Georgetown University Class of 2020
Impact investing is a hot and trending topic. In fact, during the past year, the estimated value of the impact investing sector has doubled, with assets under management rising to $228 billion. So, what exactly is impact investing?
Before joining the Beeck Center as a summer student analyst, I was asking myself the same question. I was surprised to discover how little I knew about impact investing, given the massive amount of assets held in this sector and my undergraduate studies in finance in the business school. Over the past two years, I have been immersed in learning about stocks, bonds, and other financial investments. I learned to seek investments that provide the most “bang for your buck,” but I failed to consider the fact that an investment can do a whole lot more than generate profit.
In addition to profit, financial investments have the power to achieve positive social and environmental impact. Impact investments are investments made in companies, organizations, and funds with this multi-faceted intention in mind. The Beeck Center has helped me realize the full potential of investments by providing me opportunities to participate in conversations on impact investing, such as at Alley’s Impact Investing Panel Discussion and Demo Night.
At this event, I engaged with individuals who live and breathe impact investing. The panel discussion consisted of venture capitalists who invest money into startups that produce positive social and environmental impact, along with strong financial returns. I also had the chance to speak with multiple social entrepreneurs. Unlike most business executives who use social impact to gain good publicity, social entrepreneurs consider catalyzing social change from the outset.
In the panel discussion, the venture capitalists provided great insights into the impact investing field. They commented on the upsurge in impact investing funds and the motivation behind it. Several panelists attributed the rise in funds to consumers’ desire for businesses to become more accountable, transparent, and action-oriented towards social problems.
The panelists moved on to challenge one of the major criticisms facing the impact investing field, which is the concern that impact funds do not generate robust returns. Hallie Noble, the head of Village Capital’s U.S. FinTech Practice, contested this criticism with the fact that 50 percent of venture funds do not even make their investment back. How can we disparage impact funds for not providing robust returns when essentially no venture capital makes a robust return?
An interesting conversation on identifying and measuring impact also emerged among panelists. One way that Village Capital strives to generate impact is by eliminating the bias present in venture capital funding access. The firm invests in entrepreneurs who might otherwise be overlooked by traditional early-stage investors. Venture capital cannot be restricted to white, male entrepreneurs from the Bay Area. These funds must be accessible to all entrepreneurs – with no prejudice against gender, race, socioeconomic status, or any other factor.
I had the pleasure of meeting a social entrepreneur who is directly challenging this funding bias. In 2015, Fonta Gilliam founded Sou Sou, a financial technology company, with the goal of helping female borrowers build their credit score, cash collateral, and financial acumen. The app is open to all users, but it was specifically designed with women and minorities in mind due to the harsh realities they face in obtaining finances. Women are two times more likely to be denied a loan at a bank and are four times less likely to receive venture capital funds. In 2017, only 2% of venture capital funds were given to women, with women of color receiving less than 1%. Gilliam, a woman of color herself, is defying these statistics and her app is working to inspire more women to break through this tough barrier.
Not only was Gilliam’s technology designed for women, but it was inspired by women. Sou Sou, both the name and the company itself, stems from the word, “susu.” Susu refers to an informal savings and loan tradition pioneered by women in West Africa. In this tradition, families and friends lent money to each other when receiving money from a bank was infeasible. Although this tradition began in West Africa, it is used all over the world under a variety of names.
Fonta Gilliam is just one of many individuals utilizing business to tackle social problems. Her work and pursuits demonstrate the importance in companies, investors, and consumers coming together to find investments that can unleash social change. Together, we must push businesses to shift from operating under a single bottom line to operating under a triple bottom line – one that considers the planet and people in addition to profit.
In the short span of two months at the Beeck Center, my knowledge on impact investing has risen exponentially. I greatly encourage other finance-driven students or financial service professionals to seek out opportunities to learn about and engage in this fast-growing and important sector. Learn a way to get an even better and more meaningful bang for your buck.