Overheard at SOCAP18: The alpha in impact, billions to trillions, women-led solutions, elite charade?

ImpactAlpha Editor

David Bank

San Francisco, October 25 – The full spectrum of impact investing was on display on Day Three of the annual SOCAP conference. ImpactAlpha’s team fanned out to catch the conversation.

1. The alpha in impact. The impact strategy consultancy Tideline profiles 30 companies in an upcoming report that identifies the specific ways that impact drives returns, aka “the impact alpha.” Tideline’s Amy Bell assembled three members of Impact Capital Managers, a new trade association of fund managers seeking both high impact and high returns, to preview some of the themes. “We need to create that identity and that sense of community, and focus on that part of the market that is going to be the biggest – impact investments that generate a financial return,” said DBL Partners’ Nancy Pfund. – David Bank

Managers of over $5 billion aim for high-impact, high-returns investing

  • Dealflow. Pfund said entrepreneurs seek out firms like DBL “to help them build their impact profile to boosts their competitiveness.”
  • Customer loyalty. Jacob Haar of Community Investment Management, which provide small business financing, says at least one-quarter of the firm’s investors don’t come with an explicit impact thesis. Many (limited partners) look at the business model and say, ‘You’re doing well by your customer. Your customer is going to be a long-term customer. This is a profit maximizing strategy over a longer period of time.’” That successful lenders are building financial products that are aligned with customer needs shouldn’t a surprise, he said, but it is. “That seems natural for an entrepreneur, but that’s not the way that the financial markets work.”

Jacob Haar: Financing the financiers expanding small-business lending in America

  • Diversity dividend. Impact America Fund’s Kesha Cash said she identifies “billion-dollar pain points,” such as health and education,  in overlooked and marginalized communities, and then looks for tech-driven solutions to enhance impact in existing industries. The leadership of the firm’s companies is largely people of color and women. “We’re calling it out as social signaling,” Cash says, “so that folks see that our companies are successful because of their diversity.”

2. “The world’s on fire!” So let’s fix it. Uncompromised’s Cameron Burgess calls impact investing a “rounding error” when we take stock of all the capital needed to solve the world’s problems. (Impact investing is tallied with a b—billions. Climate change and the Sustainable Development Goals need trillions annually.) –Emma Kulow

  • Trial and error and better trial. Burgess says “market fragmentation” isn’t the issue. What is needed to get the right amount and right kind of money into impact is more information on what exactly is “right”. There need to be more people “willing to recognize that the path we’re on is doomed to failure and willing to release their data back into the world.”  
  • Take climate solutions, for example… Numerous promising climate technologies are being developed, but the funding mechanisms needed to get them into the market at scale aren’t there, says Neil Yeoh of Echoing Green. “Light bulbs didn’t come into this world because people went around selling candles.” Blended finance platform Convergence is trying, by offering “design funding” grants to test new approaches to impact finance and “foster market-wide learning.” Its latest is a grant to Clean Energy Works to help utilities and transit service providers share the costs of switching to electric vehicles though a model called Pay As You Save, or PAYS.
  • And hunger… 50% to 70% more food needs to be produced worldwide by 2050 to feed the world’s growing population. Or so a commonly cited stat from the Food and Agriculture says. It’s true that food insecurity, malnourishment, and even famine are global problems, particularly in conflict areas. But in other parts of the world, as much as 40% of the food produced is wasted. “Hunger is not an issue of scarcity, it’s a matter of logistics,” says Jasmine Crowe, founder of Goodr, a startup that helps leftover food get re-distributed and used. Other startups are also tapping into the food distribution opportunity.

3. Is SOCAP an ‘elite charade’? One of the most anticipated sessions of SOCAP18 was Anand Giridharadas’s appearance on the main stage Wednesday morning. His book, Winners Take All, critiques those with wealth and power for being reluctant to support social change strategies that put themselves at risk. Unsurprisingly, Giridharadas delivered a pointed criticism of the impact investing space. –Curt Lyon, Transform Finance

  • What are impact investors giving up in their work, if anything at all? If the driving mantra for impact investing continues to be “doing well by doing good,” he asks, are we fundamentally challenging wealth inequality, racial injustices, resource extraction, disenfranchisement, and lack of political and social agency?
  • Giridharadas’s answer was unequivocally no. Power, control of assets, the rights to benefit from productivity, and ownership were central themes at SOCAP this year. Whether impact investors (of all shades) admit it or not, the fact that they hold capital and the rights to move it is a signal of their power.
  • To be sure, many impact investors do think deeply about the power they have, especially in comparison with the marginalized communities they intend to help. Even for the subset of investors willing to take on some more risk, concede returns, or rethink the mainstream investing strategy, how much of that power are they ultimately willing to give up?
  • If we are to truly tackle the issues we are facing today, those who wield the power of capital will have to move more than just one step down the spectrum of impact. They will fundamentally have to reconsider their ability to call the shots in the world and take a back seat to communities, workers, and other stakeholders.

SOCAP 18 | Photo by Roodgally Senatus

4. Solutions by women, and for women. Silicon Valley may be all about venture capital today, but it wasn’t built on venture capital. All that early experimentation took different kinds of money, with different risk tolerance levels—aka, blended capital, says Suzanne Biegel from Catalyst at Large. Now, Silicon Valley is a notoriously un-blended place, investment-wise. To get more diverse ideas funded, particularly ones with gender lens—whether that’s for women or by women—blended finance is once-again needed to test and scale promising ideas, Biegel says.–Tiago Gomes

  • Discrimination is real. “They say, ‘You’re never gonna do this,’ just because I’m a woman,” said Thea Sommerseth Myhren, co-founder of Diwala, a platform that helps refugees to verify skills, work and build a digital identity.
  • But the need for innovation is also real. That’s especially true for the world’s most vulnerable populations, like refugees. Nearly 70 million people were displaced last year, either within their home countries or across borders. Its women tech innovators who are leading the charge to help them find a new sense of place, security and dignity. Wafaa Arbash is one of them. She founded WorkAround to help fellow Syrians who have been displaced by war–many of whom are educated and skilled–earn an income by providing online services like translation and data entry.