By
David Bank is co-founder and editor of Impact
IQ and ImpactSpace
Open Data to Fuel
Impact Investing
Im an old-school journalist steeped in the timeless wisdom:
follow the money. So when I assigned myself in 2012 to cover impact
investing, I wanted to know who was making bets on what, and how
they were working out. To my surprise, there was no daily, weekly
or even annual dealsheet of the kind that venture-capital and
private-equity investors take for granted.
There was no easy
way for me to track private investments of equity or debt in for-profit
enterprises explicitly seeking and measuring positive social and
environmental results along with financial returns.
If it was hard for
me to track impact deals, how could impact investors
themselves? How could new investors and entrepreneurs just exploring
the opportunities make sense of the marketplace?
White papers were
easy to find. There was the foundational 2008 Monitor
Institute report
that made a good guess at a $500 billion impact investing
market in a decade. And a 2010 JP
Morgan report
that estimated impact profits of up to $667 billion from just
five base-of-the-pyramid sectors urban housing, rural water,
maternal health, primary education, and microfinance. And last
years Hope
Consulting survey
multiplied the 69 percent of financial advisors at least warm
to the idea of sustainable investing by one-third
of their clients and 10% or so of their portfolios. That equals
2.5 percent of the $26 trillion in managed investments or $650
billion.
None of these estimates
took me to actual investments backing the numbers; so I kept looking
for the deals. ImpactBase
is a terrific resource from the Global Impact Investing Network,
the closest thing to an industry association for the nascent field.
It now counts 221 funds with $14 billion in committed capital.
The GIIN
counted 2,200 impact deals worth $4.4 billion in 2011, up from
1,000 deals worth $2.5 billion in 2010.
In their most
recent survey,
the GIIN and JP Morgan report that 99 fund managers who committed
$8 billion to impact investing in 2012 expect to commit $9 billion
this year. Most of those investors reported they had at least
one home run an investment that significantly
outperformed expectations while delivering the intended impact.
But theres
no way to identify those deals. The GIIN collects data from funds
and provides it to JP Morgan in aggregated and anonymized formonly.
PCV Insight, which surveyed
300 private equity firms and found 69 firms, with $4 billion in
assets, that can be considered impact investors, doesnt
list the funds. ImpactAssets does produce an annual
list of 50 impact investment funds,
but doesnt track their portfolio investments.
If impact investing
is such a compelling way to leverage private capital for social
impact, where are the impact deals?
Even impact true
believers have grumbled they keep hearing the same examples, be
it Bridge
International Academies
low-cost private schools or d.lights
solar lanterns. Terrific ventures, but not nearly big enough to
shoulder the whole load of expectations. Impact investing risked
death by anecdote and allowed the conventional wisdom to take
hold: There was too much impact money chasing too few impact deals.
Too much money? As
if! The veritable explosion of small and growing businesses, entrepreneurial
start-ups, social ventures and NGOS with innovative approaches
and disruptive technologies is one of the bright spots in the
global economy. But few of the entrepreneurs trying to build scalable
models to cost-effectively deliver transformative change for vulnerable
populations would say theres too much money. No, the first
problem to address is just getting the information.
But, openness challenges
the traditional practices of some investors and funds, as well
as of some data providers in other investment domains. Some investors
want to guard their privacy; fund managers dont want to
telegraph their strategies. Both funders and entrepreneurs can
be wary of premature publicity for ventures that may fail. Some
funds, of course, publish lists of their portfolio companies,
but generally without deal details. Many deals are so small they
dont get announced, much less picked up by the media.
Nevertheless, the
pros and cons increasingly favor disclosure: to show the world
that impact investing is a real and growing market and attract
new investors
to gain insight and forge common solutions
from the ecosystem of stakeholders
to validate their portfolio
teams and perhaps get some credit themselves
and to embrace
accountability in a market robust enough to stand up to scrutiny.
As Lucy Bernholz
declared in her excellent
new report
on trends in philanthropy for the year ahead: Linked, comparable,
accessible data is the new starting line. The race is now on to
see who will create what public-facing tools for making sense
of this information.
That holds true for
impact investing as well. As the data becomes more robust, well
be able to report trends by quarter, by sector, by geographic
market. Well be able to spot new kinds of financial instruments
and term sheet provisions, and track acquisitions and other exits.
Well be able to track the flow of capital as it goes to
ground in projects on the ground.
Deals are real-time
indicators of the flow of capital, such as it is, toward a sustainable,
inclusive economy for the 21st century.
Are we approaching
a tipping point? The data is in the deals.
Closing
the Deal
Its one thing to advocate
for greater transparency
to accelerate the marketplace for private investments that deliver
positive social and environmental impact along with financial
returns. Its another thing to make it happen.
As we explored the
terrain of impact investing for Impact
IQ,
the startup media platform I founded last year, we tested our
arguments for transparency and disclosure on every entrepreneur,
angel investor, fund manager and social-venture accelerator operator
we met. Nearly everyone supported openness, except perhaps when
it came to their own data.
Along with my colleague
Avary Kent, Impact IQ started building the case (with the support
of Kevin Jones and Penelope Douglas of SOCAP and the Stiefel Family
Foundation). One of the first to provide data was Acumen
Fund
which on its own had disclosed general information about its portfolio
results and lived to tell
the tale.
Others that agreed to put their data where their mouths
are included First Light, Hub
Ventures,
Toniic, Unitus
Seed Fund,
Unreasonable Institute and Village Capital.
One of the first
public supporters was Acumen
Fund
which on its own had disclosed general information about its portfolio
results and lived to tell
the tale.
Others that agreed to put their data where their mouths
are included First Light, Hub
Ventures,
Toniic, Unitus
Seed Fund,
Unreasonable Institute and Village Capital.
That meant simply
broad
support
for the voluntary and timely disclosure of basic information
about financial investments in ventures and projects that seek
social, environmental and financial returns, consistent with regulatory
and confidentiality requirements.
At the same time,
ImpactSpace
was building a robust database platform and pumping in data about
just such deals. Ravi Kurani and Zuleyma Bebell, and their team,
collected public data and started entries for more than 500 impact
investing financial organizations and ventures including, for
example, more than 100 deals completed by Root
Capital.
Of course thats
barely a start. Many entries remain incomplete. But new funds
and companies are going up quickly. The newly announced Unitus
Seed Fund,
for example, has posted its four early deals and will add to its
portfolio page as it closes its planned dozen investments a year
in base-of-the-pyramid ventures in India. Already that page shows
that Hippocampus
Learning Centers,
which is building a network of low-cost private schools, leveraged
seed financing from Unitus to raise Series A financing from Acumen
Fund and Lok
Capital.
An ecosystem is coming into focus.
Collaborating
for Impact
In the spirit of collaboration, Impact IQ and ImpactSpace are
merging their complementary efforts. Think of it as TechCrunch
and CrunchBase for impact. ImpactSpace is building the
data store and tools for gathering, filtering and displaying the
data. Impact IQ is about notable deals, compelling people and
gathering trends. Together, were building the database through
voluntary submissions, manual scraping of public data
and old-fashioned reporting.
Were committed
to open-source and open data. Open impact data means
that basic deal data venture, investor, amount, type, date
is available for re-use by stakeholders and service providers
of all kinds. As a public good, the basic layer of open data is
available under an open-data license to any number of free and
paid-for products and services apps serving the
needs of impact investors and entrepreneurs. ImpactSpaces
data fields are compliant with industry standards, such as the
IRIS
taxonomy,
to facilitate data exchange and integration.
Common and open data
platforms can support the very specific services needed by different
stakeholders. For example, the network of social-venture accelerators
is collaborating to create a common application form to enhance
collaboration and reduce the burden on social ventures. Academic
researchers are using open impact data and tools to analyze trends
and practices in impact investing. Emerging social finance mapping
efforts, such as the Impact
Investing Ecosystem Map in Mexico
and the Ayllu
Initiative in India
can draw from, and contribute to, the open impact database.
Transparency
Transparency is needed across the capital spectrum, but one area
is particularly ripe for openness: the new class of startup entrepreneurs
mixing technology, emerging markets and new financing mechanisms
to disrupt business as usual in food, water, health care, education,
energy and even sanitation.
Angel investor networks
such as Investors
Circle
are buzzing with activity, and greater transparency is the price
of admission to this new environment. Accelerators
open for applications every month to drive new ventures toward
investor pitch days. New seed funds, such as Unitus, are raising
capital
from venture capitalists such as Vinod Khosla. Accredited-investor
exchanges and portals such as Mission
Markets
in New York, the
Impact Investment Exchange in Asia
and MaxImpact
in Zurich
are looking for deals. Crowdfunding sites eagerly
await federal regulations to offer equity stakes in startups to
smaller investors.
Sen. Michael Bennett
of Colorado, an author of last years federal crowdfunding
legislation, recently
wrote
to Mary Schapiro, chairwoman of the Securities and Exchange Commision,
that many entrepreneurs, angel investors, lawyers and software
developers feel that businesses must be transparent about
their capital structure before participating in a crowdfunded
offering. Such practices will migrate upstream over time.
Challenges Ahead
We know there are practical and conceptual question marks all
over the place. Impact investing is not only, or even primarily,
about equity; tracking debt, project finance and other forms of
financing may be even more important and more difficult. Financing
is not the only, or even the best signal of a ventures success;
companies able to bootstrap their growth from revenues wont
show up in a dealsheet of investments.
One of the biggest
challenges is measuring, valuing and communicating social and
environmental benefit. Impact, of course, is what sets these investments
apart.
And system-change
is more than a series of deals, as Joy
Anderson of Criterion Institute
reminds us. How does a database of transactions help in the hard
work of looking for new patterns, crossing boundaries, messing
with taxonomies, shifting the rules of the game?
Money follows money.
Todays seed investment is tomorrows growth company
and maybe the next world-changer. Tracking such investments can
itself help catalyze capital for the sustainable and inclusive
future. As the geeks would say, that data wants to be free.
How to Participate
Tag impact deals. Use #impinvdeal as a hashtag for flagging
financing events on Twitter. Combined with the already popular
#impinv, its an easy step toward real-time reporting of
impact investing.
Add or edit your
profile. Add a company,
financial
organization
or person
profile. (You can also send a spreadsheet or link to your portfolio
to info@impactspace.org.) If your venture or financial organization
is already in ImpactSpace, please review and update the information.
Put Your Data
Where Your Mouth Is. Add your organization to the
roster
of those supporting disclosure of basic impact investment deal
data.
David
Bank is an entrepreneur and thought leader in social
innovation, technology and finance. As a reporter for the Wall
Street Journal, he covered software, the Internet and venture
capital. His book, Breaking
Windows: How Bill Gates Fumbled the Future of Microsoft
(Free Press, 2001) was named one of the Best Business
Books of 2001" by the Harvard Business Review and Amazon.com.
Most recently, he was a Vice President of Civic Ventures / Encore.org.
where he advanced innovative ideas and compelling people making
a difference with encore careers. Bank was a 1996 Nieman Fellow
at Harvard University. He has an M.S. in journalism from Columbia
University and a B.A. in politics from the University of California
at Santa Cruz.