May 14, 2018

Come on In, the Water’s Fine: The Next Wave of Innovation – Corporate Impact Investing (Part 1 of 3)

Six years ago, the majority of impact investment activity was being led and organized by progressive family offices, high net-worth individuals, and a handful of small funds. Common discussion themes among investors and entrepreneurs centered around the pioneer gap (a lack of funding for early-stage impact ventures), supply chain and distribution dilemmas, the need to attract expertise and grow talent, and the role of partnerships as a lever for scale.

At the same time in 2012, two global corporate leaders, the PwC Charitable Foundation, Inc., and Starbucks Foundation made a bet that investing in early-stage social entrepreneurs was not only an essential strategy to achieving profound social impact but that their corporate platforms might also offer a solution to these challenges.  The Points of Light Civic Accelerator was at the center of this bet, and 6 years later, we’ve witnessed the immense shared value that can be created when corporations invest their assets in seed stage social entrepreneurs.  This emergent trend seems to be supported by the fact that corporate investment in social innovation reached an all-time high last year (The 2017 Global CVC report).

While fast growing, however, it is still a small part of the whole, with less than 3% of corporate VC investments directed toward early-stage social innovation (2015 GIIN and J.P. Morgan study).

This 3-part blog series will bring to life the business case (Part 1), actual examples and challenges (Part 2), and tangible opportunities (Part 3) for corporate leaders to invest in seed stage social entrepreneurs.

Part 1 – The Business Case for (seed stage) Corporate Impact Investing

I had the pleasure of moderating a conversation last month alongside co-host Tim Freundlich (Impact Assets) at the inaugural SEED conference at the Impact Hub San Francisco on the challenges and opportunities for corporations to deeply partner with and invest in seed stage social entrepreneurs. Our dialog featured 5 corporate leaders who are actively aligning their business and impact investment strategies: Erika Balbuena (Twilio.org), Charlotte Coker Gibson (PwC Charitable Foundation), Doug Galen (Rippleworks), Dr. Oliver Keown (GE Ventures), and Jean Shia (Autodesk Foundation).

Our conversation started with a simple question – Why should corporates support early-stage social entrepreneurs?

From a social impact perspective, early-stage entrepreneurs are essential building blocks for driving systems change, not just by their success, but by their failures and learning. They can demonstrate the possibilities to people, governments or companies that may lack the risk tolerance or resources to test a solution that has not yet shown results. Upon early signals of success, however, these early ventures require capital to navigate the early growth phase to deliver impact at scale. They need access to distribution networks, talent, mentors and strategic advice, all of which represent the core assets of most major corporations.

From a corporate perspective, social entrepreneurs represent a source of inspiration. Our popular culture is increasingly posing fundamental questions around the Purpose (capital “P”) of large corporations. Corporations recognize that to attract talent and customers, they need to deliver more than a basic commitment to “do good”. A 2016 Cone study revealed that among millennials, who will represent 75% of the workforce by 2025,

  • 75% say they would take a pay cut to work for a responsible company (vs. 55% U.S. average)
  • 76% consider a company’s social and environmental commitments when deciding where to work (vs. 58% U.S. average)
  • 64% won’t take a job from a company that doesn’t have strong CSR practices (vs. 51% U.S. average)

They also represent potential business and investment opportunities. Social entrepreneurs have continually validated the existence of large marketplaces in communities and sectors previously overlooked by traditional institutions.  Perhaps the best and most iconic example of this is the acceptance of microfinance as a viable product by global financial institutions after the Grameen Bank and other early pioneers demonstrated 90%+ repayment rates and cost containment through peer lending groups. Partnerships combine the nimbleness, risk-tolerance and innovative insights of social ventures and the resources, knowledge and reach of corporations bringing benefits to both partners.

Our next post will bring to life 5 examples of successes and challenges faced by corporate leaders in their efforts to institutionalize seed-stage impact investing as a business activity.

Are there other examples you’d like us to feature? Let us know (akhanna@pointsoflight.org).

Ayesha Khanna

Ayesha Khanna is the president of the Points of Light Civic Incubator, which puts people at the center of change by supporting social entrepreneurs and early stage civic ventures around the world. As part of this role, she founded the Civic Accelerator and oversees the organization’s global efforts.