Conference Recaps: MaRS Social Finance Forum 2017
2017 has been a big year for impact investing. Not only did it turn 10 years old since its “official” coining by the Rockefeller Foundation, we have seen an explosion of interest in the field from government, private investors, foundations, and technology sectors.
It’s no surprise that the 10th annual Social Finance Forum, hosted by MaRS Discovery District, was also the largest ever. This year, our Executive Director Dr. James Tansey, UBC Impact Fund manager Jana Svedova, and Research Fellow Bruno Lam attended the conference. This blog summarizes several key themes of the two-day conference. Read the full conference notes by clicking the thumbnail above or the link at the end of this blog.
EXTRACTION VS. STEWARDSHIP: THE DIFFERENCE BETWEEN VENTURE CAPITAL AND IMPACT INVESTMENTS
Just as social enterprise is not simply just another business, impact investment capital is not simply traditional venture capital. The distinctions between direct investments made by impact investors and those made by “Silicon Valley” venture capitalists are undoubtedly growing. Samir Ibrahim, CEO of SunCulture, shared his story of raising capital from both types of investors. Admittedly, raising capital from the latter type of investor seemed like the easier route – traditional VCs were keen to invest in a successful Kenya-based venture in order to diversify their portfolio. The issue was, however, the investors had not ‘lived the problem’. Without a full understanding of the issue – the customers of SunCulture, the complexities the business faced, the sophistication of the wicked problem – Ibrahim could not bring himself to accept the capital offered by traditional VCs. Instead, the team at SunCulture chose to stay true to their values and wait until the right investor came along with the appropriate values, patience, and expectations. SunCulture’s story symbolizes a growing shift in capital raising – having a supply of capital is not enough, the nature of the capital matters just as much.
On a more technical level, Andrea Armani (Transform Finance), Charles Holt (InvestEco), and Adam Spence (SVX) rounded out the conference with a panel on alternative deal structuring for venture exits. Venture capital firms are all familiar with the “J-curve” or hockey-stick graph, in which 10-20% of the investment portfolio outperforms the other 80-90%. Once again, however, traditional VC expectations are not the same as those of an impact investors. Instead of a J-curve that highlights a race to an IPO or M&A, impact investors are beginning to target a more balanced portfolio performance that ensure all firms experiences some level of success. This is important because of the beneficiaries that may rely on the ventures’ products or services. To achieve this balanced curve, innovative deal structures like revenue-based loans, hybrid/fixed variable loans, and demand dividends are being employed. For more information, visit ImpactTerms.org, or read Transform Finance’s report here.
OUTPUTS VS. OUTCOMES: THE DIFFERENCE BETWEEN TRADITIONAL CHARITIES AND SOCIAL FINANCE FUNDED ORGANIZATIONS
Antony Bugg-Levine (Nonprofit Finance Fund), one of impact investing’s earliest adopters, delivered a keynote on the second day of the conference highlighting the key distinction between output and outcomes, and how social finance can transform the way social organizations perceive and create value. Take homeless shelters, for example: if the performance indicator being measured are number of occupied rooms, the shelter is measuring success like a hotel business. In this organization, they are focused on moving more and more tenants in and out of the building, reducing costs, and paying back loans. On the other hand, if the shelter measured the number of lives transformed, they are incentivized to focus on why certain individuals keep on returning to the shelter. Bugg-Levine emphasizes the potential increase in value-creation if we were able to shift the focus from outputs (rooms occupied, costs per occupant) to outcomes (lives changed, healthier lifestyles).
Social finance plays a huge role in ensuring this transition is realized. This will, once again, require a new breed of investors who are willing to wait for true outcomes to be achieved, instead of immediate, instantly-marketable, output-based impact. Measurement, then, becomes an important instrument. In order to capture the collective knowledge on these topics, we created a new website: Impact Investment Forum. In it, you’ll be able to find expert-curated reading lists, including this one on impact measurement by Lars Boggild from Vancity Community Investment Bank.
As the year comes to an end, activity in the social finance sector has been ramping up. In November, a new impact investment platform – the SVX – launched. In December, the GIIN annual conference takes place. Throughout the winter, the Government of Canada’s Social Finance and Social Innovation Strategy Co-creation Steering Group will be holding consultations as their finalize their proposals.