This year's edition of San Francisco's annual impact investing fest, known as SOCAP14, actually featured money. The message was: there's a lot of liquidity out there, and everyone wants to do some good before they die. Average Joes want to give to their communities; high net worth individuals are putting "good" on their bucket lists; even Wall Street is tripping over itself to "do good, and do it well."
A growing industry of "impact investing" is springing up in order to funnel all that money into enterprises making an impact. If you were a social entrepreneur at SOCAP, you might have felt a little bewildered by the jungle of money trees. There were angels investors, donor-advised funds, hyper-specialized venture capital funds, crowdfunding circles, community lenders, and community direct public offerers. They had funds for different levels of start-up, seed, growth story, scaleable and scaling enterprise. And Morgan Stanley, Deutsche Bank, Goldman Sachs and US Trust all showed up for the party.
People brought up the Rikers Island story: in 2012 Goldman Sachs launched a $9.6 million social impact bond to lend the City of New York funds to reduce the rate of young criminals returning to prison. If all goes well and a large number of teens are successfully rehabilitated over time, Goldman can make more than $2 million in profit while the City will save $20 million in prison related costs. In addition to being financially sound, the transaction has been a media and reputational jackpot for Goldman.
The big banks say clients are clamoring for impact investing, so they're scrambling to accommodate: they're lowering thresholds, reducing bureaucratic obstacles, making it easier for some of the smaller deals to get through the door. "There's definitely more demand than there is product available," said Gary Hattem of Deutsche Bank. He points to opportunities in microfinance and the energy sector beginning to evolve.
All these financiers, moneylenders and social capital innovators admit that it's tough to fish out the best social enterprises to fund. Of course, your enterprise can't just make an impact; it needs to also promise returns. Due diligence is expensive and might not be worthwhile to do for small fry.
The first movers bringing social impact investing to the mainstream say they're cautious: they don't want to make a glaring mistake that will cause everyone to take their money right back out of impact investing. The stories in these early days need to be winning ones.
If you're an entrepreneur, despite all this liquidity it might still seem impossible to find capital. Most impact investors have very rigid criteria you might not fit. They want you to have a track record of already having launched two or three successful companies. They want you to be already on the market. They may ask a lot in return for sharing your risk.
So how can you make your particular social enterprise stand out in the crowd? One impact investor suggests getting B Corp certification from B Lab, a Pennsylvania-based nonprofit that assesses companies for sustainability, so that you can put yourself forward already pre-screened. Your business plan has to show returns, but even more important is your ability to impress your bankers with the idea that you're on a mission, that you have courage, commitment, resilience, follow-through.
You also need a good financial advisor or lawyer that knows how to navigate the panoply of possibilities available to you for your financial backing, and can direct you to the right one. An Impact Hub in your city may be able to help too. (If that doesn't work, attend SOCAP next year.)
Will the flow of money dry up anytime soon? Jenny Kassan of Cutting Edge Capital thinks not. "It's exciting," she says, "more and more people are not happy with their investment portfolios, feeling like they are not doing good for the planet. Imagine if everyone took 1 percent out of their retirement fund and invested it in the community, where jobs are created?" she asks.