Investment can usually sound like a dry topic, at least to laypeople like this writer, who has no formal background in economics. The operative word here is “formal” — as someone who had graduated college right into the Great Recession, economics has not been hard to come by. Neither is the world of socially-responsible business, which still forms a small sliver of the larger corporate world, focused for the most part on the Bottom Line. The truth is that there are three bottom lines, as the B Corporation movement attests: to profit, people, and planet.
On April 7, New America NYC hosted a panel discussion, “On the Frontier: Profits, Purpose, and the Future of Impact Investing,” that explored those bottom lines. But what exactly is impact investing? The host, New America’s Program on Profits and Purpose director Georgia Keohane, parried with co-panelists Robynn Steffen, Liz Luckett, and Michael Faye, who are respectively senior manager of impact investments at the Omidyar Network (which has been hosting New America events at the Civic Hall), president of the Social Entrepreneurs Fund, and serial entrepreneur (and token Y-chromosome), to find out.
“Much of our work is focusing on people who are making between two and eight dollars a day,” Steffen, who has worked for the White House Office of Science and Technology Policy, said. “These are people who are, on the one hand, at risk of slipping back into extreme poverty, but on the other hand they are also aspiring to be part of the middle class, and they have enough disposable income that they can actually spend money on the products and services that would improve their own lives.” Steffen added that this population “has a collective purchasing power of $3 trillion, so this is a pretty significant market.” Whereas this market has not been traditionally served, that is changing, as evidenced by efforts to provide off-grid electricity and micro-payments, among many other projects.
Frontier Capital: Early Stage Investing for Financial Returns and Social Impact in Emerging Markets, a recent Omidyar Network report, announces that trends such as “the rapid spread of mobile phones” and “the global uptick in entrepreneurship” — and, crucially, “the increased flow of capital toward developing economies” — “have made possible commercial innovations serving populations once excluded from market access.” When it comes to that access, Steffen said that “different investors come with different goals.” One of the methods that Omidyar uses, she added, is what they call “replicate and adapt,” by which they mean companies who take “business models that have been proven in the US and other developed markets and then replicating and adapting them in emerging markets.” The frontier, Steffen added, is the most interesting: in this space, innovative products and services and business models are “specifically targeted to the needs of lower- to lower-middle income populations in emerging markets. So they are innovating just for them.”
Ver de Verdad, a company based in Mexico, “saw a huge opportunity to be able to provide affordable eye exams and glasses to a very big market that included low- to lower-middle income customers but also the middle class,” Steffen said, adding that “targeting both is really critical to their business model, so they intentionally built their retail stores in a downtown area where they had high foot traffic from both the middle class and lower-income customers. And that led to high volume, economies of scale, and being able to offer those glasses and eye exams at a low enough price point that it was actually affordable to the low-income customers.” Steffen pointed out that the company could not have served the poorest of its customers had they not also “targeted the middle class.”
“I have a tech background, but that’s not obvious,” Luckett, who used to be the president of Pershing Square, where she ran social investment for three years and “incubated” the Social Entrepreneurs Fund while she was there. The Fund is “a group of very high net worth individuals who are philanthropic and interested in the intersection between philanthropy and investing. These were not investors who were interested in writing checks to funds,” Luckett said. Instead, they wanted to be actively involved. “Our investment thesis is simply, well, I’m herding lions as I like to say,” Luckett said, adding that these lions feel “a great burden with philanthropy: if there’s something you care deeply about and you’re the main funder of it, if your funding goes away, potentially that cause will suffer.” The other factor is that her lions “are quite interested in finding efficiencies in marketplaces and our investment thesis is to find those efficiencies for underserved markets, with that deliberate, intentional, and explicit target market in place.”
One such underserved market is America’s massive prison population. Pigeonlywas “invented by an incarcerated inmate who was arrested for selling marijuana through his UPS store. While he was in jail,” Luckett said, “he lost touch with his girlfriend, with his family because of the incredibly high cost of phone calls. A ten-minute call from prison can be as much as 50, 60 dollars.”
The locked-up entrepreneur “made friends with a white-collar prisoner and they made this business plan together” to create a VoIP network which would “allow all inmates to make calls that are capped at $10 a month, so they can’t spend more than that. The only limit is the number of minutes.” Since inmates do not have access to phones, Pigeonly also allows text-to-mail to be possible. Luckett spoke movingly about a manufacturing project in Liberia that had to be shuttered after the Ebola outbreak. None of the workers her project helped were affected, and she appeared a little broken up when describing how real social impact from businesses can be.
The most seemingly simple questions that face social purpose enterpries, Faye said, such as where does the money go and how does it actually help people, are the most bedeviling. “Those are two very difficult questions to answer for many organizations.” For the last half-century, he added, “we have been making policy largely by aphorism.” For example, everyone knows If you teach a man to fish, feed him for life; give him a fish, feed him for a day. “These really were the things defining policy,” Faye said. “That started to change in the early 2000s. The second thing that happened was the explosion of mobile money.” It is “still an uncommon thing” in the United States for people to send payments to each other over their phones, but “in Kenya and other African countries they actually got a bit of a head start on us.”
The core of the problem is dollars and cents. It is time now for dollars and good sense.
By Alex Cacioppo