Impact investors face the challenge of trying to manage an underlying business or entrepreneur towards the desired balance of financial return and social or environmental outcomes (impact).
So what tools do impact investors have? How can impact investors sort out the various drivers of eventual performance across the financial and impact dimensions in a simple and meaningful framework?
This presentation summarises the results of related research. Full paper is available via email at evans.madeleine@gmail.com as are the associated speaking notes to this presentation.
Please note that concepts are most applicable for direct investors in social ventures.
Meeting the challenge of impact investing incentives and business models (Evans 2011)
1. Meeting the challenge of impact investing:
Optimizing the investment process
for returns and impact
Madeleine Evans
PRI-Mistra Dynamics of Responsible Investment Conference
Sigtuna, Sweden
Panel: Investing and the Public Good
28 September 2011
2. About the researcher
Madeleine Evans has recently completed her Master of
Public Administration at the London School of Economics as
a Thouron Scholar, where she focused on development
economics and policy.
Madeleine co-founded the Network for Impact Investing and
Social Enterprise (NiiSE) at the LSE, an organization
fomenting postgraduate students’ awareness, research and
careers in these fields, followed by a counterpart network
for young professionals, Impact Generation. Her personal
research interests span impact investing strategy, financial
regulation, and the role of financial markets in sustainable
development.
E-mail:
Prior to moving to London, Madeleine graduated from the
madeleine.evans@terrafirma.com University of Pennsylvania with a B.S. from the Wharton
Address: School and a B.A. in International Studies from the College
of Arts and Sciences.
Flat 5
92 Redchurch Street Madeleine is currently working at the private equity fund
London E2 7GP
Terra Firma.
2
3. About the research
The content in this presentation is the product of a year of investigation, culminating in a
dissertation for the Master of Public Administration Program at the London School of
Economics, entitled:
“Meeting the challenge of impact investing: How can contracting practices secure social impact
without sacrificing performance?”
The dissertation presents a strategic toolbox for investors with financial and non-financial
objectives. Content is based on lessons from economic theory of contracts and from in-depth
interviews with sixteen UK, German, and US impact investors (with a special thank you to DEG,
who provided generous access to data and support for this project):
The relevance of the ideas in this presentation will depend on the investor’s control over the
underlying portfolio, legal and funding constraints on contract structuring, and the degree of
active management pursued by the investor.
Copies of the paper or further details are available from the author. 3
4. The strategic challenge
Entrepreneur Entrepreneur Investor wonders
proposes idea to goes after profit what happened to
impact investor impact
The questions
How does the nature of the investment and contracting process
drive the balance between
financial returns and positive impact?
How can investors manage these drivers
to increase welfare?
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6. Acquisition Structuring Management
Market Contract Relationship
Choices by portfolio
business management
Investor “blended” returns
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7. The business model
describes whether objectives are easy to jointly achieve
Cross-
Trade-off
subsidy
Lock-step Synergy
The operating environment
makes certain models more likely or feasible
Consumer preferences
Supply chain dynamics Values
Policy & regulation
NGO and media activism
Market Contract Relationship
9. Valuable offers of future financing
can provide complementary incentives
Too risky
Market
connection
Future
financing > Next best
option
Technical
assistance Values
Market Contract Relationship
10. Final thoughts
Trade-offs are manageable
We have an initial understanding of our tools and
of common practical pitfalls
We need to make data work harder