Investing In The United States

USA

Market Overview

While the term “impact investing” was coined in Bellagio, Italy in 2007, the practice in the US benefits from over half a century of investment in market-based social change strategies. Despite some ongoing challenges, this makes the US one of the most mature of the early-stage impact investing regional markets. The entrepreneurial approaches that began with the Community Development movement and Community Development Financial Institutions (CDFis) are now being applied beyond poverty alleviation to a much broader set of social and environmental challenges. Today, a diverse group of American institutions, including banks, the government, public companies, consulting firms, funds, universities, networks and accelerators are driving the social enterprise movement both in the US and globally.

Opportunities

  • Practitioner networks driving change. Voluntary associations and networks of practitioners have been at the cutting edge of impact entrepreneurship and impact investing, developing practices for over 25 years and working to influence institutional norms. One of these, the network of B Corporations, has been successful at driving policy change as well – as of August 2013 they have helped pass legislation in over 20 states allowing companies to incorporate themselves as “Benefit Corporations,” a new class of corporation that is required to create material positive impact on society and the environment.
  • Active industry associations for a diverse set of impact goals. There have been waves of activity across a number of industries, beginning with community and economic development, and expanding to Lifestyles of Health and Sustainability (LOHAS, such as organic foods and sustainable consumer products), media, cleantech, renewable energy and energy efficiency, health, education, and agriculture.
  • Educational institutions supporting the trend toward values-driven investing. Driven largely by the demand by students and the new entrepreneurial wealth appearing in the early 2000’s, nearly every top MBA program in the US has built programs to introduce its students to the study and practice of corporate social responsibility, social entrepreneurship, and increasingly, impact investing.
  • Rapidly maturing infrastructures. Through the different fields of philanthropy, intermediary organizations that support emerging investors, impact investing funds, more sophisticated impact measurement tools, and platforms for individual investors, the US impact investing community is rapidly organizing to provide increasingly sophisticated support, tools, and capital of all kinds.

From Incubation to Exit. Happy Family is a mother-owned, mother-run “good food” enterprise that seeks to engage, educate and empower parents through a full line of organic food products targeting infants, toddlers and young children. It is a good example of a company taking advantage of the supportive ecosystems for social enterprises in the US. Visram credits part of the success of her company’s growth to independent-minded, non-VC investors, who understood the company’s mission. These included experienced founders of consumer product companies like Honest Tea and Stonyfield Farm, as well as mission driven institutional investors, including RSF Social Finance, which has specialized expertise in the food industry and introduced the deal to the W. K. Kellogg Foundation. According to Tony Berkley, Director of Kellogg’s Mission Driven Investments, “The Company has placed a premium on accessibility for low-to-moderate income families and has aggressively sought WIC approval nationally. Part of our investment was to contribute to the working capital line RSF was providing, and we put in additional money as equity.” In 2011, Happy Family became a B Corporation, earned $34 million worth of revenue, and nearly doubled that by 2012. On Mother’s Day 2013, French food giant Danone announced its purchase of Happy Family. Visram reported publicly shortly after the acquisition: “They want me to continue to run the show, they love our spirit and they are not proposing any management changes.”

Challenges

  • Investment readiness of impact enterprises. While there is significant growth in impact enterprises emerging from universities, fellowship and award programs, and accelerators, investors report that many of these are not investment-ready. Many entrepreneurial support organizations are working on the ground to identify and better-prepare companies that are indeed ready for investment. Investor-focused institutions like Toniic and Investors’ Circle can then work to select those most ready for investor engagement and serve them up to investors.
  • Relation of target population to growth. A recent report on US impact enterprises11 found a positive correlation between impact commitment and growth trajectory across industries, unless the company was focusing on underserved populations. These companies have a much slower rate of growth. Investors with interest in supporting underserved populations should adjust their return expectations and structure their investments accordingly.
  • Marketplace gaps due to varying maturities within different industry sectors. While there are a lot of investors joining the impact space and the market is maturing, there are still many industries and impact areas where capital sources are quite difficult to locate, especially at early stages.12 Early-stage investors in consumer products, cleantech, health, and organic food, for example, will generally have an easier time locating like-minded co-investors in the US than those in sustainable agriculture, media or education. Incentives for later stage investors are generally limited to community development and other areas supported by policy carrots, or investments where market-rate returns have been historically proven. Thus, there is still an important role for the early-stage impact investor to help support a broad range of impact enterprise impacts and industries.

Government Programs

  • National Impact Initiative (NII). Launched in 2013 at the G8 Social Impact Investing Forum in London, the NII expands funding for impact investing across various government agencies. http://blog.usaid.gov/tag/national-impact-initiative/
  • Development Innovation Ventures (DIV) at USAID. DIV holds quarterly grant competition for innovative ideas and invests in early stage social ventures using a tiered-funding model, investing small amounts in relatively unproven concepts and subsequently funding only those that prove they can work. http://www.usaid.gov/div
  • Overseas Private Investment Corporation (OPIC). OPIC is the US government’s development finance institution. In 2012, it committed $333 million to impact investing around the world in sectors such as healthcare, education, renewable resources, and water. http://www.opic.gov/
  • US Small Business Administration (SBA). The SBA runs a $1 billion Impact Investment Fund and a $1 billion Early Stage Fund, both launched through its Small Business Investment Company (SBIC) Program. http://www.sba.gov/category/lender-navigation/sba-loan-programs/sbic-program/general-information/key-initiatives

Practitioner Networks

  • Aspen Network for Development Entrepreneurs (ANDE). A global network of 175+ organizations that works to propel entrepreneurship in emerging markets. http://www. aspeninstitute.org/policy-work/aspen-network-development-entrepreneurs
  • B Corporations (B Corps). B Corps are certified by the nonprofit B Lab to meet rigorous standards of social and environmental performance, accountability, and transparency. The B Corp community presently encompasses more than 796 Certified B Corps from 27 countries and 60 industries. http://www.bcorporation.net/
  • Business for Social Responsibility (BSR). BSR works with a global network of over 250 members companies, developing sustainable business strategies and solutions through consulting, research, and cross-sector collaboration. http://www.bsr.org/
  • The Global Impact Investing Network (GIIN): A nonprofit organization dedicated to increasing the scale and effectiveness of impact investing, the GIIN addresses systemic barriers to effective impact investing by building critical infrastructure and developing activities, education, and research that attract more investment capital to poverty alleviation and environmental solutions. http://thegiin.org
  • Impact Hub. A global network of people taking action towards a single purpose: impact. http://www.impacthub.net
  • Investors’ Circle (IC). Founded in 1992, IC is today the largest early-stage impact investing network in the US. Together with angels, venture capitalists, foundations and family offices, IC has propelled $172 million plus $4 billion in follow on investments in 271 enterprises dedicated to improving the environment, education, health and community. http://www. investorscircle.net/
  • Social Venture Network (SVN). Founded in 1987, today SVN is a highly influential network of business leaders and social entrepreneurs. It also helped incubate other networks such as Net Impact, Business for Social Responsibility (BSR), Business Alliance for Local Living Economies (BALLE), B Lab, and American Sustainable Business Council (ASBC). http://svn.org/
  • Toniic. A global impact investor network and platform based in San Francisco whose global members promote a sustainable economy by investing in entrepreneurs, enterprises, and funds that seek to change the world for the better. https://www.toniic.com/

Industry Associations

  • CleanTech Group. Cleantech Group’s research, events and advisory services accelerate market adoption, stimulate demand, and remove barriers to cleantech innovation. http://www. cleantech.com/about-cleantech-group/
  • Community Development Venture Capital Alliance (CDVCA). CDVCA is the network for the field of community development venture capital investing. It promotes the field by combining advisory, education, communications, and best-practice dissemination through conferences and workshop. CDVCA also runs its own investment vehicle, the Central Fund. http://cdvca.org/
  • Lifestyles of Health and Sustainability (LOHAS). LOHAS provides business-focused resources—including education, news, and B2B gatherings—for companies growing the LOHAS market, an estimated $290 billion US market for goods and services focused on health, the environment, social justice, personal development and sustainable living. http://www. lohas.com/

Funds, Foundations and Foundation networks

Fellowships, Accelerators and Incubators

Educational and Research Programs

Impact Metrics

  • B Lab. A nonprofit organization that certifies B Corporations, a new type of corporation that uses the power of business to solve social and environmental problems. http://www.bcorporation.net
  • CARS. A CDFI assessment and ratings system, providing a third-party assessment of impact and financial performance. http://www.carsratingsystem.net
  • Global Impact Investing Rating System. Assesses the social and environmental impact (but not the financial performance) of companies and funds using a ratings approach analogous to Morningstar investment rankings or S&P credit risk ratings. http://giirs.org
  • Impact Reporting and Investment Standards (IRIS). An initiative of the GIIN, IRIS is a set of metrics that can be used to describe an organization’s social, environmental and financial performance. http://iris.thegiin.org
  • MIX Market. Provides access to financial and social performance information covering approximately 2,000 MFIs around the world. http://www.mixmarket.org
  • Progress out of Poverty Index. A tool for pro-poor organizations to estimate and track the poverty rates of those they serve. http://progressoutofpoverty.org
  • PULSE/App X. Web-based software managed by App-X helping organizations track and benchmark financial, operational, environmental, and social data to better demonstrate impact. http://www.app-x.com/pulse

Information Services

  • Impact Driven. A start-up impact information service “building a curated community of impact”. http://impactdriven.co

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