EPIP's Measuring a Leader initiative provides examples of ways that emerging leaders can develop and practice different leadership skills. Impact investing, which continues to gain momentum and visibility, can bring together Measuring a Leader's "Innovation and Problem Solving" and "Social Justice and Racial Analysis" skills.
According to the Global Impact Investing Network, “impact investments are investments made … with the intention to generate social and environmental impact alongside a financial return,” which may range from below-market to market rate. Impact investing is one of the most effective ways to reduce poverty and should therefore be a main cornerstone of the new, “post-Ferguson” civil rights movement.
In August 2013, as the nation marked the 50th anniversary of the March on and the substantial progress that has been made since 1963 toward achieving racial equality, there was also general acknowledgement that there remains “unfinished business,” as President Obama noted, particularly in relation to economic opportunity and persistent racial economic disparities.
Given the limited public funding available even for proven, cost-effective initiatives (such as early childhood education), impact investing is increasingly gathering momentum as a means of addressing social problems. As the Case Foundation’s Jean Case recently noted: “As we look at a world with urgent needs, many realize that there is an incredible opportunity to more effectively bring companies and entrepreneurs into the business of solving social problems by both tapping the entrepreneurial spirit, and by leveraging the power of the private sector.”
At the White House roundtable on impact investing in June 2014, some of the several financial institutions, foundations, and private investors that are increasingly engaging in the impact investing space made commitments to invest more than $1.5 billion in impact investing ventures. Impact investing is also a component of President Obama’s My Brother’s Keeper initiative.
According to the Case Foundation’s Emily Yu, many believe that Millennials, driven by the desire to ‘do good’, “will unleash impact investing's true potential within the next two decades” as they become beneficiaries of huge intergenerational wealth transfers. Also, citing crowdfunding and innovations such as Fundrise and Ours to Own as examples, Living Cities CEO Ben Hecht observes that, with the anticipated huge growth in impact investing, there are great prospects for unlocking some of the substantial capital that will become available to finance ventures that can improve urban communities.
The Initiative for a Competitive Inner City (ICIC), Social Compact, and others provide evidence that (i) many inner-cities are conducive to business investment, and (ii) specific business models can be successful in many inner-cities.
Nonetheless, it is unrealistic to expect that impact investment capital will be invested on scales large enough to have transformational impact in the communities where capital, especially equity, is most direly needed. Despite several examples of successful inner-city revitalization efforts in recent years, there remain significant negative perceptions and stereotypes of these environments. Also, many ventures that could have the most direct positive impact on poor communities tend to have high risk and provide relatively low financial returns. Furthermore, even as the impact investment market has grown, there is a disparity in opportunities for impact investing led by and for Black communities.
In order to attract substantial capital to under-resourced communities from impact investors as that market grows, the challenge is to devise feasible business models and strategies and provide persuasive evidence of investment opportunities that will appeal to different categories of impact investors. Some impact investors will accept very low, below-market financial returns if they are convinced a venture has the potential to have transformational social impact.
ICIC provides examples of successful initiatives. The US National Advisory Board on Impact Investing’s 2014 report also highlights some examples but notes: “For impact investing to reach massive scale—bringing private capital to bear on our greatest problems—it will require a more intentional and proactive partnership between government and the private sector.” While the Obama administration has proactively taken steps to foster increased levels of impact investing, given the political gridlock in Washington, DC, it is unlikely that it will be able to do much beyond what is achievable through the president’s executive authority, which is limited. And it is uncertain whether subsequent administrations will put sustained impetus behind impact investing.
So what are the alternatives to (futilely) waiting for the government?
This is where the leadership of visionary and entrepreneurial EPIP members can become a powerful force. Emerging social sector leaders can play a leadership role in the movement to ensure that venture-philanthropic capital flows to under-resourced communities, which, in the past, have either been exploited or ignored by other capital sources.
In my eBook, Pooling Our Resources to Foster Black Progress: An Entrepreneurship and Impact Investing Framework, I present a comprehensive framework for implementing such an approach through the establishment of a (primarily) for-profit venture-philanthropic impact investment fund, the Excellence and Ventures Transformation Fund (“EXCEL- TRANSFORM Fund”).
I argue in the book that the strong trends in impact investing provide a unique opportunity for African Americans to harness their resources on a substantial scale, through a vehicle such as the Fund. By investing in the Fund, African Americans will be able to more efficiently pool some of the money they already give away in the form of charitable giving – which is considerable – as impact investments in entrepreneurial ventures that will have greater impact compared to “traditional” charitable giving to nonprofits, many of which face challenges pertaining to cost-effectiveness and operational efficiency.
The Fund will be a vehicle for galvanizing large numbers, potentially millions, of African Americans as well as non-African Americans – philanthropic-minded individuals and organizations motivated by powerful altruistic, self-interest, and national progress reasons –to pool resources on a large national scale to transform under-resourced communities.
Capital invested in the Fund, even modest amounts, can then be leveraged to attract much larger amounts of capital that will become available as the broader impact investment market grows. Thus the Fund will be able to finance a large variety and number of potentially high-impact ventures that can help reduce poverty and provide services in critical areas – education, job training, early childhood development, affordable housing, healthcare, etc. – but are hampered by limited access to capital (especially equity).
The Fund could be established initially on a modest “pilot” scale in one or two cities (e.g., Washington, DC/Baltimore, MD and/or Philadelphia, PA). Then, upon demonstrating tangible and visible evidence of substantive impact and strong prospects within a few years, the Fund will be able to attract much more capital as the impact investment market grows.
Here’s an example of how it could happen:
● Five to ten founding partners contribute initial investments: at least $15,000 each (on average) to raise at least $75,000. This will fund initial start-up expenses (business plan, fees, raising seed funding, etc.)
● Jump-start with seed funding: Foundations, affluent individuals, philanthropists, and angel investors provide funding to establish the Pilot Fund, e.g., 1,000 such investors invest an average of $10,000 to $20,000 each, totaling $10 to $20 million.
● Galvanization: within a few years, based on demonstration of strong credibility, evidence of impact, and effective marketing and education programs -- to attract a large number of investors. For example, 1 million people invest an average of $600 each annually, which will provide $1.8 billion over three years, or $3 billion over five years.
● The capital raised can be leveraged at least three times over.
The book also provides a detailed framework for a sound and credible business plan that outlines strategies for dealing with likely challenges--in particular, it discusses ways to address skepticism and overcome the obstacles that have hampered to date the establishment of an initiative such as the Fund, i.e.:
● Establishing requisite trust and credibility–i.e., visionary, reputable, entrepreneurial, and highly accomplished founders, leadership, and initial investors/backers.
● Persuasive evidence on (i) profitable impact investment opportunities that will uplift communities; and (ii) proven, socially-conscious entrepreneurs who, with relatively easier access to capital through the Fund, can successfully establish such ventures.
● The ability to galvanize large numbers of people to invest in the Fund, especially by leveraging technology, through the use of the Internet, social media, crowdfunding and other innovations, as well as “traditional” means.
● Trends in philanthropy, resource-pooling, and economic empowerment that indicate the ability and willingness of African Americans to invest in a credible Fund they believe can have substantial impact.
Large numbers of people can be galvanized to invest in the Fund by (i) making them feel a greater sense of urgency and need for action (i.e., akin to Dr. Martin Luther King’s “fierce urgency of now”) and (ii) credibly convincing them that, by investing in the Fund, they would be participating in a potent, proactive, self-reliance-driven effort that is the 21st century extension of the civil rights movement, i.e., helping to finish the “unfinished business” of the movement, by enhancing economic opportunity and reducing racial economic disparities.
Dr. Isimbabi is a member of the Black Benefactors (a giving circle in the Washington, DC area) and Emerging Practitioners in Philanthropy.