In September of this year, the the Global Impact Investing Network (GIIN) launched at the Clinton Global Initiative. You can read the press release here. What is impact investing, you may ask? As GIIN explains, impact investing is “the use of for-profit investment to address social and environmental problems.” If your first thought is that this sounds related to the concept of venture capital, you’d be right! This general area of “impact investing” has also been called many other things, such as social venture capital, venture philanthropy, social investing, social capital markets, and the list goes on. Maybe you’ve heard these terms as well, perhaps through events such as SoCap09.
As for the role of the GIIN itself, its goal is to “promote the infrastructure, activities, education, and research that enable more effective impact investing, and will ultimately lead to a coherent, well-developed marketplace for the impact investing industry.” They’ve explained that part of the goal is just to get everyone who’s part of this “industry” to even agree on a common language and terminology. For example, what do you even call the industry, since there seem to be 5 or 6 common names floating around? For now, it seems like they’ve settled on “impact investing.”
More important, though, the GIIN talks about promoting “infrastructure” and developing a “marketplace.” Why is this important? From my perspective, what the impact investing world is going through right now is akin to the early years of the venture capital industry in the 1950s, when it had to struggle to essentially create the industry from scratch, work with SEC regulators, and prove to investors that the VC was a legitimate and sustainable asset class. Today, impact investing must do the same, which is why I feel that the founding of the GIIN is so important.
Jeff Bussgang of Flybridge Capital made a presentation at Harvard Business School a few weeks ago (presentation available here) about what makes the Boston start-up scene special. (Boston, by the way, is the birthplace of the VC industry, not Silicon Valley.) In it, he talks about the ingredients necessary for a “vibrant venture capital ecosystem,” which I feel are applicable to impact investing as well. To copy from his slide, you need:
- Intellectual Capital (Academia, innovation, diverse industries, and ideas)
- Venture Capital
- Advisors, Angels, Accelerators
- Successful Companies – To partner, poach, and/or sell to
In my mind, the creation and collaboration of these ingredients for an “impact investing ecosystem” is exactly what the GIIN is set out to do. The Impact Investors Council, for example, seems to be a combination of the first three bullet points above: “The Investors’ Council will provide leadership in the industry, disseminate the latest research and best practices in the field, and support the creation and adoption of industry infrastructure, including impact metrics.”
Like the GIIN and its Investors Council, I am a believer in market-based solutions to social and environmental problems. I also believe that these solutions do not have to come solely from “socially-oriented” or “do good” firms. Many regular VC firms have a focus on funding cleantech startups, which fall squarely in the camp of solving environmental problems. I hope that through the GIIN, the impact investing industry will also be able to more effectively harness the expertise of traditional VC.
In any case, it looks like a solid start for building an impact investing foundation, and I hope the industry rallies around it and comes together, because working together in a unified ecoystem is sure to accomplish more than firms going it alone.
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