My last two blog posts were written in support of my entry to the SOCAP10 Challenge (see below $120 Billion Opportunity for the Poor and What the World Needs Now is Community Development Bankers). I focused on the issue of creating the “Human Capital” I believe is necessary for unlocking resources for high impact social investments identified in the Money for Good
report produced by Hope Consulting. In this post I want to talk about the money.
The Hope Consulting report is an extraordinary piece of work. It contains a wealth of information that will be of great use to many non-profits and for-profit social ventures seeking funding for their efforts to alleviate global poverty. As I read the report looking for information pertinent to my proposal I was struck by three findings. First, I was surprised to learn that more than 50% of the $120 billion Hope Consulting estimates is available for high impact social investments comes from existing investment funds of potential investors. Second, not so surprising to me, a majority of these individuals work with financial advisors and would prefer to execute their social investments through their advisors. Third, most existing socially-focused venture capital funds have minimum investment requirements in excess of the $25,000 “threshold” of potential social investors.
Three recommendations of the report which I found particularly relevant were: structure products with relatively low investment minimums (<$25,000); make opportunities readily accessible (i.e. through financial advisors) and position the products as investments, not alternatives to charity. The report also highlighted some potential barriers from investors’ perspective and their key concerns. The barriers related primarily to the “novelty” of the high impact social investment market. The key concern was for the risk to investors’ principal.
By definition, social investors are not interest in a high return—if any at all—mainly just the security of their investments which to them represents the sustainability and efficacy of the businesses in which their funds are being invested. Hence, my rationale for the need for the Human Capital capable of managing high impact investors’ funds in a manner that gives them confidence in the relative security of their investments.
The report states flatly: “Financial advisors are the key to this market.” This argues for an investment vehicle fully compliant with securities regulations that are tradable and easily marked-to-market. Furthermore, it would be helpful to offer some incentive for financial advisors to offer such a product to their clients. Although challenging, I do not believe these are insurmountable requirements.
The Hope Consulting report gives specific examples of organizations already offering products that are successfully attracting high impact investors. With a little tweaking and the right marketing I believe we will be able to attract social investors into the business of community development banking.