Investing With a Purpose: A detailed look at the San Francisco Bay Area Impact Investing Landscape
By Ana LaRue, Digital Media Manager at Maximpact, @larue_ana
While a large part of the San Francisco Bay Area is busy discussing the latest definition of “hipster” and inflated tech valuations, there is another trend currently creating a lot of buzz. This one is related to the notion of “doing well, while doing good” by addressing social and environmental challenges through the deployment of capital.
Doing well while doing good: Trend or mainstream investing approach?
Impact investing is an investment approach that intentionally seeks to create both financial return and positive social and/or environmental impact. It typically focuses investment on for-profit, social- or environmental-mission-driven businesses. Impact investments can be made in both emerging and developed markets and, like other types of investments, impact investing returns can range from below to above market rates. (It is estimated that 79% of impact investors are already targeting market rates of returns.)
Investors interested in making a difference in the world can focus on a variety of sectors, such as energy, natural resources, water, sustainable agriculture, clean technology, biomimicry and financial services. Regardless of the chosen sector, impact investing focuses on building new markets and supporting socially and environmentally beneficial businesses as they scale, something that resonates with responsible investors in the Bay Area.
Recent successes show that the field has a lot of potential and that the buzz is justified. This investment approach could unlock significant sums of investment capital, complementing efforts by public bodies and philanthropic organizations to address the most pressing global challenges. To make it even more attractive, estimates show that the impact investing industry could grow to US$500 billion in assets by 2020 (from around US$50 billion in assets back in 2007 when the definition of impact investing first emerged).
Impact investing vs. venture capital
Why is this trend so significant for the Silicon Valley area, you might ask? A recent article published by Sir Ronald Cohen, a man widely regarded as the “father of social investment”, created quite a stir when he stated that “social impact Investing is the new venture capital.” Cohen argued that impact investing will play a transformative role in the future of our society, similar to the one venture capital has in the past.
While there are similarities between impact investing and principles traditionally applied to venture capital, there is more to the story. Most promising technology entrepreneurs have no problem coming up with a compelling exit strategy: acquisitions and IPOs are a well-known path to success in Silicon Valley. However, investments that blend financial returns with intentional social or environmental impacts tend to be more complex, often calling for longer repayment schedules than those used by venture capital (VC) deals, especially when the investment is in less mature markets where business models need more time to develop.
Impact investors are also often willing to take on significantly more risk than a traditional VC if the social mission aligns closely with the investor’s vision and his commitment to developing non-traditional sectors. Finally, even if a company appears attractive from a purely financial perspective, impact investors won’t invest unless positive outcomes (impacts) can be quantified and demonstrated.
Find impact investing opportunities in the Bay Area
If impact investing is on your radar, the Bay Area is a great place to start looking for ways to get involved. The region is home to a substantial pool of potential funders as well as many highly creative impact entrepreneurs, giving investors plenty of choices. Below we list* just some of the biggest impact players in the Bay Area.
Venture Philanthropy Organizations: Non-profits that invest using a VC strategy
Impact Investors: Organizations investing in for-profit companies that have social impact potential
- – Better Ventures
- – DBL Investors
- – Imprint Capital Advisors
- – Omidyar Network
- – Toniic
- – Pacific Community Ventures
- – SonenCapital
Impact Intermediaries: second-party organizations (accelerators, incubators, venture capital consulting companies and others) operating in the impact investing arena
Non-Profits and Foundations with unique models that incorporate venture capital principles
Social Entrepreneur Organizations with existing venture capital support
Connectors: Organizations that bring together impact investors with social entrepreneurs
- – Bay Area Impact Investing Initiative
- – Entrepreneurs; Foundation
- – Full Circle Fund
- – Impact Hub Bay Area
- – Investors Circle
- – SOCAP
- – Social Venture Network
- – Stanford PACS
Looking beyond the Bay Area
The Bay Area offers rich pickings for impact investing, but remember that impact is a global game: would-be impact investors shouldn’t limit their search to a single geographic area.
Today there are literally hundreds of impact funds across the globe, with diverse areas of interest and investment philosophies. They are run by specialized asset managers as well as mainstream financial institutions such as J.P. Morgan, UBS, Credit Suisse and Deutsche Bank. The same goes for innovative networking platforms that connect impact investors and entrepreneurs looking to make a difference. Maximpact is just one example of such a service, offering an online deal listing platform where a broad array of global opportunities can be examined in one place. So if impact investing intrigues you, don’t hesitate to look more broadly and take advantage of innovative tools available to impact investors today.
*This list is partial and there are plenty more innovative impact investing focused businesses serving the Bay Area. If you have additional suggestions, we would love to hear about them.