By Marta Maretich
The impact landscape is changing fast and progressive impact intermediaries are changing with it, as shown in a recent article by Willy Foote for Forbes.
Foote spoke to Antony Bugg-Levine, head of the Nonprofit Finance Fund (NFF) about some of the current challenges facing impact investing intermediaries. This pair know what they’re talking about: Foote is the founder of Root Capital, one of the leading proponents of impact investing in farming and agriculture in the developing world; Bugg-Levine is a former Rockefellar Foundation director and co-author of Impact Investing: Transforming How We Make Money While Making a Difference, with Jed Emerson. He now leads the NFF, which provides investments and advice to mission-driven organizations.
It emerged that both of these pioneering intermediaries are facing different versions of the same problems at this point in their development:
- – a shortage of best-quality impact investment opportunities;
- – more competition from mainstream lenders and foundations;
- – a rise in risk as their clients face adverse market forces and decreased government support.
As practitioners with long track records, Root Capital and the NFF can be seen as bellwethers for the emerging sector. That they are both seeing the same problems is significant—as is the fact that some of these problems (specifically increased competition) are the result of the growing popularity of impact investing, a movement they helped create. Significant, too is how both intermediaries are changing the way they do business in response to these challenges.
Applying more, better expertise
Both leaders stressed the importance of doing more to help clients to become investment-worthy:
Willy Foote: “At Root Capital, we invest heavily in financial management training and, where necessary, supply chain integration (e.g., between natural product buyers, third-party certifiers, local technical assistance providers, and other social lenders) for both pipeline development and to prepare our clients for long-term, sustainable growth in volatile agricultural commodity markets. While time intensive, our approach bears fruit as these earlier-stage businesses tend to grow, expand their impact, and take on successively larger loans.”
Anthony Bugg-Levine: “We are also increasingly finding in our work that impact investing needs to be understood as one part of a broader “complete capital” solution. The complete capital approach recognizes that enabling organizations to navigate this challenging environment often requires them to fundamentally adapt how they run their operation. This requires not only financial capital (impact investments and grants), but also intellectual capital (the right ideas about what needs to get done), human capital (the management skills and tools to do it) and social capital (the ability to bring different partners to the table). We have built a national consulting practice that provides some of this to our clients alongside our lending capabilities and partner widely to bring the skills we do not have in-house.”
A deeper, broader skill pool
The idea of intensive investor engagement is not new. Venture philanthropists, like members of EVPA and the AVPN have been doing it for years, as have traditional venture capitalists.
What is new is the depth and extent of the expertise now held by some impact intermediaries, the fruit of years of doing deals in the real world and building their pool of skills to meet the needs of their clients. Judging by what Bugg-Levine and Foote are saying, these skills have now reached a high level. They are being strategically cultivated by intermediaries and by educational institutions now establishing courses to train the impact professionals of the future. What’s more, this highly specialist expertise forms an increasingly important part of what intermediaries see themselves bringing to the impact equation.
New role for intermediaries: helping other impact investors
And that’s not all: In another part of the interview Bugg Levine describes a brand new role for intermediaries: deploying their expertise to support other impact investors.
“We also see great opportunity in helping the new group of impact investors do deals themselves,” he says. “Instead of worrying about competing for deals with these foundations, private bank clients and family offices, we are partnering and advising; we are drawing on our experience and track record of making investments to help them be smarter and more efficient in their investing.”
His comments struck a chord with us at Maximpact. Part of our mission is to bring new investors into the impact arena; another part is to strengthen impact investing practice. So we think this evolution in impact intermediaries is a positive step with the potential to broaden the uptake of impact investing among new investors; and make impact outcomes more effective. By honing their expertise and, crucially, making it available to other impact investors, highly-skilled intermediaries can do even more accelerate the pace of impact investing. And that, in our eyes, can only be a good thing.