Social Entrepreneurship and Impact Investing

From Wikipedia — “A social enterprise is an organization that applies commercial strategies to maximize improvements in human and environmental well-being — this may include maximizing social impact alongside profits for external shareholders.” Just to be clear, a social enterprise can either be a for-profit or a non-profit entity. This is an entrepreneurial option where you can lead and innovate a solution to a problem by establishing a company focused on solving that problem for the poorest socio-economic group or “Bottom of the pyramid” (BoP), as it is often referred to. This approach is especially useful in areas where there is no established scalable solution to the problem, and it is ripe for innovation. (You might want to check out an argument for talent gap versus funding gap here.) A well-celebrated success in this space is Muhammad Yunus who was an early social entrepreneur who pioneered micro credits. Some other more recent examples include Thorn, which drives technology innovation to fight the sexual exploitation of children; Simpa networks, making clean energy affordable and accessible to everyone; Unima, taking diagnostics to the 2 billion people in developing world. For more role models in this space check out this new age social entrepreneurs who won accolades from the World Economic Forum, Forbes 30 Under 30, and the Schwab Foundation.

More links for interested folks:

Impact investing challenges the long-held views that social and environmental issues should be addressed only by philanthropic donations, and that market investments should focus exclusively on achieving financial returns

But it is often harder to make profits when you are catering to the poorest of the poor. That is the main reason most of the economy revolves around the affluent for bigger margins. Impact investing challenges this long-held view that social and environmental issues should be addressed only by philanthropic donations, and that market investments should focus exclusively on achieving financial returns. It does so by optimizing not just for financial returns but also for social-environmental impact. More capital flowing into Social sector encourages long-term planning for sustainability as well as fosters innovation.

Again the fundamental difficulty here is — it is easy to measure financial returns, but it is rather hard to measure impact. In the Impact Investing world, there are various frameworks and tools to gauge the impact like GIIRS, IRIS, B Certification, Demonstrating Value, etc. I see some of them are more outcome based and some are more efficiency and transparency based. It would be interesting to see progress in this area. Ultimately, this research and tooling around Impact measurement would be tremendously impactful if it makes it easy for all organizations to make impact driven decisions just like how natural it is today to make decisions based on financial value.

Stanford Social Innovation Review is an excellent source to follow the SoCap(Social capital) world as well as other innovations in philanthropy space. As more shareholders value impact I think it becomes imperative for all companies to report on impact along with financial gains. It turns out you can in fact set up legal structures to formally define intentions for the triple bottom line: Profits, environmental impact and social impact — L3Cs and Benefit corporations fall into this category. You can also chose more traditional legal structures such as LLC (like Chan-Zuckerberg Initiative), Nonprofit or Hybrid (A nonprofit and a for profit like Omidyar Network).

Eventually, I wish all enterprises would be social enterprises, measuring not just their profits but also their impact. So impact conscious millennials can feed in this parameter in their career decisions. A simpler starting point maybe for Glassdoor to include the“Impact” criteria for employees to rate on just like work/life balance and CEO ratings. I am sure Cloudera, my previous employer, would come up pretty high among mid sized tech companies — its product has a big impact in the Social sector, and it provides various pro bono opportunities to its employees through Cloudera Cares.