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In Edible-Alpha® podcast #27, Tera interviews Eric White, a Principal at Cogent Consulting, a firm which helps social entrepreneurs and revenue-generating nonprofits raise social impact investments. Cogent also works with social impact investors to source investment opportunities and helps them build their portfolio strategy, including the incorporation of tools like Program Related Investments (PRIs). Eric feels that cash flowing and making money can coexist with goals of social impact as long as entrepreneurs “translate” the their message for different audiences, including using the language of business models and finance when seeking investment.
Eric also spoke about the debate in the philanthropic community about if grant making enough to solve the myriad of social problems confronting our society. With foundations, some of the businesses in their endowment (representing about 95% of their assets) could be causing problems that they could solve with PRIs and other social impact investments instead, even if those investments generated a lower return. In addition, foundations tend to invest more in program staff than investment staff and generally those organizations have been slow to allow investment staff to try things that might sacrifice the expected financial returns that undergird the traditional endowment structure. He has seen smaller, donation-supported loan funds combined with technical assistance in the $15,000-$50,000 range fill a market gap for small entrepreneurs as they scale up and seek larger sources of financing later.
Individuals are often more responsive than institutions in pursing emerging social impact investing opportunities and are genuinely interested in having more of their money in social impact investing vehicles than conventional financial wisdom suggests. Both Tera and Eric agreed that Self Directed IRAs have the potential to unlock individual capital for socially responsible investing at later stages, given that now more money is in individual accounts than pensions. Crowdfunding also has some potential to unlock individual capital, but companies often have to bring their own crowd and comply with all of the legal disclosure requirements, both of which can just as onerous as conventional fundraising.
Impact investing often means different things to different people, and it is difficult to have a unified rubric for all of the different kinds of investable opportunities. Eric advocates for a common framework (rather than definitions) so that people can speak the same language while focusing on the impact goals that matter most to them. He and Tera also talked about how the language of impact is filtering down through “conventional” companies as their shareholders and consumers expect social impact outcomes or at least social responsibility.
Eric thinks there are investable opportunities in companies that provide support for regenerative agriculture systems for farmers and other actors in the ecosystem, though there is a need to develop a pipeline of actors ready to fund and support these businesses as they grow.