FEATURE: Impact Investing, The "Invisible Heart" Of The Markets?

Amisha Mehta Assistant Editor London 3 February 2016


Giving exclusively to charitable organisations doesn't do as much for as many philanthropists as it used to. Today, a new breed of "impact entrepreneurs" want to be more involved, to have more control of their money and see it make a tangible difference.

There are many roadblocks for would-be philanthropists: bad governments, corruption, lack of commitment, time, patience, focus. The biggest of all – money – is of course no barrier for the high net worth. The rise of socially-conscious investment, however, is sometimes portrayed as a threat to traditional giving.

Impact investing refers to investments in companies or organisations, with the aim of generating a social or environmental impact while also making a profit. It demands attention across all stages of a business’s growth and is fast gaining momentum. The 2015 GIIN and JP Morgan impact investor survey revealed a 7 per cent growth in capital committed between 2013 and 2014 and a 13 per cent growth in the number of deals. 

The trend speaks to a growing group of wealthy individuals looking to become "impact entrepreneurs" through the same risk-taking, results-driven approach that made them successful. Such entrepreneurial types are equally drawn to venture philanthropy not only because of its transparency and hands-on nature but also for the intellectual contribution they can offer.

The term venture philanthropy was coined by John Rockefeller III in 1969. He described it as “an adventurous approach to funding unpopular social causes”. Note this is different to – though it comes under the same social investment umbrella as – impact investing. Not all venture philanthropy targets a financial return. The practice is understood to use the tools of venture capital funding to promote start-up, growth and risk-taking social ventures. 

After a handsome fortune is earned, you might think giving away money would be the painless part. On the contrary, philanthropy done well is a job in itself and one the time-pressed may be tempted to do in a scattergun way. Social investors, however, come with values of patience and vigour.

“Venture philanthropy means radically overhauling an organisation, with all the upheaval this brings, when someone could choose instead to support work which is already established,” Angela Kail, head of the funder team at New Philanthropy Capital, told WealthBriefing. “It can mean committing large sums of money to long-term investments. NPC would like to see more of this sort of strategic thinking from funders.”

It’s the really early stage impact enterprises that need the most capital and expertise – and this is where venture philanthropists and impact investors are equally present, according to John Ayliffe, founder of 1to4 Foundation. If and when these businesses reach later stages of growth, impact investors will make up the majority of the funding.

The skillset of impact investors is much like that of private equity or angel investors. This is venture capital in its purest sense funding areas where access to both money and advice is generally not that accessible. This requires having to think outside the box, being open to new ideas and ways of doing things,” said Charles Mesquita, senior director at Stanhope Consulting, the charities arm of Stanhope Capital. You can do all the due diligence you want but, ultimately, you have to believe in the people and in the concept as the risk of losing all the money will always be there.

These people need to know where their money will end up and so transparency is a must, an area where many large charities are arguably falling short. Such a lack of transparency is exactly what fires up talk of the use and abuse of non-governmental organisations. 

Register for WealthBriefing today

Gain access to regular and exclusive research on the global wealth management sector along with the opportunity to attend industry events such as exclusive invites to Breakfast Briefings and Summits in the major wealth management centres and industry leading awards programmes