The Future of Impact Investing

So just a couple of words of introduction about how I happened to find myself involved in this fields. [7.0] [00:00:20] So I led a pack's for many years and I also had close connections with the British government because in the process of developing the industry they had needed advice about entrepreneurship and of course had been you know I've been interested as any B-school person would be to try and help Britain do the right thing and subsequently Europe do the right thing and we have offices here too. So policy makers generally and in 2000 by got a phone call from the Treasury in the UK saying we're very concerned that we're not making better progress in dealing with poverty. [40.2] [00:01:02] Would you have a more entrepreneurial look at how we might better cope. [6.0] [00:01:09] And I'd been aware of the factors that back entrepreneurs all of whom came from nothing. You don't usually get very wealthy people wanting to become entrepreneurs. Most of the people with back the tape tax came from nothing and so we were helping people create wealth for themselves and their families without also being aware of the fact that the gap between rich and poor was getting bigger and bigger. [25.1] [00:01:34] The average standard of living was going up but in a strange way those left behind was stuck behind. And although my whole generation had as its slogan the quality of opportunity that was what made societies seemed fair. If you were born into the wrong family your chances of escaping poverty were extremely low. And so I began to look at why it is that this was happening and I began to realize that as we all know the B-school the market mechanism deals with social and financial consequences. But that does not deal with social consequences. [45.3] [00:02:21] And as I analyze things I realized that philanthropists had started. Obviously they've been around for millenia but that started in a more organized way in the 19th century to create activities to help those left behind by the beginning of the 20th century. They got tax breaks and the big foundations Rockefeller etc. were set up the work of trust and in the UK by the 30s governments realized they couldn't get they philanthropists couldn't deal with all the social issues and governments started to get involved. By the 40s government said we need to organize welfare states that provide the safety net for those living in them. And many welfare states were set up. And by 2000 when I got the telephone call from the Treasury the welfare states were throwing their hands up and saying we can't cope. We can't cope with social issues we don't have the resources. We may not even be the best people to cope with. And as I analyzed how our system works I realized that the early part of the system that was there to help those who were left behind was the philanthropic sector used to be called the Fed sector. I hated that name and we've banished it. So here you you'll hear about the social sector not the third sector. How can anybody be proud of being right. Specially in a room with people like you and the social sector had one characteristic. Now I give you the advantage of the hindsight of 14 years of working on this have the characteristic common characteristic everywhere in the world of having no money and no scale. [1:42.6] [00:04:05] So if you look at how many businesses in the United States over the last 30 years made it through 50 million dollars of sales. The answer is 50000. How many. Not for profits made it through 50 million dollars of revenues and about Dana. [16.2] [00:04:22] One hundred and forty four. Now why was that. [4.0] [00:04:27] I asked myself. I didn't know that figure then but I certainly could see that there was no scale and no money anywhere. Why was that. And the answer was very simple philanthropy. Wealthy philanthropists had given money to these organizations and said to them we'll give you money for a year or two. And then after that as a sanity check please go raise money from somebody else and don't spend any money on your overheads. And that was the way that philanthropy has operated. And now with the benefit of hindsight we realize that the reason that was the case was that nobody was measuring anything. [39.9] [00:05:08] You couldn't tell who was doing a good job at delivering a social return. [5.1] [00:05:15] And so I asked myself in 2000 and today I can give the answer to it. How can we give social entrepreneurs those who don't just want to make money but want to devote their lives to helping others. How do we give them the same means to achieve their objectives as we do business entrepreneurs. And fast forwarding in 2010 Social Finance which started in the basement of my office in the UK. Had gone from 1 to 18 people and the young people of social finance came to see me one day and they said look we think we may have an answer. [45.4] [00:06:02] So how we tackle some social issues. I said What's that. I said we met a chap in Birmingham who told us to look at recidivism prison or re-offending you probably know that across the world two thirds of young prisoners go back to jail within 18 months. [17.6] [00:06:21] And we think we can link an improvement in that rate of re-offending or reduction to a financial return. [8.1] [00:06:31] What do you think of that. For me it was a lightbulb moment like the general Dorio comment. For me it was the key to the capital markets. When you begin to measure social return. Or social improvement and you connect it to a financial return you can allocate capital to those who can deliver the highest social return. [25.9] [00:06:57] And those who have the ability to scale up can raise the capital they need in the same way as a business entrepreneur can on the back of that and on the back of Brydges ventures which I co-founded in 2010 to also started in the basement of my office in London. In London we don't have garages for startups there in basements Brydges ventures to invest in the poorest 25 percent of Britain and bridges ventures now 11 years later manages a billion dollars delivered 15 percent next year by investing in the poorest parts of Britain on the back of bridges record and on the back of the first social impact bond which was launched in 2010. The British government has not said allowed this to access basically a billion dollars of capital of 600 million 600 million pounds and Big Society Capital which I was the founding chairman began to invest in Impact Investment organizations. There are now 21 impact investment organisations funding not for profits in the UK which have received funding. From Big Society Capital and on the back of that David Cameron the British prime minister. In June 2012. Suggested to the G8 countries that we should put impact investment on the agenda and asked me to lead the task force which has involved 22 people on the task force with another couple of hundred people in national advisory boards such as the UK or the US National Advisory Board which Tracey co chairs and working groups such as the impact measurement working group in which I'll know participated. [2:00.4] [00:08:59] And in each country in each of the G7 countries Kurs Russia fell out of the picture pretty soon. But Australia had been had been in from the beginning because the Australians had launched some social impact bonds and I was impressed with what they were doing. We worked for 14 months and we delivered this report. There are some copies for you here. [22.8] [00:09:22] And the report is entitled The invisible heart of markets. Why. Well you all know about Adam Smith and the invisible hand of markets. The way I see it in the 19th century people talked about financial returns. In the 20th century they talked of risk and return in the 21st century. We're already talking and we will talk about risk return and the impact. And when you begin to bring impact into the picture you bring motivations that go beyond profits. Adam Smith was actually prouder of his book called The Theory of Moral Sentiments which was all about empathy than he was about the Wealth of Nations. And when you begin to bring empathy into the equation you begin to bring the measurement of impact capital that is motivated by an improvement in people's lives or an improvement in the planet. And everything I say by the way the report says includes environmental social for us social impact investment includes environmental. When you begin to bring impact you bring the invisible heart of markets to guide their invisible hand. And prior to the report being written people would say we don't know what impact investment really is today. It's defined as any investment which involves clear objectives to deliver both social including environmental and financial return and whose achievement is measured achievement is measured just like we measure financial performance. And if you wonder about how big can this get. There are two dimensions that can give you an answer. One dimension is the pool of entrepreneurial talent. Is there a millennial generation that wants to go beyond the old models that involve making money alone. [2:16.3] [00:11:40] Rather than delivering an improvement in people's lives or in the planet. And the answer I think for most though is how many of you think that there is a change in terms of the attitudes of the millennial generation. Well that's you know almost all of you. Add the second dimension that can give you an answer is How big is the pool of capital of investment capital that is interested in this. Well if I tell you that 46 trillion dollars have signed up to the United Nations principles of responsible investment that gives you a partial answer even if 2 percent of that went into impact investment. It would be a trillion. And I'll close with the comments of Duncan Smith the ukase cabinet minister who has issued seven social impact bonds to help unemployed youths get into work. He said to the closed task force meeting I think this could bring about a revolution in the way government works. And the reason is this when you were a minister and you want to try and get a policy implemented you agree on the policy and on the initiative. And as it gets closer and closer to the level of implementation. People I didn't think they always wanted to do. And people take out things they always hated. And by the time it begins to get implemented it's already looking different. Then there's an election and you go away and no one is responsible. For the outcome. What I like about impact investment he said is what you get. It's well written on the table. [1:49.2] [00:13:30] It brings discipline to government and because it transfers risk it brings innovation and what all of this is about is harnessing entrepreneurship innovation and capital to improve people's lives. Thank you very much. [19.4]

StartupRunner Team

July 29, 2017

Channel: Entrepreneurship And Fundraising