Dissecting the Impact Investment ‘Bubble’

When speakers are warning of the imminent danger of an investment bubble forming in the impact investment market it can sound familiar and very mainstream, writes business advisor and freelance writer, Peter Morris who attended the recent Social Enterprise World Forum.

The warning of the imminent danger of an investment bubble forming in the impact investment market, sounded at the Social Enterprise World Forum in Milan recently, came from Lucian Balbo of Oltre Ventures, a seasoned Italian Venture Capitalist and one of the pioneers in the nascent Impact Investment market in his country.

He blames information gaps on both the investor and entrepreneurs’ side for the potential danger.  Other speakers in the session talked about a lack of the quality proposals being presented to funders and the exclusion of practitioners from the due diligence assessment process.

Balbo’s comments carry additional weight when examined alongside the statistics gathered by the OECD in its “New Investment Approaches for Addressing Social and Economic Challenges” identifying a near doubling of the number of Impact Invest funds around the world between 2007 and 2012. In dollar value terms investment has been growing 10 per cent pa or faster each year for the past four years.

And there are other indicators of the sector’s buoyant position. On a continent still feeling the ravages of the 2008 financial crisis the European Commission points to the far greater resilience and lower failure rate of SE firms which has meant they now account for 10 per cent of employment and 11 per cent of GDP across the region.

Adding to the “our-day-has-come” feeling at the Forum was the presence of a good sprinkling of national Ministers along with representatives from various arms of the United Nations, the European Commission and the European Bank for Reconstruction. Circling around are various corporates as either sponsors or players, their presence triggering unfinished exchanges over the appropriate balance between financial return and social impacts.

The sector’s successes – and with it its path to the mainstream – is and will continue to be littered with uncomfortable choices around the inevitable compromises. Nowhere is this more challenging than in relation to the fundamental issue of growing scale. Who to partner with, on what terms, is the social value being squeezed out by the imperative of a sustainable financial return?

These questions hung around the Forum but in the understandable – and intoxicating – mix of positivity and success stories they were never really engaged with.

Muhammad Yunis, founder of the Grameen Bank, inventor of microfinance, Nobel Laureate and the sector’s undisputed “rock star” made direct reference to this danger when he spoke about the potentially disastrous impact on microfinance lending caused by the adoption of the term by many loan sharks and pay-day lenders to describe their activities. As Prof. Yunnis said, “these were exactly the people we established the Grameen Bank to run out of business”.

It is clearly a case of imitation being the greatest form of flattery but as the stakes get greater clearly defining and holding onto the jewels will become and increasingly challenging and but important task.

Social Progress Initiative

The Forum kicked off with an updated recitation of the presentation Mike Green CEO of the Social Progress Initiative gave to TED last year on their work to date and the insights it is revealing.

For anyone who has participated in a conversation on the challenges presented by our current economic system and its singular focus on financial inputs to measure progress this is essential viewing. The Index proposes a coherent and compelling alternative and with it a path forward for action.

Conveniently for the SE faithful the picture it presents and the logical answer to the global scale question it poses is that social enterprises are the only option on the ground. The SPI has now mapped the performance of more than 120 countries. In two years of operation it is gathering significant attention as a viable alternative to the narrowness of GDP numbers, including looking at sub-national performance and the position of groups within national borders.

About the author: Up until mid 2014 Peter Morris worked as a Business Adviser in the Government's Enterprise Connect program,  servicing more than 100 SME clients. Since then he has been building his expertise and experience in Social Enterprise to enable him to pursue his interest in the sector. In his early career Morris worked as a journalist for the ABC (radio and television) and across all forms of print (regional and daily newspapers and industry magazines).