Impact Investing: Philanthropy’s New Frontier?
Dr. Judith Rodin, President of the Rockefeller Foundation, recently visited Singapore and hosted a series of talks and meetings to stimulate and support impact investing in Asia.
Dr Rodin joined a heavy-hitting panel that included Asian Development Bank, International Finance Corporation, Rangsutra (a social enterprise), Credit Asia Capital, and Impact Investment Exchange Asia (IIX). They addressed a filled-to-capacity crowd at INSEAD business school where 100+ students, investors, philanthropists, bankers and academics listened to their call to action.
The speakers outlined what they perceive to be the many benefits of impact investing: social as well as financial returns, side-stepping inefficient or corrupt governments, unleashing entrepreneurism, and building enterprises that can be sustained without philanthropic support.
The idea that markets can be harnessed to solve social problems is not a new one, but I have observed that the concept holds particular resonance among the socially-minded wealthy here in Singapore and some parts of South & South East Asia. My conversations with current and interested impact investors and fund managers suggest some potential reasons why this might be so:
1) The power of the market is indisputable and omnipresent. Year over year double-digit growth throughout Asia has decreased the percentage of the population living in poverty (though absolute numbers remain frighteningly high) and the creation of a middle class has been achieved and appears sustainable in some countries.
2) Fewer wealthy individuals have ‘cashed out’ of the enterprises that made their money. Wealth is more likely to come from family businesses and ideally successive generations continue to run those businesses. The money feels more like ‘working capital’ than an endowment.
3) Family offices are built to manage investments. Impact investing fits better within that organizational ethos. Language matters in establishing comfort and familiarity. ‘Structuring deals’ is more compatible with those in the family office than ‘making grants.’
4) Many third generation, high net worth individuals in their 30s and 40s have a finance or investing background. The generation of ‘new philanthropists’ here in Asia are ex-bankers, MBAs, Ivy/Oxford-educated and they feel called to use that unique skill-set to make their social impact.
Of course, among the converted sat plenty of skeptics. Many traditional investors questioned the entire category of impact investing—asserting that ‘social’ is another term describing higher risk and that true investors would never pay a higher price than necessary for an investment: everything else is philanthropy.
Indeed, the feeling of philanthropy was very much in the air, despite the finance lingo. While some people pitch impact investing with assurances that investors can put money here even if they don’t care about social returns, that proposition rings hollow. The people I’ve met who are intrigued by impact investing care a lot. They are bringing their hearts and their minds to the proposition. And that impulse is very much grounded in philanthropy—from the Greek origin philanthropos: love of mankind. So while some impact investors dismiss the term philanthropy, still others believe they are redefining or adding new dimensions to it.
Impact investing—here or anywhere—is not for the faint of heart. Impact investing that achieves broad scale, is a theory that has yet to be fully proved. But it posits an exciting possibility. As such, it requires risk-taking, strategy, patience, determination, humility, and passion. Passion to make a difference and chart new territory. This is not the settled homelands of philanthropy, this may be its new frontier.
In the coming months I’ll be interviewing key philanthropists and impact investors in the region to hear, in their own words, some of their successes, challenges, and motivations. I hope you’ll join the conversation.
This piece is cross-posted on the @Alliance Magazine website which can be found here.
It’s Not (Just) About the Money
Elegant and well-heeled would be the best way to describe them. I smiled at these two women of indeterminate age who I had just met at the launch of the UBS-INSEAD Study on Family Philanthropy in Asia. As I moved to introduce them to one another, they both laughed and said, “We’ve known each other since…” putting the flat of their hands forward at small-child-height.
“ We were neighbors,” the petite Chinese woman said.
“Our apartment was here, and their apartment was there,” said the smiling Indian woman, pointing her finger in the upward diagonal.
“Didn’t you play marbles?” One asked the other with a mischievous grin.
“Oh yes, all the time. And with the boys!”
“And every day your mom—rest her soul. She was a real force of nature. She would go to the market over there on…”
“And my father, he’s not well now, but we take care of him at home…”
“Yes, we knew each other.”
“ But it’s not like that anymore.”
“ No nothing is like that anymore.”
There was silence as I imagined them thinking about all the changes—education, jobs, marriage, kids, and clearly wealth—that had happened since those long-ago days. For a brief moment I could almost see the bustling apartments these women described, in the brand-new nation Singapore was 30 or so years ago. Where families knew one another, children played in empty lots, and what bound everyone together was that they were all strivers.
We drifted apart as the 150+ person crowd wandered into the auditorium to hear the current state of family philanthropy as described by the recently completed study. Despite the fact that we are all living in the midst of Asia’s economic engine, the stats were still mind-boggling.
- China now has over 1 million US dollar millionaires.
- In recent years, Indian households have witnessed the highest absolute gains in wealth in the world.
- By the end of 2009 there were some 3 million Asian Pacific high net worth individuals, equaling the number in Europe for the first time, and their wealth totaled US $9.7 trillion.
But the rising tide has not raised all boats.
- In sheer numbers the region is still the largest locus of poverty and deprivation in the world. In 2005 there were over 660 million people in India and China alone who lived on less than US $1.25 per day.
- In India, the wealthiest 5% of the population control 40% of the country’s wealth.
All of these statistics from the report were only the prelude to the substance of the discussion. Through 200 quantitative surveys and over 100 in-depth interviews, the report’s author Mahboob Mahmood, Adjunct Professor of Entrepreneurship and Family Enterprise captured themes on motivations for giving, priorities, and philanthropic approaches.
The image that emerges is a charitable sector led by closely held family businesses with a strong entrepreneurial ethos, complex intergenerational relationships, delicate succession and legacy challenges, and a deep awareness (particularly on the part of the patriarchs and older generations) of the power of education to change the course of lives in a single generation. Philanthropy is a useful mechanism for reinforcing shared values with the goal of supporting family cohesion and harmony.
Education is by far the largest area of investment, with poverty alleviation and health distant seconds and thirds. Arts/culture (4%), the environment (4%) and civil rights (1%) were small also-rans.
Among the challenges cited was lack of experienced staff, the perception (and sometimes reality) of a limited number of high-impact NGO partners, and difficulty in finding philanthropic co-investors who are aligned in mission.
The incredibly generous families who participated in the study are to be lauded for their leadership. They are impressive fonts of giving but as yet there exist few networks of strategic philanthropy that can achieve what the authors called, “sustained transformational impact in Asia.”
I was struck by the words of panelist Laurence Lien, CEO of Singapore’s National Volunteer and Philanthropy Centre and a member of one of Singapore’s most philanthropic families when he said, “The most important use of philanthropy is social innovation and social change. Charity is important, but there is much more to do.”
His comments took me back to the conversation I’d had earlier with those two elegant, well-heeled ladies. Money provides privilege to those who possess it but it also changes everything. It can create fractures in families, as well as in societies. It can disconnect people from their broader community. And the relentless drive for economic growth can take a deep toll on cultural traditions as well as our physical environment.
The challenge ahead for philanthropists in Asia, indeed philanthropists everywhere, is to engage with communities in developing solutions. Charity is usually top-down, highly transactional and rarely transformative. It is important, but not enough. Transformational impact can be achieved by moving beyond charity with strategic analysis, community engagement, and emphasis on our shared vision and common destiny. Networks and collaboration are required. Civil society can play an essential role in reweaving the fabric of society. But it requires more than charity. It requires vision more than just money.
The title of this post was at least partially inspired by the Jesse J. song my kids adore which is on a regular loop in our house…
Tempest in Three Teacups: Magical Storytelling
Storytelling is big. Our world seems alive right now with some of our best experts extolling the power of storytelling. Business schools have switched from ‘pitches’ to stories, Dan and Chip Heath’s compelling Made to Stick is required reading for NGO leaders, and politicians keep mining the power of Reagan-stories for inspiration. But let’s be clear, stories are complicated.
The reason most of us aren’t regularly regaling people with perfectly timed and eloquently described stories of our lives is because life rarely unfolds that way. It is only upon reflection that we recognize that x led to y, or that ‘this’ was the beginning and ‘that’ was the end. Yet leadership these days seems to demand that we pluck from the whorl of our past a sequence of logical facts that magically blend together into poignant lessons and an inspiring can-do tale.
But as researcher Elizabeth Loftus describes in her book Memory: Surprising New Insights into How We Remember and Why We Forget,
Memory is imperfect…The memory traces can actually undergo distortion. With the passage of time, with proper motivation, with the introduction of special kinds of interfering facts, the memory traces seem sometimes to change or become transformed. These distortions can be quite frightening, for they can cause us to have memories of things that never happened. Even in the most intelligent among us is memory thus malleable.
One particularly powerful influence in truth-bending is the desirability of outcome. People are prone to report what they believe the researchers wants to hear or report data that puts them (the subject) in a more positive light. What is critical to note is that over time, people actually believe the ‘adjusted’ facts to be true.
Greg Mortenson‘s unravelling is a cautionary tale for all leaders, especially those of us in the social sector where the self-revelatory, enlightening, ever-progressing origin story has almost become a requirement of the job. Where the desirability of outcome may tend towards exaggerated heroism.
Seems to me, this individualistic storytelling ‘heroism’ is partly the undercurrent of what distinguishes social entrepreneurs from mere executive directors? True stories are powerful and inspiring. But so are great managers.
The most discouraging thing about Mortenson was that he was too focused on being a celebrated founder and not at all focused on being a good manager. He didn’t understand that the inspiration story needs to be followed by the education story: testing one’s theories against data, research and outside expertise. He didn’t understand that the education story has to be followed by the institution story: building an organization capable of acting on the dreams he inspired. And mostly he did not understand that the job of an NGO leader is to surround yourself with staff, board, donors who can build upon AND save you from your own mythology.
How to Buy a $1 Million Watch
On Christmas Day I was delighted to receive a unique gift from my husband: a watch made of an iPod Nano. (see gorgeous photo) I love this watch. It makes me look infinitely cooler than I am, it rocks my favorite songs without worrying that my dancing is going to jerk the earplugs out of my computer, and I don’t know anyone else who has one. It was the gift trifecta. All this for about 30 bucks. (OK I forced him to tell me this)
On December 16, 2010 TikTok+LunaTik raised just shy of $1million making it the single highest fundraising success story of the incredibly compelling crowdfunding website Kickstarter. As you know, Kickstarter’s tagline “Find and Fund Creativity” pretty much sums up their approach: people can post projects/ideas/plays/films/books almost anything, and ask for financial support to get the project done. Investors pay only when sufficient funds have been raised for project completion.
And what was TikTok’s record-setting project? To manufacture a wristband that turns an iPod Nano into a wristwatch. Their original fundraising goal: $15,000. So, some might say, TikTok raised close to $1 million to produce a product that already existed on the market.
You should know that I LOVE Kickstarter. I have funded a few of their projects – ones with knock-your-socks-off originality and potential for human connection and impact. And have no regrets.
But the story of TikTok’s incredible fundraising success raised questions for me about crowdfunding. Some of these questions may have some implications for philanthropic crowdfunding which is also experiencing a meteoric rise.
- Enthusiasm should not be confused with due diligence. Crowdfunding depends upon friends telling friends. So if a friend sends you a link and says, “I’m really excited about this and you should be too!” it can create a groundswell of activity. A groundswell isn’t inherently good or bad, so how do we tell whether the underlying principle is one or the other?
- The one-at-a-time nature of a project’s presentation and consideration (often via email or Twitter) means that the ability to compare the strengths and weaknesses of one project idea against similar projects is almost non-existent. It can heighten our belief in the radical uniqueness of the project before us, which may or may not be true. Traditional philanthropy which gathers all the proposals and reviews them side-by-side skews SLOW whereas crowdfunding skews FAST. How do we take the best of both?
But it is also true that:
- TikTok offered people a chance to feel like insiders in the creative process of a well-designed product, something more and more people value. It also gave the company a clear indication of product demand. Is there a way to harness the predictive capacities of crowdsourcing to enhance philanthropy and social innovation? Perhaps new giving sites such as Crowdrise, Groupon (with its Kiva partnership) or Philanthroper will show us the way.
- Updates and information are critical. The fact that TikTok included photos and video from its manufacturing plant in China was probably compelling for people who are interested in being included in the whole chain of production from design to delivery.
- Crowdfunding is fun! It’s what I like to call excited philanthropy. Ultimately, Kickstarter helps people feel a part of a community of like-minds. That feeling of community is the jet fuel in the “crowd”-engine. And maybe the crowd doesn’t have to do it perfectly every time, just better than the other alternatives.
My hat is off to Kickstarter and these other pioneering sites for being platforms for a new type of funding. They are pushing the boundaries of collective thinking and giving. And hats off to TikTok for passing a huge crowdfunding milestone. But I can’t help wonder if any of the 13,512 TikTok investors might feel a little ticked-off when they see me walking down the street in what looks like their million dollar watch.
What excites you/gives you pause in the rise of crowdfunded philanthropy?
Full Disclosure: My husband works for Apple which makes the iPod Nano. Apple does not make an iPod Nano wristwatch holder.
Whose Volunteer Experience Is This Anyway?
2010 ushered in do-goodism 2.0. The opportunities to check-in, check-out, or slack-out “for good” have never been greater. Voluntourism is on the rise, as people want to see and feel more of their vacation destination than a five-star resort may offer. But there are downsides, as I recently discovered at a cocktail party fundraiser.
The otherwise delightful woman to whom I was speaking was explaining how she and her husband had recently traveled to Cambodia with their kids in order to give the teenagers an understanding of poverty and their responsibility to help others less fortunate than themselves. I was interested.
When planning the trip, she explained, her kids had immediately dismissed Habitat for Humanity and other “traditional” groups because they wanted an authentic, personal experience. Prior to the trip, they’d gone online and researched places they could go and things they could do. They’d found a small village that was building a library and some houses and that needed materials and books. “Perfect,” she thought. Emails were exchanged, arrangements were made.
But, she then went on to explain, the trip had all but been ruined by the fact that when they arrived the locals took the books and materials they’d brought and proceeded to build the structures themselves. Her kids, who had planned what they wanted to do and how they would direct the building process, were sidelined by locals who took over and did all the work themselves. Her kids were invited to participate, but they weren’t allowed to lead “their” projects. The goal of the trip, she complained, had been for her kids to feel how they could make a difference and this experience hadn’t provided that at all. “Overall, it left a bad taste in their mouths for future volunteer work,” she concluded.
It was then that I yelled, “It’s not about you!”
In my head.
Aloud, I asked her politely, “Whose volunteer experience is this anyway?”
Nick Kristoff’s recent New York Times piece on Do It Yourself Aid raised similar feelings. While it is great to get out and feel like “I’ve made a difference,” shouldn’t the emphasis in that sentence be on “made a difference” and not “I?” When the primary purpose of volunteerism or aid work becomes our own experience of self-fulfillment, we’ve crossed a line. And unfortunately, sometimes the term social entrepreneur with its emphasis on one person, is synonymous with a “me” orientation that is antithetical to strategies that have been effective in creating lasting social change. Similarly, some social enterprises may be praised for taking a bold approach that makes perfect sense to donors, but which might not be highly prioritized by those receiving. Recent criticisms of TOMS Shoes and other “buy one, give one” programs raise important issues. If TOMS Shoes are being sourced and made locally, then that is sustainable change. If they are shipped in, then it’s mostly plain vanilla charity with excellent marketing. Almost by definition, these donor- or giver-centered approaches can leave out indigenous/local groups that are working to help themselves, but keep getting left out of others “solutions.”
So that begs the question, how much should one’s own need for achievement, media, or notoriety influence decisions about giving? Volunteering? When, as funders, do our demands for metrics and causality shift from necessary rigor and become instead attempts to assign egotistical ownership? When is our desire to develop a strategy that is “unlike other foundations” truly innovative, and when is it merely chest thumping?
For foundations, I think strategic philanthropy, as outlined by many of CEPs studies and reports, gives a great framework for allowing impact — not ego — to drive action. And personally? Well I love feeling that I’m making a difference, whether it is buying green products or volunteering or contributing to organizations I love. By doing these things I create a sense of community, connection, and empathy that benefits me as well as those on the other end of that support. The act of giving is mutually beneficial. But at the end of the day, it’s not only about me. Giving, volunteering, and the work done to support nonprofits becomes transformative when the goal is something much larger than just one person’s pride or fame or even self-actualization.
Do you have strategies for keeping your ego in check?
This piece was originally posted on the Center for Effective Philanthropy’s blog which can be found at http://www.effectivephilanthropy.org. I am a member of CEPs board of directors.
Giving As Good As We Get
This piece was originally posted on the Center for Effective Philanthropy’s website where I have been a guest blogger. The Center for Effective Philanthropy (www.effectivephilanthropy.org) provides foundations with comparative data to enable higher performance.
A recent Harris Interactive poll suggests that Americans intend to give less in 2010 than in 2009. A combination of high unemployment and economic uncertainty have caused generous people to feel slightly less so. Despite this fact, it is also clear that Americans are giving more in new ways this year than ever before. Five years ago, we didn’t have the option to Tweet for Change, or, through Foursquare, Check-in for Change.*
One young woman who was interviewed about “check-in giving” through the CauseWorld app said, “CauseWorld makes me feel like I’m doing some good in the world every day. I don’t have much money to give to charity these days, like most people, so having a chance to direct money to some really important causes means a lot to me.” Declines in charitable giving have occurred in the past, but never before has that decline been coupled with the rise of so many other quick-hit ways to express generosity.
If the desire to be generous can be assuaged by directing someone else’s money, will we still feel compelled to give? Will we be willing to sacrifice our own money to support the causes we care about? For example, Starbuck’s has tested making charitable contributions as a benefit of checking-in. While this may be an appealing experiment to Starbucks regulars, it should be noted that these $4-latte-lovers are not offering to drop their Starbucks habit in order to direct those funds to charity.
Questions such as these were raised by Malcolm Gladwell’s New Yorker piece as well. Will casual support displace deep commitment? The jury is still out, but I think the potential difference in how nonprofits receive funding from individuals could, over time, be quite important. In aggregate, annual giving—usually defined as contributions from individuals—represents a core, stable funding base for many nonprofits. In fact, annual giving is often the counterweight to time-limited or non-renewable funding from corporations and foundations.
If, over time, nonprofits receive more and more funding from these embedded giving/contribution consolidators, will that negatively affect nonprofits’ cash flow? One recent study by Network for Good suggests the answer is yes. When offered a gift, the question nonprofit leaders often ask is not just “how much?” but “how often?” They all know that a consistent gift of X is almost always more valuable than a one-time gift of X+. So that leads to another question, how can nonprofits convert those casual givers to become regular givers?
In order to help nonprofits do this, foundations need to support the development of fundraising practices that help nonprofits engage with these new giving vehicles. Nonprofits shouldn’t simply be passive recipients of grants from social media philanthropic aggregators, they should be active participants. But as Beth Kanter regularly points out in her blog posts, an effective nonprofit social media fundraising strategy requires thought and time (and funders, that means money).
Nonprofits will need to learn how the ease of transaction (“Press # now on your cell phone to give a dollar to Haiti relief efforts”) can be maintained without nonprofits having to cede the entire relationship to a charity portal. In his recent Harvard Business Reviewpost, Dan Pallota also points out the importance of foundations placing strategic emphasis on their grantees’ fundraising capacity. While I am a strong advocate of general operating support, I think that foundations should go further to engage with grantees about fund development and adapting to the changing technological landscape.
Those of us who fund nonprofits can often be heard criticizing the lack of strategy and financial planning among nonprofits. But if embedded giving allows people to express support for many groups, will that lessen people’s allegiance to specific groups? Maybe funders should be putting more thought, research, and money into helping nonprofits creatively respond to these new fundraising challenges and amazing opportunities.
* Geo-location sites like Foursquare and Gowalla are game-like mobile phone applications that invite people to “check-in” when they have arrived somewhere and give a quick status update, similar to Facebook. On most sites, people gain points or credits the more often they check-in. Companies are beginning to offer coupons or time limited deals when people check-in. Causeworld is a similar site which gives people points they can use like frequent flyer miles to make donations to charities.