Impact investment warms up

David Brooks wrote a great op-ed in the New York Times this week about impact investment. I think he’s right that it’s one of the most interesting and exciting sectors to work in at the moment. He contrasts it with working in finance or government:

“The big debate during the 20th century was about the relationship between the market and the state. Both those institutions are now tarnished. The market is prone to devastating crashes and seems to be producing widening inequality. Government is gridlocked, sclerotic or captured by special interests. Government is an ever more rigid and ineffective tool to address market failures.”

Of course, they’re both still important, but neither is growing or really capable of radical innovation. Certainly watching where smart people go after university or after they’ve been working for while, they’re heading towards social ventures or impact investment in much greater numbers.

Initially I have to admit when people told us what we were doing with BGV was impact investing, I was a bit resistant to join a bandwagon. In the UK it’s been called social investment but now is usually called impact investing or social impact investing. The one problem here is that some people see it as just a way of funding existing charities. That’s important too but is only a fraction of a percent of the opportunity. There’s huge amounts of capital available and a vast reserve of talent that wants to help create the ventures. The challenge for impact investors is to bring those together in an intelligent and ethical way and then prove that it had a positive impact.

We shouldn’t jump in uncritically but it’s starting to look promising. As Brooks says:

“Impact investing is not going to replace government or be a panacea, but it’s one of a number of new tools to address social problems. If you want to leave a mark on the world but are unsure of how to do it, I’d say take a look.”

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