For this attendee, the strongest impression of the SoCap15 conference for impact investors last week in San Francisco was about investor diversity. There were plenty of impact investors looking for energy, health, and data startups and boasting about exits. Mainstream investment advisers also showed up, like BlackRock, Bain Capital, and Goldman Sachs (fresh from buying Imprint Capital, an impact adviser with $500M under management launched in 2007). And old-line foundations like Rockefeller Foundation joined investment-oriented philanthropies like Gates and Omidyar.
But other differences look like the beginning of an important segmentation of the investing market. One series of panels was devoted to place-based strategies and neighborhood economics. Here the emphasis was on intervention depth as opposed to the economies of scale and replication strategies often sought by USAID and private-equity investors. The mantra is “depth vs. scale”.
Another fault line is developing between donors trying to achieve specific outcomes – who want to “pay for success” – and social-venture capitalists ready to compete to find the social enterprises most effective in achieving those outcomes. To date, most practitioners seem to think that the new deal structures used in Social Impact Bonds require government participation. After all, the deals up to now — there are eight so far in the US and many more elsewhere — all involve governments as the party that contracts to pay for outcomes, allowing private-sector investors to compete for those contracted payments by finding the most effective providers.
But there are lots of non-government donors and investors ready to pay for success. In fact, the widening role differentiation in the impact-investment market creates big opportunities for investors with specialized skills. So if you have a strong community-development, place-based, or private-sector development mission, this market segmentation is giving rise to potential investing partners who can add great capacity in finding ways to things done — be it turning around communities, extending agricultural supply chains to smallholder farmers, or qualifying promising infrastructure subcontractors in tough markets.
And if you have deep expertise in a sector and a region, it’s giving rise to potential investing partners who can deploy programming resources to enhance your returns if you’re successful. In sum: impact investors don’t have to wait until we smooth out all the kinks in government contracting to take advantage of specialization.