Social entrepreneurship & finance

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If measuring financial return on an investment has becoming a common practice, measuring social return still faces several issues and there is no global consensus yet on the way it should be assessed. To invest with impact, it is however a key information; on the first hand for the investor anxious about the impact generated by its capital and on second hand for the investment fund to evaluate their objectives, improve their practices and communicate the outcomes. Social return, being at the heart of the debate on impact investing, Fair Street has investigated how social investment funds measure the social impact of their investment.

Fair Street had the great privilege to interview Jacqueline Novogratz, founder and CEO of Acumen Fund, a major social investment fund mainly active in Asia.

Jacqueline Novogratz started her career at the Chase Manhattan Bank. After obtaining a MBA at Stanford University, she decided to go to Rwanda and founded a microfinance institution called Duterimbere. Consultant for the UNICEF and the World Bank, she then joined the Rockfeller Foundation where she created and managed key programs focusing on development. In 2001, together with main international organizations, she founded the social investment fund Acumen Fund.

In 2009, she wrote the book “The Blue Sweater” and she often shares her optimistic and inspiring vision at difference conferences such as Ted Talk or WEF.

In the following interview, Jacqueline Novogratz answers Fair Street’s questions on the role of patient capital and the challenges of measuring social return.

Fair Street: Could you shortly describe Acumen Fund? More precisely, could you tell us how it differentiates from other social investment funds?

Jacqueline Novogratz: Acumen Fund exists to help end poverty by changing how the world addresses it. We do this in two ways. We invest patient capital to identify, strengthen and scale business models that effectively serve the poor. And we champion and spread this approach as an effective complement to traditional aid, which can create dependence, or pure market approaches, which can bypass the actual needs of the poor.

Acumen Fund focuses on a market-oriented approach to addressing problems related to poverty in the developing world, and in its use of debt and equity, as well as an investment model that relies on intensive due diligence and the use of metrics to ensure that each investment yields measurable social returns. We actively listen to understand who the poor are and let markets indicate what they need, in an effort to help people make their own decisions and solve their own problems

Our long-term vision is that one day every human being will have access to the critical goods and services they need – including affordable health, water, housing, energy – so that they can make decisions and choices for themselves and pursue lives of greater purpose. This is where dignity starts – not just for the poor but for everyone on earth.

FS: Could you explain what a social return is? What are the different tools to measure it? What are the challenges in measuring it?

JN: It’s the measurement of this « social return » that is so difficult – not just for Acumen Fund but for the nonprofit sector overall. We have a clear commitment to accountability and metrics, from ourselves as an organization and from all the investment enterprises with whom we work. So we continue to work to develop systems that help us better understand the real impact of our work, and how we can better support our investees. At the level of our individual investments, we assess our investments along four criteria: Financial Sustainability, Social Impact, Scale and Cost Effectiveness. We expect quarterly metrics from each enterprise on the corresponding financial, operational and social impact metrics.

We employ an analysis called BACO (short for ”best available charitable option”), which is our tool for assessing the cost effectiveness of our investments. We designed it as a way for us to better understand and improve the effectiveness of our own work, not necessarily as a tool for the sector, although we are happy to see that others find it applicable.  We developed the framework because we found that absolute measures of social return are too hard to implement in practice, but we needed something to help us think about the marginal use of our philanthropic capital.

Over time, we would love to see a world where the “output per dollar input” of a range of activities is made transparent and comparable. The question of standardized metrics is an incredibly difficult one, given subjectivity in values. With Google’s support, we have built a web-based tool to share portfolio performance data across our four international offices. Called Pulse, this system allows us to keep metrics data and insights reliable and available. We can then analyze this aggregate pool of data to identify cross-cutting principles—and to explore and communicate breakthrough insights into how to reach base-of-the-pyramid markets. Pulse is currently being beta tested by a number of peer organizations, and along with a standard set of definitions, has the potential for allowing for greater comparison and transparency across the sector.

FS: You said in the “Ted talk” that patient capital plus management support are more efficient than market and charity alone. Why is this combination more efficient in generating social return in the long run?

JN: Poor people seek dignity, not dependence. Traditional charity often meets immediate needs but too often fails to enable people to solve their own problems over the long term. Market-based approaches have the potential to grow when charitable dollars run out, and they must be a part of the solution to the big problem of poverty.

But the marketplace alone isn’t the answer either. Very low-income people are too often invisible to businesses and society. Building new models that provide these critical services at affordable price – in the face of high costs, poor distribution systems, dispersed customers, limited financing options and, at times, corruption – requires imaginative business solutions and partnerships supported by investors willing to take on a risk/return profile that is unacceptable to traditional financiers.

Our approach is to invest “patient capital” – typically below-market investments that are accompanied by management assistance in enterprises with the potential to reach hundreds of thousands of individuals. We regard low-income as individuals as customers (even if they have no ability to pay) rather than as passive recipients of charity. We start with the market because we believe it the best listening device we have. From our investments, we gain insights not only about the poor as consumers but about where the market fails entirely. In these cases, we believe we can bring deeper insights about more efficient ways of delivering needed services to the very poor.

FS: In classical financial models, people usually build their portfolio looking for the highest expected return given a certain level of risk. Do you think social return will become a key investment driver in the future? Does paying attention to social return necessarily imply renouncing to some financial return?

JN: I don’t think the financial model that’s changing — what’s shifting is the way many investors consider the definition of return. I think social return is already a driver for many people, who are seeking the highest expected return that combines both the financial and social. For Acumen Fund, while we operate as a venture capital fund, we seek to make a social impact with investments while achieving financial sustainability. With our earlier investments, we have generally sought the return OF our capital as opposed to a return ON our capital – however, our more recent investments have the potential for far greater returns.


Fair Street highlights the role of finance in the development of social enterprises.

If there has been social entrepreneurs for a long time, their development and their influence has strongly increased in the last three decades. Among other things, this happened thanks to the work of several organisations which, convinced of the potential of these extraordinary individuals, support them to increase their impact and spread their innovations.

Ashoka was the first and is today the largest organisation supporting social entrepreneurs.

Ashoka is a non-profit organisation that aims at structuring and developing social entrepreneurship at the global level. It was founded in 1980 in India by Bill Drayton who was persuaded that the economy needs the dynamism and the innovations of social entrepreneurs in its long term development.

Bill Drayton famously commented that “our job is not to give people fish, it’s not to teach them how to fish, it’s to build new and better fishing industries.”

Guillerma Lazzaro, Ashoka’s director for the Cono Sur region (Argentina, Chile and Uruguay) received Fair Street in Buenos Aires to explain us in details the vision of Ashoka and the main challenges that social entrepreneurs will have to face in the coming years.

Fair Street - Ashoka Cono Sur from Angalio Productions on Vimeo.

The development of social entrepreneurs is made possible, among other things, by the financial support of institutions willing to have a social impact through their investments. They are the kind of financial agents that will build a more ethical and responsible financial sector. If they do not stand as the main source of financing for social entrepreneurs yet, the number of them willing to combine social and financial return is growing. Given the recent, innovating and promising character of these actors, Fair Street wanted to learn more on their investment strategy and on their ability to combine social and financial return.

Fair Street had the privilege to interview Michael Chu, co-founder and managing director of IGNIA fund, one of the first social venture fund active in South America (profile to be discovered in the « financial agents » section).

Senior lecturer at the Harvard Business School, Michael Chu is an expert in social entrepreneurship and in the sector of the « Base of the Pyramid ». Graduated from this same business school, he worked for the private equity Kohlberg Kravis Roberts after having begun his career at the Boston Consulting Group. During six years, he was the CEO of Accion International, an organisation that aims at fighting poverty through microfinance. In collaboration with Alvaro Rodriguez Arregui, he founded the social venture IGNIA fund in June 2007.

Fair Street : Can you explain what is a social venture fund  (or more broadly a social investment fund)? How do they differ from classic venture funds? In your opinion, are social investments riskier than traditional investments? What are the criteria’s for a “good” social investment?

Michael Chu: In my view, in its most basic definition, a social investment fund is a fund that focuses its investments on enterprises whose activities are deemed to have a positive social impact. This is the key difference with classic venture funds, in which the primary purpose is financial returns. From there on, there can be many different types of social investment funds. The IGNIA Fund which I co-founded, for example, is dedicated to invest in commercial enterprises dedicated to low-income sectors which will generate high social impact due to their activities (e.g. healthcare, housing, education, basic services for the base of the socioeconomic pyramid and supply chains that incorporate low income producers) and also above average financial returns.

I do not think that risk is a defining characteristic that distinguishes social investments from traditional investments. There are risky and safe investments in both social and traditional sectors. To emphasize my point, with the benefit of hindsight it’s clear that owning a share of Citigroup was much riskier than a share of Compartamos Banco of Mexico, where the average size loan is still under US$ 500.

My criteria for a good social investment is an enterprise that is capable of generating high social return (e.g. providing access to primary healthcare for low income populations) together with the creation of outstanding financial return (e.g. IRRs (1) in the 30s%). IGNIA’s investment in Primedic fulfils exactly those characteristics.

FS: As a manager of a social investment fund, how are you able to find the balance between social impact and financial returns when making your decisions? Doesn’t one of these variables eventually end up taking precedence over the other?

MC: At IGNIA, finding that only one of the two considerations is met is precisely a reason why we would decline a deal. For us, it makes no sense to just generate financial returns. My partner Alvaro Rodriguez and I could have done that by just sticking to what we were doing after we graduated from business school. On the other hand, if we find something of high social potential, we believe that meaningful impact can only be obtained through massive scale, which requires not only one firm but a whole industry, for which outstanding financial returns are essential. So for us, high financial returns is not a “nice-to-have” but an integral component to our theory of change and social impact.

FS: How will the current crisis impact the access to capital for social entrepreneurs? Do you think that following this crisis, people will invest a bigger part of their money in socially responsible institutions such as Ignia fund? Might the current events represent an opportunity for social entrepreneurs to gain influence in the public debate over the fundamentals of a more sustainable economic model?

MC: The current crisis will make access to capital difficult for everybody. Having said that, the latest two rounds of investment of the three we have had in IGNIA have been subsequent to the meltdown of global capital markets. We hope to continue with more investment rounds in the near future until we complete our fundraising goal.

While I would like to think that the current crisis will end up redirecting capital markets towards alternatives like IGNIA, at the end of the day this will be determined really by the actual results delivered by IGNIA.

FS: The debate you had in Geneva with Muhammad Yunus has been widely commented on the Internet…Your view is that market-based approaches and commercials means should be applied to organisations addressing the Base of the Pyramid. Could you please tell us more about this?

MC: Winning over poverty requires four conditions: massive scale, sustainability across generations, continuous efficacy (a model that gets better every day) and continuous efficiency (a model that gets cheaper every day). NGOs, philanthropy, developmental agencies can start initiatives but cannot on their own deliver scale or permanence. On the other hand, Governments cannot deliver continuous efficacy and efficiency. Business, i.e, market-based solutions, is the only way humans have known how to deliver all four of the necessary conditions simultaneously and consistently. But this is accomplished not through one individual enterprise. Business delivers this through the creation of whole industries. And I know of only one way to create an industry: an economic activity and above average returns.

One caveat, though. If you use market mechanisms to address social issues, you must also understand that the only way to ensure through time that the benefits of the additional value created do not remain solely with investors and managers but continue to flow to those being helped is through competition — open, transparent and intense. Then prices will drop, product variety will increase and customer service will excel. This is the enduring lesson of successful commercial microfinance.

(1) IRR: The Internal Rate of Return is a capital budgeting metric indicating the quality of an investment. It is the discount rate that makes the Net Present Value of the investment’s cash flow equal to zero. As any discount rate inferior to the IRR will provide a positive Net Present Value, the higher the IRR is, the better the investment will probably be.


Fair Street is interested in the role of finance in the development of social entrepreneurship. But globally, what is the purpose of finance in the economy? The financial crisis which started almost two years ago has turned into an economic crisis. Why? How come the financial sector has such an influence on economic development? Bruno Colmant has agreed to answer Fair Street’s questions!

Since September 2007, Bruno Colmant has been CEO of Euronext Bruxelles. He is also a member of the NYSE Euronext Management Committee where he holds the position of Deputy Chief Financial Officer. Before presiding over the Brussels stock market, and after having spent a large part of his career within the ING Group, Bruno Colmant was Didier Reynders’ Chief Executive.

Author of several financial works, he is a professor at several universities, including UCL and the Vlerick Leuven Gent Management School.

Watch Bruno Colmant’s interview for Fair Street!

Fair Street - Interview de Bruno Colmant from Angalio Productions on Vimeo.


May 1, 2009 | Guests

Several experts have agreed to contribute to the Fair Street project by sharing their knowledge and opinions on themes related to the project. Discover a different public figure each week.