Photo Credit, Brooks Canaday/Northeastern University

Teaching Impact Investing in High Performance Social Enterprises

by Dennis Shaughnessy

The idea of “impact invest­ing” is gain­ing a great deal of atten­tion these days, includ­ing in under­grad­u­ate edu­ca­tion.  While many insti­tu­tions have offered classes in strate­gic phil­an­thropy in recent years, and of course in tra­di­tional busi­ness invest­ing for many, we have focused our efforts at SEI on devel­op­ing edu­ca­tional pro­grams for a new third way of invest­ing.  This new invest­ment dis­ci­pline involves socially minded investors pro­vid­ing cap­i­tal to both for profit and non-profit enter­prises that are com­mit­ted to effi­ciently address­ing social prob­lems in both a sus­tain­able and inno­v­a­tive way.

This Fall, we offered for a sec­ond time a course for fresh­man in which they were respon­si­ble for invest­ing $10,000 in a “high impact” social enter­prise.  The sem­i­nar is a col­lab­o­ra­tion between our NU Hon­ors Pro­gram and the D’Amore-McKim School of Busi­ness, in mem­ory of the late Dean Tom Moore.  The cri­te­ria used by stu­dents for eval­u­at­ing invest­ment oppor­tu­ni­ties included the use of impact mea­sure­ment and eval­u­a­tion tools that demon­strate that a non-profit, for profit or hybrid enter­prise is hav­ing a sus­tain­able and mean­ing­ful impact on address­ing extreme poverty.  Fur­ther, stu­dents devel­oped ana­lyt­i­cal tools to eval­u­ate the effi­ciency of these enter­prises, cre­at­ing a mea­sure of “cost per life impacted” to com­par­a­tively eval­u­ate the effi­ciency of achieved impact of a num­ber of high impact social enter­prises.  Finally, the stu­dents focused on select­ing entre­pre­neur­ial orga­ni­za­tions com­mit­ted to sus­tain­able enter­prise growth with­out com­pris­ing their social mission.

Stu­dents of impact invest­ing learn that dona­tions, or giv­ing, to large, estab­lished char­i­ties will always be impor­tant, but that there are com­ple­men­tary approaches to address­ing global prob­lems like poverty.   “Invest­ing” in a social busi­ness (an enter­prise with a social impact mis­sion that uses profit to sus­tain the mis­sion) can include a grant, a loan or an equity invest­ment, depend­ing on the cir­cum­stances and the need.  Sim­i­larly, invest­ing in a non-profit social enter­prise can include a grant or a loan.  Impact invest­ing allows the socially minded investors more options for pro­vid­ing finan­cial sup­port to deserv­ing orga­ni­za­tions, and most notably allows a “blend­ing” of both social and finan­cial returns for those who value cap­i­tal recov­ery for rein­vest­ment in new opportunities.

Last year’s win­ner was the One Acre Fund (OAF), a non­profit orga­ni­za­tion that is rethink­ing the chronic hunger prob­lem in Africa by pro­vid­ing per­ma­nent, proven invest­ment pack­age for impov­er­ished farm­ers and their fam­i­lies. OAF’s ground­break­ing work in trans­form­ing the lives of small holder farm­ers in East Africa was recently fea­tured in Roger Thurow’s new book, “The Last Hunger Sea­son: A Year in an African Farm Com­mu­nity on the Brink of Change.”

This year, our stu­dents selected for impact grants Micro­fi­nance Lim­ited of Jamaica, a pri­vate for-profit micro­fi­nance insti­tu­tion pro­vid­ing loans and other ser­vices to the very poor at afford­able prices in an around Kingston, and Manna Project Inter­na­tional, a non-profit with oper­a­tions in la Chureca, Nicaragua’s largest trash dump.  MPI is work­ing with women and fam­i­lies liv­ing in garbage to cre­ate a coop­er­a­tive to sell arti­san prod­ucts to retail­ers like Wal­mart.  Both orga­ni­za­tions are small but rapidly grow­ing entre­pre­neur­ial ven­tures with a com­mit­ment to improv­ing the lives of very poor fam­i­lies, using inno­v­a­tive approaches to prob­lem solv­ing on behalf of very poor fam­i­lies seek­ing an oppor­tu­nity to improve their lives.   The orig­i­nal invest­ment cap­i­tal of $10,000 for the pro­gram was matched by other impact investors to pro­vide a total of $30,000 to be shared by these two wor­thy orga­ni­za­tions, evi­denc­ing the grow­ing inter­est among socially minded investors.  We are plan­ning hands-on stu­dent field expe­ri­ences with these orga­ni­za­tions as part of our curriculum.

In a sec­ond under­grad­u­ate class in social enter­prise, our stu­dents eval­u­ated numer­ous social enter­prises using an ana­lyt­i­cal frame­work devel­oped by SEI.  The eval­u­a­tion cri­te­ria include moti­va­tion of the founder, busi­ness model, social inno­va­tion, finan­cial sus­tain­abil­ity, impact mea­sure­ment and eval­u­a­tion, and repli­ca­tion and scal­a­bil­ity.  A stu­dent fundrais­ing ini­tia­tive raised $2,500 to grant to an espe­cially high per­for­mance social enter­prise using this ana­lyt­i­cal tool, which was matched sev­eral times by donors to reach a total of $15,000.  The grant will cre­ate three new library rooms and schol­ar­ships for poor chil­dren in India and else­where in the devel­op­ing world through Room to Read, a highly entre­pre­neur­ial non-profit founded by a for­mer Microsoft employee (John Wood)The cre­ation of these new library rooms was done in honor of the late Naman Shah, a stu­dent of SEI who trag­i­cally passed away ear­lier this Fall.

Impact invest­ing is clearly a pow­er­ful new force for good.  It allows peo­ple to use their money to sup­port enter­prises that exem­plify in their work the qual­i­ties we admire most in peo­ple, like kind­ness, com­pas­sion and gen­eros­ity.  We plan to grow our edu­ca­tional pro­grams and field ini­tia­tives in the area in order to train a new gen­er­a­tion of com­pas­sion­ate impact investors

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