"Too many suits … not enough hippies." That was the brief conclusion of the microfinance expert Paul Blyth, one of the panellists at the Socap Europe 2011 conference closing session. While the comment was meant half in jest, it was also intended to underline a serious point that social enterprise was now attracting major "impact investors" with access to significant sources of capital. Their heavy presence did give the event a more corporate tone, with an emphasis on how to build the financial infrastructure for impact investing, support social entrepreneurs to get "investment ready" and finance profitable social enterprises to scale.
If anyone was expecting sessions dedicated to brainstorming new economic models or redefining profit, then they may have been disappointed. But then, that's not what Socap is about. Founded in San Francisco in 2008 during the darkest days of the global financial crisis, it seeks to redirect the power and efficiency of market systems toward social impact. It engages "valuable strangers", in co-founder Kevin Jones's own words, from entrepreneurs and innovators to investors and foundations, united by desire to develop the social impact investment landscape.
This conference in Amsterdam was Socap's first in Europe. Hosted at the Beurs van Berlage, site of the world's first stock exchange, it brought together many of the major players from the impact investment scene in North America with their peers from Europe and beyond. The conference opened with an address from HRH Princess Máxima of the Netherlands (a former investment banker herself) on the merits of access to capital for the poorest and the need for responsibility in investment. While the content of the princess's speech itself was not groundbreaking, the fact that she chose to give it was. Her endorsement was another mark in how far the impact investment scene has come in a relatively short period.
Whether it was the princess's presence, the warm hospitality or a healthy dose of North American "can do" attitude, there was a definite feeling of optimism at this conference that I have rarely felt at other events. There was a real sense that impact investing was on steep upward curve and that the tools that would support its growth were making progress.
Certainly there is some evidence to support this, with JP Morgan recently suggesting that impact investment funds could top a trillion dollars in the next decade. At the conference, it was announced that social impact measurement tools, including the Impact Reporting and Investing Standards and the Global Impact Investment Rating Service, were moving forward. Also, a new exchange for social enterprises being developed by both The Social Stock Exchange and Nexii is nearly ready for market. While these instruments provide grounds for encouragement, their value will largely be determined by their widespread adoption and since there are several players currently competing to deliver them, it will take some time before industry standards emerge.
A recurring theme in the sessions I attended was that government's role is primarily to "get out of the way", not an opinion I share. Albert Einstein famously said that "you can't solve a problem with the same mind that created it" so, despite the enthusiasm to move forward, it shouldn't be forgotten that the finance industry was directly responsible for the global financial crisis, not national governments! Government has an absolutely key role in orientating policy so that it is not, as Patrick Holden from the Sustainable Food Trust stated, "hostile to doing the right thing", but instead rewards social enterprise through incentives. In addition, government needs to take the lead in stimulating the market for social enterprise through procurement and providing funds at the early start-up phase, as identified by Simon Tucker from the Young Foundation.
This gap at the seed funding stage was apparent at Socap. Unsurprisingly, the vast majority of impact investors, particularly the institutional investors, want to concentrate on scaling social enterprises that have already demonstrated profitability. The expected returns from these investments vary from fund to fund, but in general an impact investment VC will be expecting a percentage return somewhere in the teens. One panellist, Tony Fernandes, from Pyme Capital, indicated that some investors in the sector had an expectation of a 35% return, in line with returns demonstrated by the micro-finance industry. While Fernandes argued that such rates of return were clearly unrealistic, his observation called into question the motivations of such "impact investors".
Overall, Socap delivered on its formula of being an "intersection between money and meaning", providing a very practical forum for the impact investment community to develop ideas, share experience and connect to social entrepreneurs. I learned that this intersection can be an uncomfortable place, and there are serious questions about the extent to which there are shared perspectives on how social enterprise is defined, where it is headed and what constitutes a fair return on investment. But it was refreshing to attend an event about social enterprise where the majority of attendees were not known to me. I recognise that these are the difficult conversations we, as social entrepreneurs, need to be having if we wish to see our enterprises grow.
Socap may not have been the most innovative or thought-provoking conference I've attended, but it was certainly one of the most challenging and has a crucial role to play in developing a common language between social investors and entrepreneurs that will ultimately unlock the capital required to scale the movement.
Dermot Egan is founding director at The Hub
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