Posted by: Tayo Akinyemi | March 20, 2012

Bridging the Capital Gap in Impact Investing

It’s not unusual to hear two complaints with respect to impact investing: 1) there are too few investible deals; and 2) investors are reluctant to assume risk.  From what I can tell, potential solutions tend to focus on bringing investees up to speed through capacity-building.  Perhaps there is a need for more intermediaries—accelerators, for example—to serve that purpose.

However, I also wonder if it’s possible to work the other way ’round.  That is, to help impact investors evaluate potential companies, social enterprises, and nonprofits in ways that fit these organizations and how they operate.  Dr. Harish Hande of SELCO puts it this way:

[I’ve] yet to see a VC who puts money in companies started by non-English speaking entrepreneurs because of the ‘Excel sheet mindset’. “VCs are looking at entrepreneurs who know to make Excel financials and Powerpoint presentations. Thousands are left out of the ecosystem”.

Maybe the problem isn’t just the dearth of appropriate deals.  Maybe there’s also room to think more creatively about how to evaluate investment opportunities.  While this is might be happening already among impact investors—the Acumen Funds and Omidyars of the world, it’s hard to see from the outside looking in.  Even so, why not seek additional solutions?  For example, the Entrepreneurial Finance Lab has created psychometric tools designed to assess an entrepreneur’s potential to be successful, effectively reducing the cost of due diligence and the risk associated with early stage investments in emerging markets.

Of course, there are no easy answers.  There never are.  It seems to me that “crossing the chasm” would be an easier task if the bridge-building started on either side and met in the middle.

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