Lot of noise but no one in the room

There is a quote, attributed to John F. Kennedy, that summarizes the current status of social impact investing: “There is a lot of noise on the stairs, but no one is in the room.”

There are many reasons for this lack of progress and today’s session called “The Challenges and Opportunities of Impact Investing” highlighted a few of the major ones. Fundamentally there are holes on both the investor side and the social entrepreneur’s side of the aisle.

On the investor side, there is far more talk than there is traction. Certainly, a few funds have been established that focus on social investment, but it is difficult to see these as more than traditional charity, dressed up as investment.

Creative new designs in the financial category to address this need have been discussed for years, but few have made it to market. This lack of significant innovation by the investment community has been a major roadblock to the expansion of the social sector. Enterprises reach a certain level of growth and then choke from the lack of capital. I am personally aware of the challenges of raising investment dollars for a social sector organization with a strong revenue strategy and proven record. It leaves those of us in the social sector wondering how a field that has shown such aggressive and fast-paced creativity in other investment categories can be so slow to respond to this emerging sector.

Of course, there are failures on the social sector side that heighten the problem. Our metrics certainly complicate the pace of innovation. While there are well-worn metrics for evaluation of a business on the for-profit side of the aisle, the metrics of the social sector are often complex and unique to the institution or issue.

In addition, although there are many exceptions, there is still wide-spread inadequate business acumen in the social sector to meet the needs of investors. As a result, the expectations of social entrepreneurs often fail all established business practices. This leads to an imbalance in the negotiation a lot of wasted time for both sides. The increased focus of academic institutions on the social sector my bridge this chasm, but we aren’t there yet.

On the hopeful side, there we were all in a room at the World Economic Forum Annual Meeting of the New Champions – financial institutions and representatives of the social sector — talking about the challenges, which is a great step toward a cure.

 

Author: Kyle Zimmer, President and Chief Executive Officer, First Book, USA; Social Entrepreneur of the Year, USA, 2006; Schwab Fellow of the World Economic Forum

Lack of access to books is a central obstacle to literacy development, with studies revealing an average of just one book for every 300 children in low-income neighborhoods. To address this need, First Book has created The First Book Marketplace, an online bookstore, and currently serves a network of 23,000 groups across the US and Canada and reaching millions of these underserved children.