Social Impact Investing

SOCIAL IMPACT INVESTMENT: BUILDING THE EVIDENCE BASE
2.30 As in the mainstream financial markets, investment evolution is not necessarily linear, although
it is often assumed to follow a path from individual transactions, to boutique offerings to funds, funds of
funds and ultimately fully ‘liquid’, or tradable, capital markets where investors have a range of choices to
buy and sell investments (Bugg-Levine and Emerson, 2011).
2.31 While the players, financing needs and mix of instruments differ from traditional finance, social
impact investment instruments span asset classes and can include equity, quasi-equity, loans and bonds. A
growing range of social impact investment instruments have been developed, all with a different
financial/social return profile. However, given the early stage of market development, there is a lack of
products across the risk/return spectrum making it more difficult to attract investors, particularly more
mainstream ones.
2.32 The existence of vibrant entrepreneurial finance markets can facilitate the development of the
social impact investment market as experience with financial market tools can help in building the SII
market. In fact, many people in SII were active in investment banking, private equity, venture capital
and/or angel investing.
2.33 Comparisons are sometimes made between the evolution of the social impact investment market
and the venture capital industry (Cohen and Sahlman, 2013). The venture capital industry, which was first
created in 1946, grew over several decades through a series of U.S. government interventions, including a
legislation in the 1950s that allowed privately funded investment firms to provide capital to early-stage
funds, ERISA in 1978 which enabled pension funds to invest in venture capital firms and a lowering of the
capital gains tax rate (Freireich and Fulton, 2009). In the 1970’s, the industry began growing in Europe and
later in other parts of the world. Pioneers in the venture capital industry included Sir Ronald Cohen, one of
the leaders and key drivers of the social impact investment movement, in the U.K. and globally, and the
Chairman of the Social Impact Investment Taskforce established by the G8 in 2013.
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