Social Impact Investing

SOCIAL IMPACT INVESTMENT: BUILDING THE EVIDENCE BASE
3.5. Intermediaries
3.27 Intermediaries can play a pivotal role in developing the social impact investment ecosystem.
They provide the links between investors, investees and others in the market and provide innovative new
solutions to improving efficiencies in the market. They play functions such as creating liquidity in the
market and facilitating payment mechanisms which can also help to lower costs and reduce risks in the
market (WEF 2013). They also provide advice as well as help in structuring deals and in managing funds.
3.28 The lack of efficient intermediation in the social impact investment market translates into higher
transaction costs caused by fragmented demand and supply as well as complex deal structuring (Freireich
and Fulton, 2009). The early stage of ecosystem infrastructure development impedes the dialogue between
investors and social ventures, which makes it difficult to break down historical barriers between
philanthropy and investment (Freireich and Fulton, 2009). Platforms are needed to provide accessible
distribution systems and offer comparable product performance (Jackson and Associates, 2012). This will
also allow better matching of investor and investee risk/return profiles.
3.29 Intermediaries can include commercial banks, investment banks, independent financial advisors,
brokers, dealers, and exchanges. The creation of new specialist intermediaries and the strengthening of
existing ones are important for creating a well-functioning ecosystem as well as enabling deal flow
(Jackson and Associates, 2012). Various types of intermediaries are needed to serve all sizes of impactdriven
organisations (Addis et al, 2013) and players in the ecosystem need to be encouraged and
incentivised to collaborate.
3.5.1. Social Venture Funds
3.30 Social venture funds started over a decade ago and are becoming more prevalent. However, most
of the funds are young and small, often without a track record, making it difficult to attract institutional
investors (GHK, 2013). These typically follow a venture capital type of model but can include a mix of
instruments beyond equity. Like venture capital funds, social venture funds take a portfolio approach to
investing to balance risks and returns (Saltuk, 2012).
3.31 The number of social investment funds is increasing. Some of these funds are independent while
others are affiliated with large banks or development institutions. Funds might focus on certain sectors,
geographies or investment stages. They typically target market returns, investing through a mix of grants,
subsidized loans and equity investments. More recently, fund-of-funds have been created to provide greater
scale and diversity for institutional investors (WEF, 2013).
3.32 Social investment fund managers often have a close hands-on relationship with the social purpose
organisation they support, driving innovative and scalable models of social change (EVPA, 2011). Some
may take board seats at these organisations, and most are more involved at the strategic and operational
levels.
3.33 Models for these funds can vary. For example, Social Venture Fund (headquartered in Germany
but expanding to other countries as well) invests in social enterprises, which have innovative and
entrepreneurial driven solutions for urgent social and environmental challenges. Bridge Ventures, a private
investment firm, created in the U.K. in 2002, is dedicated to using an impact-driven investment approach
to create superior returns for both investors and society at-large. Bridges Ventures began by investing in
for-profit ventures in underserved communities and later created a Social Entrepreneurs Fund.
3.34 Social venture investors face challenges in assessing the growing number of projects. It requires
systems, structures and processes. Mission drift can be a danger. It is important for there to be in as much
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