The economy may be slumping and the markets fluctuating wildly, but Giving USA recently reported that over $290 billion in charitable funds was raised in the U.S. last year, an increase of nearly 4 percent. What’s more remarkable is that the majority of those dollars came from individuals, accounting for a whopping 73 percent of overall giving.
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Talking with Fast Company, Sasha Dichter asserts that we aren’t running out of money for worthy causes, we just need "a different mechanism that will outlast an individual philanthropic funding system." As the chief innovation officer at the nonprofit Acumen Fund, Dichter understands there are huge, public problems such as clean water, sanitation, and affordable, preventative health care that can be solved by social impact investing.
"At Acumen Fund we’ve been asking ourselves this question since 2001: How can we combine the best investing and philanthropy for the 3 billion people living on less than $2 per day?"
Dichter rattles off statistics and outcomes such as how Acumen Fund’s already invested $60 million in more than 44 enterprises and touched 40 million lives, that illustrate how well-versed he is in the decade-old world of impact investing. Or, as he explains it, that space "somewhere between pure philanthropy and pure investing where there’s a class of capital that’s willing to get a lower expected economic return for a higher expected social return."
As a graduate of both Harvard’s business school and its Kennedy school as well as doing stints as global manager of Corporate Citizenship at GE Money and as a senior program manager at IBM, Dichter has spent longer than that raising both philanthropic and sub-market return capital. He’ll be the first to tell you that social impact investing is far from "a crock."
Challenge - Talent
It’s also why, when he talks about how maximizing every philanthropic dollar should be a profit seeking, not necessarily profit maximizing, endeavor, he doesn’t try to sidestep the challenges. For instance, he points out how funding is not the biggest issue in giving people safe drinking water. "When the model starts to work the money will find its way there. The challenge is finding people willing to slog it out. The scarce resource is talent on the ground, not just in leadership but teams," he explains.
This was in evidence when Acumen Fund invested in A to Z Textile Mills in Tanzania, a manufacturer of low-cost bednets treated with long-lasting insecticide (LLINs) which are effective for up to five years to prevent malaria, a disease that kills nearly one million people in Africa every year.
Acumen Fund’s initial investment in 2002 catalyzed a public-private partnership between A to Z, Sumitomo Chemical, ExxonMobil, the World Health Organization (WHO), and the United Nations Children’s Fund (UNICEF)—all heavy hitters. So no one expected to have difficulty getting the nets sold.
But they did—at least through traditional sales methods such as "Tupperware" parties, church and hospital sales, and door to door. Even corporations invested in having healthy workers refused to purchase nets for their employees.
By listening to the community and experimenting with different retail venues, A to Z became an Acumen Fund success story. The company is now the largest manufacturer of LLINs in Africa, producing 29 million bednets each year, protecting millions of people from malaria, and providing jobs for more than 7,000 people, primarily women.
Challenge - Storytelling
Even with those numbers, it’s likely that you haven’t ever heard of A to Z or any of the other businesses focused on social good that Acumen Fund investments are supporting in Africa, India, and Pakistan. Which brings up another challenge: communicating the cause and "making the ask" for funding.
Even as the guy who wrote a manifesto for CEOs of nonprofits, an impassioned diatribe for them to grow a pair and not be ashamed to ask for money. Dichter acknowledges that paving the path for people to understand impact investing is key to the future of the sector.
In his blog, Dichter describes the potential philanthropist/investor as having two pockets for two types of capital. One is for investing for financial return, the other is for philanthropy. He writes, "Asking someone to make an impact investment isn’t a move along a rational economic scale, with each step proving marginally more attractive. It’s asking someone to do two things instead of one: create a new pocket and invest out of that pocket with us."
He puts most of the onus on impact investors, though. "We as a sector have a responsibility to not be apologetic about what the [investment] story is. There is no tradeoff," he explains, the way there was a generation ago with the screened investment funds of the 1990s that peddled various "vice-free" stocks. "A certain amount of results have to be proven," he adds.
Challenge - Analysis
But not quite in the way most MBAs would think. Dichter’s not opposed to applying metrics and analysis to the warm fuzziness of investing funds for social good. In fact, the Acumen Fund uses something called the Best Available Charitable Option (BACO) model as an analytical tool created to help evaluate investments against other charitable options delivering comparable products and services. Donors always know where their dollars would be most effectively placed.
Instead, Dichter believes that when impact investing does what it should, ie: tackle poverty, metrics will be beside the point. And this is where impact investing takes a sharp turn away from traditional philanthropy. He writes, "What if we get to the point when it becomes pointless to ask if an intervention works because, like the cellphone, it will be ubiquitous, so the question will feel purely academic?"
Dichter maintains there is no skipping hard work and the way to affect change on global social issues is to get close to the problem. One impact investment at a time.