NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, January 19, 2015

What makes a successful impact investment fund successful? Where’s the secret sauce?

That’s what Cathy Clark, Ben Thornley and Jed Emerson set out to discover. Their new book The Impact Investor : Lessons in Leadership and Strategy for Collaborative Capitalism (Jossey-Bass, Oct, 2014) contains the results of their two years of research, with insights gained from studying 12 long-standing funds with a clear track record that, in total, have raised more than $1.3 billion in impact capital.

Clark is lead faculty member at the Center for the Advancement of Social Entrepreneurship (CASE) at Duke University’s Fuqua School of Business, among other posts; Thornley, founding partner of ICAP Partners; and Emerson, senior impact strategist at ImpactAssets.

I recently talked to Clark about the keys to success that she and her colleagues pinpointed. She discussed four crucial elements:

1) Ensuring that key investors are on the same page–and viewing them as stakeholders and collaborators. “A really smart impact investment fund figures out who cares about the social impact you are trying to achieve and puts together an assortment of investors who are in it for the same reasons,” says Clark. This is no easy process and can take several years to pull off. It also requires that the fund’s mission is an integral part of its DNA. (“Mission first and last” is what this is called in the book).

2) Making government a major player in the process. This ingredient wasn’t something the fund managers necessarily wanted to emphasize; they preferred to be seen as embracing the market, not government. But the fact is, according to Clark, many of the funds either have public sector money or were started by a government group behind the scenes. For example, in Bridges Ventures Sustainable Growth Fund 1, the UK government provided a one-for-one investment match for very pound raised in the 40 million pound fund.