Guest Articles

October 17

Jami O’Toole

Impact Investing: Take the Risk Your Challenge Deserves

Editor’s note: Throughout 2017, NextBillion is organizing content around a monthly theme, dedicating special attention to a specific sector alongside our broader coverage. This post is part of our focus on impact investing for the month of October.


At the risk of stating the obvious, investing in early-stage companies is risky. Why then would a foundation – which some might argue are organizations that have a low risk tolerance – get into impact investing? At the Michael & Susan Dell Foundation, we aim to solve big, hairy problems at scale in a sustainable way. The ‘at scale’ and ‘in a sustainable way’ are the exact reasons I feel impact investments can fill a missing piece of the puzzle in the foundation’s portfolio.

The foundation started making impact investments in India in the context of urban microfinance in 2006. Since then, the foundation has made over 40 such impact investments, representing more than $75 million in capital commitments. The bulk of these has been in India, where the foundation currently has around $50 million in impact investment commitments across 25 organizations. Whilst initially focused on urban microfinance, the foundation’s impact investment activities have extended to skills training, microenterprise and education. The foundation started undertaking impact investments in the U.S. in 2013, the bulk of this investing has been in our education portfolio. From our work, we have seen the power that impact investing can have in supporting organizations to scale and reach sustainability, therefore amplifying the impact that they have. A reflection from our education portfolio highlights why the foundation feels the risk of impact investing is worth it.

One of the goals in our education portfolio is to empower teachers with the information they need to provide high-quality, personalized instruction to students to maximize each student’s learning potential. We invest to ensure teachers have the tools and skills they need to make data-informed decisions in planning and delivering lessons to each student. We also invest to ensure that schools put in place the processes, practices and data infrastructure that teachers need to provide good instruction to each student.

Traditional grant making is critical to our work. Grants allow us to experiment, making controlled investments in innovation and carefully examining which innovations are improving outcomes for students and have the potential to scale. We can invest in new and unproven ideas that may solve a real problem for teachers or schools, but may not have great commercial potential or may be pioneering an emerging market. Grants are also useful to solve problems where the local context is unique. In a grant, we aren’t always concerned about replicating a solution in multiple places. Some problems are worth solving even if they don’t have a large addressable market. And, in some cases, grants allow us to capture and disseminate lessons learned and intellectual property that we believe has benefits outside of one specific project. In many cases, grantee organizations aim to share intellectual capital and not protect it for commercial benefit.

With many ways to use traditional grant making to advance our goals, why take on the challenges of impact investing? I believe there are two factors that make impact investment a more efficient path to scale the social impact of our work.



When we use grants as a vehicle to scale a high-potential innovation, we must have a plan to sustain the innovation at scale. Otherwise, the innovation dies off when capital dries up. Will the organization implementing the innovation build an earned revenue model? Will earned revenue fully offset the cost of the service or product delivery? If not, what sources of philanthropical capital can make a long-term funding commitment? With the changing budget and goals of philanthropic organizations, relying on ongoing foundation funding can be risky.

When making an impact investment in a for-profit company, we are investing in a market-based solution. We are looking for companies that provide a product or service that will solve a real problem for, say, teachers and improve outcomes for students. The company must be able to clearly articulate how its product or service will enable teachers to use data in the classroom to provide high-quality, personalized instruction. The company’s founders must not only demonstrate how their product or services advance our charitable mission, they must demonstrate that teachers, schools, and/or school districts are willing to pay for it. While that hits on the revenue side of the sustainability equation, we want to invest in companies that can manage cost to become financially sustainable. We look at the track record of the company’s leadership in building sustainable ventures, we assess their attitude towards cash management and evaluate the plausibility of the financial model. While we are investing to see these companies grow to reach a large number of teachers and students, we want them to manage growth so they can remain viable businesses that continue to make impact.



Flashing back ten years ago, the foundation was trying to bring data to teachers by investing in projects with individual, large, urban school districts. The districts were funded to build a data infrastructure that would power data dashboards for teachers. We discovered these projects were costly – ranging from $2 million to $15 million apiece – difficult to sustain, and there was a great deal of redundancy in the disparate data solutions districts were building. To reach even 10 percent of the 50 million students in public schools, the foundation would need to invest over $100 million. With the exceptions of the New York City Department of Education and Los Angeles Unified School District, there is not a single district in the US that has more than 500,000 students enrolled. This realization was the catalyst for our team to explore impact investing.

When making an impact investment, foundations aren’t the only entity contributing capital to scale. Not only are there other investors, the company, of course, uses revenue generated from customers for growth. Beyond that, for-profit companies have a strong incentive to make the most efficient use of capital because they are held accountable every quarter by investors and their board to meet financial projections. Because of this, we have seen even early stage companies reach 5-10 percent of public school students with a fraction of the capital we would have invested had we continued our district-by-district investment approach. Beyond that, to stay relevant and competitive, our for-profit investee companies have engaged deeply with teachers and students to keep adding value to their products. When districts create custom tools, they often lack the funding to continue evolving their solutions to meet user needs.

As a philanthropic entity, we are continuously looking for ways to maximize the impact of our giving. We are learning that the market can serve as a powerful lever to ensure that products and services are built for, and are responsive to, the schools, teachers and students who need them most.


Jami O’Toole is senior director, Data-Driven Education at the Michael & Susan Dell Foundation.

Images courtesy of the Michael & Susan Dell Foundation.




Education, Investing
impact investing