Match Return Expectations to the Market You’re Serving: (With video) Omidyar Network shares lessons learned from the impact Investing field (Pt 2)
This is the second in a four-part series. Check out additional articles below.
There is a considerable split in the impact investing world between so-called ‘returns first’ investors and ‘impact first’ investors, who disagree on whether it’s ever necessary to expect returns that are below market rate. At Omidyar Network, we believe that the answer to this question depends on the market you are serving.
In most circumstances, we believe that funding entrepreneurs with robust returns expectations is the best way of achieving impact. Strong returns will enable businesses to attract the capital that will enable them to scale—thus, ultimately touching the maximum number of lives. For example, when we invested in d.light (a company producing low cost solar lanterns for those without access to reliable electricity), we did so expecting strong returns even though many of their clients are poor. These expectations were based on the enormous size of the market globally, as well as d.light’s ability to serve consumers in the working poor and lower middle income segments in addition to the destitute.
However, we make exceptions to this practice when we deal with smaller markets and with customers with very low-income levels. For example, we have invested in BRAC to deliver microfinance to customers in post-war Sierra Leone. Given the lack of infrastructure in the country and the extreme poverty of target clients, it is realistic to require more flexibility in either return expectations or time horizons for exits on our investment.
Impact Investing is a wide tent, encompassing investors at all points on the returns spectrum. In this video, Julie Sunderland, director of program related investments, Gates Foundation; Maya Chorengel co-founder and managing director, Elevar Equity; and Roy Sosa, founder, chairman and CEO, Rêv Worldwide) share varying viewpoints on deal return expectations within impact investing. Ultimately, all agree that returns are inherently tied to the problem you’re trying to solve, the financial instrument(s) being used, the market you’re serving, and the lens through which you’re assessing investments.
Paula Goldman is the director of Knowledge & Advocacy for Omidyar Network.
Check out the other articles and videos in this series:
? NexThought Monday: Addressing Problems First, Structure Second : (With video) Omidyar Network shares lessons learned from the impact Investing field (Pt 1)