James Militzer

Needed: A ‘Facebook’ for Impact Investing: Why the Sector Needs to Embrace Failure – And Also Produce Some Inspiring Successes

Vox Capital is Brazil’s first impact investing venture capital firm. It is focused primarily on health, education and financial services which, according to its co-founder and executive director, Daniel Izzo, are the sectors that have the most direct impact on people living in urban poverty – the poverty most prevalent in Brazil.

The impact investing sector has grown in Brazil since Vox Capital was founded in 2009, with around 20 funds raising some $300 million for impact investments by 2013. But according to Izzo, though most of these funds have capital to invest, “they still have very little action when it comes to investing in actual companies.”

What’s holding things up? He points to two main obstacles: ”The first one is the lack of human capital we have. You have to have a very good team with entrepreneurial spirit and complementary skills that make you comfortable that they will somehow be able to deliver the value proposition of the company, and it’s very hard to find this group of people. And the second reason, I think, is that impact investors are very afraid of taking risks.”

With impact investing, Izzo says, investors have a dual dilemma. They don’t know if their investees’ businesses will succeed financially – and they’re even less certain if they will have enough social benefit to justify the “impact” label. What’s more, he says, “since impact investors don’t know yet how to really measure impact, we’re trying to avoid the risk.”

So what’s the solution? For Izzo, it boils down to setting investor expectations: “You have to be aligned with your investors, to let them know that some companies are going to fail – and some companies may fail also on the impact side.” But that’s OK, because the market is still young. “If you promise [investors] that we have a very mature sector and you know what we’re going to deliver, then you set the wrong expectations. But if you [emphasize] building the market and learning from the experience, maybe you reduce the pool of investors interested in it, but the ones that join are very aligned.”

This approach has been key to Vox Capital’s success, Izzo says, because, “You cannot learn by doing analysis sitting at your desk. The best way to learn is by doing – making mistakes, getting things right, and moving forward. If you refrain from doing anything, then we have a roadblock and cannot advance the market as a whole. So failure has to be an expected part of what we do.”

Even so, the expectation of failure can’t come to define the sector. At the top of Izzo’s wish list of changes for impact investing in the coming years: “better and more well-known success cases.” The industry needs a pool of companies that are inspiring enough to draw more entrepreneurs, employees and investors into the sector, he says. Because in spite of some notable business successes, “The success cases that we have are not as inspiring as, let’s say, a Facebook or a Twitter or an Instagram. We need these cases appearing more and more.”

In this Q&A, he discusses a standout company among Vox’s investees, the importance of not shying away from tackling big social challenges and established players (“If you can’t compete with traditional players like philanthropies or government … if you create a business, you’re going to lose anyway”), and the need for impact measurement to move beyond outputs and measure companies’ actual positive effect on people. You can view the interview in the video below.



Editor’s note: This interview was conducted at the BASE Forum 2015, presented by the Inter-American Development Bank’s Opportunities for the Majority initiative. NextBillion was a media partner at the event.


James Militzer is the editor of NextBillion Financial Innovation.


Impact Assessment, Investing, Social Enterprise
business development, failure, impact investing, impact measurement, social enterprise, venture capital