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

Friday, December 16, 2016

At Omidyar Network, we are bullish on impact investing. But we’ve also been frustrated by some of the rhetoric we hear, especially the ongoing — almost ideological — debate about whether there is a necessary tradeoff between financial returns and social impact.

The skeptics argue there is always a tradeoff; the purists argue there is never a tradeoff. In conferences and newspapers and boardrooms, both sides stake their claim, each readily marshalling compelling examples to reinforce their world view. The argument never seems to end.

We believe the answer to this hotly contested question is not yes or no but rather: “It depends.” Our experience at Omidyar Network suggests that there are many opportunities to achieve both great returns and great impact. Indeed, it seems to us that in many cases, the best way to achieve massive social impact is to build a fabulous business that serves a desired market. If a company is highly financially successful, it can use retained earnings and its access to capital markets to serve more people. However, there are also circumstances where commercial returns are simply not possible but businesses can still be highly impactful (and more sustainable than grant reliant nonprofits).

Our recent article in the Stanford Social Innovation Review, Across the Returns Continuum, seeks to address these questions by introducing our framework for investing — with impact as the objective. We also want to challenge some of the “myths” we’ve heard about the relationship between financial returns and social impact.