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

Wednesday, February 11, 2015

Rigorous evidence of impact is not just about accountability in impact investing. It is an enabler of the field’s growth in its own right.

That holds true across the board. Whether its investments in for-profit or non-profit organizations, with philanthropic or commercial impulses, proof of impact attracts attention and gives new investors confidence that the promise of concurrently delivering financial and social performance is for real.

However evidence plays an especially important role for non-profit social enterprises, at an earlier stage in their development.

This is where venture philanthropy provides a natural complement to impact investing, by readying social enterprises for the returns-seeking capital that is becoming more available, thanks to innovations like social impact bonds.

By venture philanthropy I mean an approach that focuses on providing unrestricted, entity-level grant funding, which is desperately needed in order for social enterprises to scale and become truly investable.

And the key ingredient in venture philanthropy is rigorous evidence of impact. By proving replicability, evidence refocuses the conversation with funders on operational capacity, rather than discrete programmatic expenses, essentially transforming grant capital into growth capital.

As the father of social finance in the UK, Sir Ronald Cohen argues, rigorous proof of impact will unlock the capital markets for social enterprises. Once we know the costs, savings to government, and societal value of a range of preventative interventions, Sir Ronald believes impact investing will come to comprise a few percent of most portfolios.