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

Thursday, March 22, 2018

By John MacIntosh

ImpactUs, the broker-dealer for impact investments that recently shut down less than a year after going live, may be just another casualty of the flawed theory that intermediaries are a necessary precursor to healthy markets: an exactly backwards idea that funders nevertheless find enticing, perhaps since intermediaries are cheap and easy relative to underlying markets they promise to enable.

On the other hand, ImpactUs looks to have had a lot going for it: strong funders (Ford, MacArthur, Kellogg, Enterprise, City First Enterprises, and so on), high quality issuers (e.g. Low Income Investment Fund, Coastal Enterprises, among others), an experienced management team, and enough residual value that MissionPoint Partners recently announced that it was acquiring the assets. So maybe ImpactUs was a good idea that would have succeeded—or at least taken longer to fail—had it been approached differently. And while I don’t know the details, what I do know from similar situations suggests that many nonprofit earned-income ventures (“NEIVs”)—organizations launched with a big dollop of philanthropy but then expected to “make it” on earned income—are not approached in a way that maximizes the odds of success.

A venture-backed startup works like this: An entrepreneur has an idea she is passionate about and races around to early-stage funders looking for support. Funders decide whether or not to support her based on their pre-existing enthusiasm for the general idea, their confidence in her, and the price. The financing round closes if and only if a minimum quantum amount of money can be raised. Funders join the board. Reality intervenes. Things don’t go as planned.