This article series is in conjunction with Entrepreneurial Nation (E-Nation) Symposium, a 4-day event at MaGIC with the theme “Shaping An Entrepreneurial Nation”. The event will cut across 6 main pillars (Creative, Corporate Innovation, Education, Entrepreneurship, Policy and Social Entrepreneurship), with the objectives to:
1) bridge ecosystem players together to exchange ideas, promote collaboration and foster networking opportunities;
2) highlight recent entrepreneurial initiatives;
3) gather influential entrepreneurs and speakers to share rich knowledge and information to attendees;
4) promote the concept of social innovation and social responsibility to encourage the adoption and understanding of the conscious entrepreneurship concept.
This article is in line with the Social Entrepreneurship pillar.
On Day 1 of the E-Nation Symposium, we had the pleasure of learning about impact investing from 4 women who are in the industry themselves:
- Melissa Foo, Vice President, Malaysia Business Angels Network (MBAN)
- Lehui Liang, Head of Purpose Capital, Social Ventures Hong Kong (SVhk)
- Jian Li Yew, Managing Partner, Citrine Capital
- Shuyin Tang, Partner, Patamar Capital
So, first of all, what is impact investing? It’s a fairly new term, and it’s an investment strategy that aims to generate social and financial benefits.
Melissa said in her presentation that impact investments exist along a spectrum, which means that there is no perfect impact investment.
“The spectrum runs from commercial or just typical investments, all the way up to non-profits, and somewhere in the middle, we have impact investment where we have financial and social benefits,” she shared.
Impact investing usually goes towards socially responsible businesses, businesses with a social purpose, co-operatives, non-profit enterprises, and the social enterprises of charities.
For an impact investor to be effective, they should focus on the impact first, and then decide on the financial instrument.
After working with a lot of social enterprises that are impactful, Melissa found that some amongst them just aren’t designed for scalability.
For example, social enterprises that help communities like the visually or hearing impaired are impactful in the amount of technology in the programs and benefits that they offer to these communities.
However, the businesses are community-based and offline. This means that the scale of these types of business models isn’t really in line with typical venture capital or angel investors’ expectations.
If social enterprises are looking for investments, Melissa said that both they and the investors need to be very clear on their expectations of each other from the get-go, so that there won’t be conflict further down the road.
You might now be thinking, isn’t impact too vague of a concept to measure? But Melissa said otherwise.
“There are a variety of ways to measure the impact of your investments. It’s not like your typical investment with your financial report, but we can say qualitative measures such as sustainable development goals and quantitative measures as well such as the SROI* (social return on investment),” she said.
Dictionary Time: SROI is a method for measuring values that are not traditionally reflected in financial statements, including social, economic and environmental factors.
*Editor’s Update: The acronym has been changed to reflect further accuracy of Melissa’s statement.
Creating Impact Through Investment
Lehui said that her company believes that there’s not a single approach to creating impact.
“What really matters to us is the impact that we create.”
Her company used to do pure venture philanthropy, but eventually moved into what they call “incubation”.
“If there are no projects out there, we will build our own projects,” Lehui said.
When they had their first 3 projects, Lehui told the crowd that they weren’t seeing financial returns yet, but there were a lot of impact returns, and that was how they gave recognition to what an impact or social business could do.
But realistically, finance was still a challenge because after building a business, there is a need to operate it.
“One of the ideas we had was that we can’t keep working on small-scale social enterprises every day. But if the corporate sector keeps creating problems, as they do, then whatever we do is just not going to be enough,” she said.
Instead of demonising them, her company simply took advantage of the resources in society.
“Capital could be your time, your network, your experience, the land you own maybe, the house you own…all of these are resources that already exist in society. Our job is really to put a social purpose into them so that they can run as they are, but still create impact,” Lehui shared.
So, Why Impact Investing?
Jian Li shared that millennials care more about impact, compared to our parents’ generation who maximised profits.
“The next generation is also very keen about changing the world with a greater impact, so there’s a movement, a trend that generally says that impact is the next wave,” she said.
There are many problems in ASEAN, and where there are problems, there are always solutions. “These problems are usually solved by foundations giving money to NGOs, or social enterprises coming up with ideas to solve these problems,” Jian Li said.
On the supply side, Malaysia has NGOs that are turning into social enterprises. This has caused donors to change the way they’re giving money, as rather than pure philanthropy, they’re also looking into making the business sustainable.
According to Jian Li, everyone is now going towards the middle of the spectrum where impact is becoming more sustainable, while businesses are becoming more impactful.
A Snowball Effect Of Impact Investing
In trying to solve something, market research is important. With that data, businesses can then decide their target population to come up with a model where they can:
- Provide products and services to their target group,
- Utilise the target group as their distribution channel, or
- Utilise the target group’s supplies
One example Jian Li gave to illustrate the last point is how business can help small rice farmers by branding and marketing it for them, thus making use of their supplies and indirectly giving them income opportunities.
Here’s a real-life example of impact investing that brought not only impact returns, but also financial returns.
Shuyin shared how Mapan, an Indonesian social enterprise that works as a community based savings and lending network, was eventually acquired by Gojek. This led to a 9x return on Patamar’s investments in Mapan.
Globally, this has been a consistent trend. In a 2017 study of 209 investors who had committed USD22 billion to impact investing the previous year, 91% of them reported that the investments were meeting or exceeding financial expectations.
This trend has not been replicated in Malaysia yet, but these are hints of the future. MaGIC will receive a RM10 million boost in Budget 2020 to develop social enterprises, and coupling that with an increased interest in impact investing, this can only mean an acceleration of the industry in the years to come.
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Featured Image Credit: MaGIC Cyberjaya