- Impact investing is the latest hot topic in the do-good community around the world. At its core, the idea of actually “investing” in social-purpose organizations and achieve both “social and environmental” and “financial” returns for money, as an alternative and complement to philanthropy, gets people excited. Whether you think it’s just repackaging of old ideas or a legitimate paradigm shift, this “field” has undeniably gotten significant attention in the last five years.
- The key benefits, if impact investing can deliver on its promise, are clear: (1) shift mindsets to finally expand the definition of “return” to be more inclusive beyond simple financial metrics, a significant step towards a happy triple-bottom line world will be made, (2) open the floodgates of capital worldwide to help do-good organizations find diverse funding streams through all stages (but especially growth stages) of their development, (3) support philanthropic and development money flow as current main funding sources, and (4) raise standards of quality, transparency and accountability for impact as these new investors demand more rigor and effectiveness from their investees in a measurable way.
- That said, impact investing is still very early stage and both confusion and lack of agreement prevails on many fronts, raising questions such as: (1) how much financial return is enough?, (2) how do we measure social returns?, (3) how do we prevent mission drift as profit considerations become more important?, (4) what type of organizations exactly are we investing in and (5) is there enough pipeline and liquidity, i.e., enough worthwhile organizations to invest in?
There have been many books and articles, and of course entire conferences like SOCAP dedicated to trying to answer these questions year after year. Meanwhile, the buzz is large enough that we have quite a few people now interested in working on those jobs. But how many of you know what these jobs are about? What assumptions are you making and what expectations do you have? Are you sure about that?
In this 5-part series, taking as usual a career-relevant angle for you, I try to offer a 6-step mental checklist based on personal experience and my current knowledge of impact investing, so that you can (1) better understand what type of opportunities there are currently, (2) ask some meaningful questions to your prospective employer and, most importantly, (3) ask yourself if this is what you want, before you sign the dotted line and join the fun. As always, feel free to weigh in with your own experiences and questions in the comment box for all readers’ benefit.
*Disclaimer: for this post series, I will apply the term “impact investing” to a broader area of popular interpretations, which frequently is further confused by different terminology. Thus, I will deliberately include everything from socially responsible investing (SRI), environmental/social/governance investing (ESG), venture/engaged philanthropy, profit-for-purpose investing, to patient capital investing. Confused yet? Fantastic, because cutting through that terminology mess (and its misuse in popular media on a weekly basis) is very much a part of the process as you’re looking for jobs in impact investing in coming years!
Here’s my mental checklist to identify that job opportunity and how to think about it once you’ve been shortlisted for an interview. I will elaborate in this Part 1 on the first item and subsequent posts will cover the rest.
Impact Investing Career Checklist
- Identify the opportunities (Part 1)
- Assess your potential role (Part 2)
- Understand who runs the show (Part 3)
- Define target organizations they fund (Part 4)
- Clarify their return expectations (Part 5)
- Know yourself (Part 5)
1) Identify the opportunities
- Before directly talking about opportunities, let us spend just a moment thinking about what makes impact investment attractive for would-be professionals. By doing this I would like to draw out underlying expectations I think people have, irrespective of whether they are met in real life or not. I would divide people interested into a group of inexperienced and a group of experienced professionals. The former, set of people interested may be one that is at the same time interested in the traditional areas of investment banking and consulting after undergraduate or graduate school. These may be people who originally find the intellectual challenging environment, the stimulating problem solving involved, and the fast pace learning opportunity appealing. Additionally, the selling point of “doing good” by focusing exclusively on such organizations may be further enticing to such professionals or students. The latter set of people are existing professionals in the same areas (banking, consulting, corporate, etc.) who have made enough money, learned enough technical skills, and decide for any reason that it would be nice to keep leveraging those skills albeit under the new mandate of improving lives vs. helping others just make more money. I would guess that there is also an underlying assumption that impact investing, due to its semi-capitalist heritage, is more prone to pay good salaries compared to the traditional hardcore nonprofit job.
- In my opinion, impact investment today tends to lend itself better to those in the latter (experience) than in the former (inexperienced) group. I say this because I strongly believe that impact investing is even harder to do than traditional investing. Uncovering dollars to be made is hard enough, but now there is also an added imperative to measure and evaluate the social/environmental return, with little standardization still existing. It may be fair to say that people with banking, consulting and corporate backgrounds may have a broader set of tools available to do this work. Furthermore, resources to work with are tight, uncertainty is high, and the “market” for social/environmentally focused firms either (a) does not really exist, (b) is poorly developed or highly heterogeneous, and (c) in the absence of a “stock exchange” equivalent, highly inefficient. By inefficient of course I refer to no way to price anything and little by ways liquidity or mechanisms to establish supply and demand for a particular social company. Lastly, the cost of capital has to be greatly adjusted and “guessed” for social companies in a place with imperfect comparables.
- Long story short, people jumping into these positions should ideally be quite familiar with all the above concepts and ready to hit the ground running with little technical training since so much time would be alone spent in learning about social sector specific issues. That is why you see a lot of “senior” professionals being either pulled or initiating the start of impact investing funds. How they go about building their new teams and who they will choose (just same types of people like in their last company or more diverse backgrounds) is so little discussed nowadays that I hope to get more examples in the future either from readers or interviews of current professionals. Quickly to close the topic on inexperienced students and professionals, I personally do not see a strong market for you currently in impact investing right away unless you have some transferrable skills. These circumstances, unfortunately, leave many of you flocking to traditional firms for the time being, where you also hope to find opportunities to work on projects as close to “do-good” companies, sustainability or nonprofits as possible. If you don’t find them, a few years down the road, please consider coming back, because we need you!
- To be fair, I have but one head and one perspective on why people are interested in impact investing and have tried to lay it out as broadly as I could. If you while reading this have different thoughts and reasons behind your motivations, by all means please do submit a comment to this post so the community can learn!
- Once we have thought about why people like impact investing, we now turn to assessing the actual opportunities in today’s job market. I find that generally there are two groups of organizations in impact investing. The first group are the actual investors and funds looking to deploy money. The second group are advisers, industry-enablers, and standardization bodies (if that pattern sounds familiar, you might remember an earlier post that made a related, but broader generalization),
- Within the first group, organizations hiring people may be (1) venture-capital/private-equity like funds (e.g., Acumen Fund, Good Capital, Equilibrium Capital Group, Imprint Capital Advisors, Root Capital), (2) specialized institutional investment funds (e.g., Calvert Investments), and (3) engaged foundations (e.g., Skoll Foundation, Omidyar Network).
- Within the second group, you have (1) consulting firms (e.g., FSG, Arabella Advisors, etc.), (2) capacity-building foundations (e.g., Rockefeller Foundation), and (3) associations and standardization bodies (e.g., GIIN, MaRS). A still newer group of firms offering not only social-sector consulting but also investment banking, i.e., transaction advisory, financing, etc. is also emerging, with Intellecap being a notable example.
- Perhaps following some thought-process like the 4-step method that I discussed in a previous post, your first step then is to really research who is doing what, recognize the general overlap between categories, get comfortable that terminology will keep “evolving” (changing constantly), and determine what impact investing opportunities make the most sense for you.
- Next, in part 2 of this series, I would like to broadly assess the actual job R&Rs for young professionals at the above types of organizations to be a bit more specific.