We need explore new services to match impact investor interest with market demand.
As Calvert Foundation’s business has grown and evolved with the rapidly shifting impact investing markets, we have the benefit of seeing emerging trends and market-wide challenges that are hindering the growth and scale of the activity we—collectively as investors—are financing.
One of the challenges we see today is a lack of urgency and organization among groups of similarly minded investors seeking to address our shared global challenges. While there is exciting growth in the number of organizations seeking to make private impact investments—financial institutions, faith-based organizations, foundations, and family offices—the marketplace lacks the mechanisms to move capital efficiently to meet its respective demand. Impact investments remain a “nice to do” rather than a “must do” for most organizations. This investor behavior—understandable in individual cases, but harmful in the aggregate—is creating a capital-raising process for businesses, funds, and institutions seeking capital that is costly, inefficient, and wildly time consuming.
This detrimental effect is noticeable across the community-based lenders and scaled social enterprises in which we invest. The disaggregated landscape of investors causes organizations raising multi-million dollar rounds to seek investment from 5 to 10 (or more) capital sources, each with their own process, needs, impact requirements, and timeframes. Because of this lack of conformity and the lack of urgency, this process often takes at least 12-24 months, and because time is money, this yields enormous transaction costs that continue to slow these markets down.
We see two driving reasons for these market challenges: investor approach and a lack of options. Many investors approach the impact markets as they would approach philanthropic grants. They first set their impact preferences and restrictions, and then seek opportunities to invest in these areas. On the surface, this makes complete sense. These investors do not have endless amounts of capital to invest, and if they want to move the needle in a particular impact area, their investments need to match their interests as closely as possible.
Read more at Capital Aggregation: A Market-Making Idea for Impact | Stanford Social Innovation Review
