When it comes to driving social progress, good intentions and a big heart are not enough to guide good decisions. Moving the needle requires skilled professionals who have experience creating social change. Unfortunately, our research shows that when it comes to impact investing, financiers don’t value such expertise and wisdom as much as they should.
Earlier this year, our team at the Center for Social Innovation at the Stanford Graduate School of Business examined the hiring preferences of impact funds to help business students identify pathways to impact investing careers. As we dug deeper, it became clear that hiring managers under-appreciate the social impact experience of prospective employees. Many fund managers assume that people can learn about social impact quickly but that accumulating investing experience takes years. The result? Eighty percent of the impact investors we studied had a background in finance prior to landing an impact investing job while only 45 percent had experience in social impact.
The rationale for prioritizing prospective employees’ experience with investing capital goes like this: New investors make costly mistakes. Experience helps them avoid those mistakes. The more a person works with entrepreneurs, the more they develop a sixth sense for whether a venture is going to be successful or not. Over time, experienced investors can engage in explicit or implicit pattern matching to inform their decisions.
The most widely accepted framework for exploring the impact potential of an intervention, program, long-standing organization, or nascent venture is the theory of change. An organization’s theory of change relies on a logic model that describes how inputs (such as programming time and computers) transform into outputs (such as a crowdfunding platform), and then traces those outputs to social or environmental outcomes (such as the funding of classroom needs), and finally long-term impact (such as improved learning). Simple, right?
Not really. In fact, evaluating the social impact potential of investments requires hard-earned wisdom that comes only after years of practice. Some social ventures have no impact; others cause harm. Some have the potential to serve millions; others have no viable model for scaling. Investing in the wrong kind of impact intervention can be as costly as investing in financially unsustainable ventures.
Read more at: Valuing Social Impact Expertise in Impact Investing | Stanford Social Innovation Review
