Rethinking pathways to impact

The need for impact investing to meet and support social entrepreneurship is growing stronger. And yet, we often witness a mismatch between the profiles of investors and those of social entrepreneurs.

In Part 1, I explained how new rationales of decision-making can help enhance this match. Here I discuss why investors and entrepreneurs alike should embrace three unconventional pathways to impact.

1. Promoting inclusive governance

‘Zebras fix what unicorns break‘ marks the emergence of a new kind of thinking in entrepreneurship and venture capital. Zebras, which designate ‘real’, smaller scale organisations that come in herds and work together to make the world a better place, are juxtaposed with the multi-billion USD companies that were once unicorn start-ups, almost from another world – and as some argue produced more problems than they solved. Social or eco start-ups, are seen as the ideal zebras as they do not only promise but deliver on a double bottom line of profits and cause. But even where this bottom line is subject to trade-offs between seeking financial impacts on the one side and social or environmental impacts on the other, social ventures due to their governance specificities contain a transformative potential that is often neglected in the impact investing discourse.

As the 2019 German Social Entrepreneurship Monitor shows, social ventures tend to promote gender equality with 46 percent being female founders, while impact investing as a field still tends to reproduce the old gender imbalance. Impact organisations and social start-ups also represent a breeding ground for more holocratic organisational cultures, structures and processes. Increased staff participation and the ‘leaderless organisation’ are already receiving pushback as unrealistic and irrelevant. But in the context of discussions around purpose and new work, investments into these kinds of organisations may create impacts not only as regards their effects on target groups, but also in terms of transforming how we work and organisations operate.

2. Embracing communication as action

Recent research suggests, the classic proverb ‘walking the talk’ might be a thing of the past. The reason is that it draws a clear line of separation between communication and action. However, for example when it comes to Corporate Social Responsibility, talking is action. What scholars mean thereby is that responsible action only comes into being when organisations and their members talk about it. So talking and walking become one.

The most intuitive pathway to scaling impact is organisational growth. But there are many alternatives of how a social venture’s impact can be increased.

We can extend this argument by saying that discourses and meaning making through dialogue are becoming ever more important in a post-truth world. This sheds a completely new light onto the advocacy efforts of many social ventures. Advocacy must seize to be seen as a means to an end and recognised as an end in itself. The ability of the German utility company EWS to shift the industry’s focus on fossil and nuclear energy to renewable energy, depended as much on its initial social movement and rebel character as on its leaders’ business acumen.

However on the one side, social ventures are not very good at highlighting their (advocacy) contributions to social innovation, as shown in a new analysis of media reporting. On the other, advocacy organisations are not on the radar of investors and advocacy activities are often seen as unnecessary efforts depreciating the margins to be earned. Both would do well in embracing advocacy’s importance in generating impact instead.

3. Harnessing open social innovation

The most intuitive pathway to scaling impact is organisational growth. But there are many alternatives of how a social venture’s impact can be increased. There are illustrative ‘guide books’ showcasing what social enterprises need to consider to enhance the positive effects they have on the world. Possibilities comprise direct as well as indirect scaling strategies and range from building partnerships to setting up a social franchising system.

Lately, we are witnessing a new range of options that embrace ‘open social innovation‘, which harnesses the principles of open innovation for creating social innovation. A prime example for it is the #WirVsVirsus Hackathon that seven civil society organisations initiated together with the German government to come up with solutions to the Corona crisis. The range of solutions that emerged is impressive, as was the willingness of impact-oriented organisations to share their ideas and expertise in an open source way. None of the solutions could have been generated by any of the organisations alone, and although proof is outstanding, based on recent research we would suspect that high degrees of openness and diversity will produce impactful innovations.

What the Hackathon also showed, however, is that the established financing landscape is poorly prepared for supporting such innovation processes. Social investors often require ‘proofs of concept’ and are not able to move with the speed that such initiatives need for quick piloting. As a result, the German government assembled an accelerator fund to cope with the current situation. As new modes of innovating emerge, the layers between problem solvers and financiers of solutions need to become more permeable and the alliances between them stronger and more agile.

Making the five principles I outlined in my two part series a reality should enable better matches between impact investors and social enterprises for the sake of greater and more multi-facetted social impact and innovation. We hope to help advance the ability entrepreneurs and investors to embrace them through our Massive Open Online Course (MOOC) ‘AIR: Accelerating Investment Readiness’.

Find more information about: #AirMOOC

Read How do we join Impact Investing and Social Entrepreneurship for greater impact? – Part 1.

Gorgi Krlev is a researcher and project director at the Centre for Social Investment (CSI) of Heidelberg University. Follow him on Twitter @gorgikrlev.

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