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updated: 4/18/2018 2:12 PM

Profit with a Purpose: The Rise of Social Impact Investing

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  • Ryan Waggoner

    Ryan Waggoner

 
By Ryan Waggoner
Ice Miller LLP

Social impact investing is a fast-growing sector driven by investors who want to use private capital to further the public good. This industry provides a unique opportunity for results-oriented social entrepreneurs to invest in businesses, funds and nonprofits with the intention of generating positive, measurable social change alongside financial return. By engaging in impact investing, investors can align their investment portfolios with their philanthropic priorities.

Impact investing is a booming trend at our nation's finest research universities. For decades, professors and students from the best schools -- armed with big ideas that could change the world -- have struggled to access the capital necessary to further develop their innovations into commercial enterprises. Why? Because for investors focused solely on financial return, it makes little sense to deploy capital to a risky startup run by a science professor or recent college graduate with no demonstrable track record of commercial success. So, without funds necessary for prototyping, proof-of-concept testing and other research and development needs, these innovators have been left with little opportunity to move their developments forward.

Enter the impact investors. University-affiliated impact investment funds have been sprouting up across the country. Using cash raised by universities, corporations, philanthropic institutions and university alumni, these funds deploy seed and early-stage capital to university-affiliated innovators. By aggregating the investments from sources across the spectrum of commercial and charitable enterprises, these impact funds are able to leverage significant sums of money to help unleash the innovative power of high-potential, but inexperienced, entrepreneurs. While the likely rate of return on these risky ventures is relatively low, impact investors understand their dollars are being used to promote innovation and entrepreneurship that has the potential to create a significant positive impact on the world. But, unlike the traditional charitable contribution model, if one of the startups in the fund hits it big, these impact investors are still positioned to reap the financial benefit. Helping a promising entrepreneur change the world and also generating a solid financial return? For many, it's the best of both worlds.

Impact investment is also disrupting the traditional economic development ecosystem. Instead of relying solely on limited and highly-restrictive public funds to finance revitalization efforts, initiatives are in place across the country to engage all sectors of the community -- charities, big business, educational institutions and private donors -- to improve the places where people live, work and play. With support from this wide array of sources, community development organizations are able to tackle some of the biggest problems that face our cities -- scarce affordable housing, crumbling infrastructure, food insecurity, low wages and lack of minority owned enterprises -- by deploying capital directly into the community. Through low interest loans, equity investments and loan guarantees, organizations are able to catalyze big projects like new roads and bridges, renovated housing developments and grocery stores in food desserts. All of these projects have the potential to improve communities and also generate a positive financial return for investors. This co-investment structure has resulted in economic and community redevelopment in areas where governments simply wouldn't have the funds or the political support to solve the problems on their own. Moreover, instead of blindly throwing charitable contributions at these communities, this structure allows impact investors the ability to track their dollars, see the tangible positive impacts of their investments and receive a financial return as well.

It seems clear that the social impact investing trend is here to stay, and communities across the country will be better for it.

For more information, contact Ryan Waggoner or another member of Ice Miller's Social Impact Team. Learn more about generating profit with a purpose at icemiller.com/profit-with-a-purpose.

• This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.

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