Top Trends in Impact Investing 2011: How Did We Do?

At the end of last year, three of us at First Light–Mark, Ross, and Nikhil–put together a blog series on the “Top Trends in Impact Investing and Social Entrepreneurship for 2011.” Ross (now Executive Director of the nonprofit Village Capital) has gone back to take a look at how we did. With blatant disregard for Ross’s intellectual property and only the feeble excuse that I wrote a bunch of the original “Top Trend” articles, I’m reposting the article here. 

Last year, we had a 10-post series on the top trends in impact investing in 2011.  We made some bold predictions, (and some not-so-bold), as we tried to predict the upcoming year.

So how’d we do?  Here’s a self-assessment of how we felt our predictions played out in 2011.

10. Smart Phones Get Cheap

Grade: A-

We predicted a drop in price of smartphones to $75 in emerging markets.  While it hasn’t reached that price point, yet (the cheapest are around $90), it’s rapidly getting there. And we’ve seen in 2011 a number of promising enterprises leverage smartphone ability in BoP customers’ hands—for example, Village Capital fellow MobileWorks, which allows low-income customers to earn income performing micro-outsourcing tasks on photo-enabled phones, raised $1.7 million and graduated from Silicon Valley’s Y-Combinator.

9. Local investors in emerging markets step up to the plate

Grade: B (incomplete)

We’ve seen a lot of motion, but the jury’s still out on action.  In India, for example, we’ve seen a lot more local investors step out and raise funds—Impact Investment Partners and Omnivore Capital are two prominent ones launching—but they haven’t yet started actively investing. Mainstream angel groups such as Mumbai Angels and KAE Capital are beginning to explore the impact space, but are not yet convinced of its commercial viability.  Traditional impact funds such as Acumen and Grassroots Business Fund made big strides this year in building local investor capacity, though, so we expect this to be a major trend continuing in 2012.

8. “Pathological collaboration”

Grade: A+

“Partnership,” “Leverage,” and “Ecosystem” were buzzwords at every conference this year, and it seems that every major initiative—from high-profile enterprise financings (e.g. Husk Power) to organizational change (the SJF-Investors Circle merger) to new funds (e,g, HubCities, a Hub-Calvert partnership) involved more than one player.  And that’s a great thing.  We’re all playing with limited resources, so doing more with less is an ever-important reality.

7. Microfinance regroups

Grade: C

Sort of.  SKS’ stock is at an all-time low, and Muhammad Yunus resigned from the Grameen Bank due to political pressure.  But banks cut back on too-rapid growth, committed themselves to greater transparency, and the Smart Campaign, a global consumer protection agency, gave passing marks to 88 per cent of Indian microfinance banks in November.

6. Social metrics: fish or cut bait

Grade: B-

We’re still in the same holding pattern we were one year ago.  We predicted investors would cut bait, but the investor community seems to have doubled down on IRIS, which released its new version this year, and GIIRS’ launch of the GIIRS Pioneer Funds reiterate the broad-based industry collaboration.  But enterprises complained of the high cost of impact data collection without corresponding funding/bandwidth, and the response to impact assessment surveys getting real data from entrepreneurs have been disappointing.  In 2012, it seems that the social metrics mantra may be: “What if we set an industry standard and nobody reported?”

5. Seed financing grows up (more funders, more sophisticated investors, more vehicles)

Grade: A

New to the seed financing party in 2011: Abstraction Ventures (New Orleans-based), Unitus Labs (seed-stage India), Merism Capital (London-VilCap partner), Hub Ventures fund (Bay Area-VilCap partner), Potencia Ventures, Vox Capital in Brazil, through its Vox Labs program, Villgro (with a new investment arm), Mumbai Angels (India), Beyond Capital Fund, and Calvert Special Equities Group (though they are in between seed and series A).  And that’s nowhere close to a comprehensive list!  While there’s still a long way to go, and the picture for seed-stage ventures raising capital is very dark, it’s lighter than ever in 2012.

4. Kenya! The impact investing industry takes off in Kenya and East Africa.

Grade: B-

Another “incomplete” grade.  We saw big strides in funds (particularly flexible family foundations, as well as mainstream VC players getting involved in the mobile space), ecosystem-building efforts (including an east Africa chapter for ANDE and two new incubators).  The big question: is the boom limited to mobile, or are other sectors equally poised for success?

3. Rising commodity prices affect social entrepreneurs

Grade: D-

We predicted food prices would skyrocket, affecting those serving the poor. Although food prices are high compared to historical values, they are actually lower than they were when we wrote this prediction.

2. With budget cuts and austerity, governments use impact investing to do more with less

Grade: A+

Three of the largest impact investing commitments in 2011 were from governments: the UK’s USD $900 million commitment to the Big Society Bank, OPIC’s $300 million commitment to impact investing, and the Australian Government’s Social Enterprise Development Fund.

1. Patient Capital” hits a crossroads

Grade: B

We predicted an introspective year, and we got it: we’ve seen some of impact investing’s founders do impressive re-boots this year (e.g. Unitus), and others pause to assess their progress and think through their strategy going forward (e.g. Rockefeller Foundation, Acumen Fund).  One thing is clear: despite promise, no one really knows what it is we’re creating, but everyone is in serious self-reflection mode.  Some of the mechanisms we predicted (secondary markets, alternative revenue streams) never really got off the ground, though (for example, Mission Markets has converted from a second-market focus to an investment bank focus), and we have yet to see what this reflection will yield in 2012.  Not to worry—that’s more fodder for our new year predictions!

By Ross Baird

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