Funding the Rails on Which We Ride: Why We Invested in Impact Investing’s Tipping Point Fund
Earlier this month, we stood alongside eight fellow impact investors, from philanthropies to family offices to corporate leaders, to launch the Tipping Point Fund (TPF). With $12.5 million in pooled grant capital, TPF will invest in the core market infrastructure needed to scale impact investing with integrity. It was an important moment for the impact investing movement, and we were extremely pleased to participate as one of a diverse and broad group of founding contributors who have committed to strengthening the industry.
At Omidyar Network, we’ve been engaged in field building for nearly a decade, and this experience has reinforced the importance of investing in public goods to build a market – they serve as the rails on which the rest of the industry rides. Public policies that enable impact investing can help unlock new sources of capital and new approaches. Data and standards allow us to assess results and benchmark performance, and ensure we meet the intent to have actual impact. Networks enable peer-to-peer learning and allow new entrants to get started more quickly and effectively. We hope that TPF’s launch will shine a bright light on how critically important it is to engage in impact investing field-building, and encourage others to join us on this journey.
It hasn’t always been easy, and there have been important lessons learned along the way. As we first articulated in 2012’s Priming the Pump, three key learnings have guided our investments throughout the years, which align to the focus areas of the TPF. Those lessons, which have been deeply informed by our partnerships along the way, include: 1) supporting a sector’s infrastructure is critical to the success of individual players; 2) government policy is critical to scaling a nascent field, particularly in scaling (or retarding the growth of) a nascent field; and 3) those positioned to deploy flexible capital should pay special attention to addressing gaps in the market.
Supporting a sector is critical to the success of individual players.
Omidyar Network started making impact investments in earnest about a decade ago, with a focus on providing early stage risk capital to promising entrepreneurs in emerging markets. While leaders like the Ford and MacArthur Foundations had paved the way decades ago in their support for Community Development Financial Institutions in the U.S., we navigated new challenges as we expanded the footprint – most notably, that early stage co-investors were few and far between in emerging markets like India and Indonesia. We quickly realized that our success required a more robust infrastructure that would support the entire industry; that we need to help build the rails upon which we all would ride.
And that’s where field-building comes in. From our early support of networks such as the Global Impact Investing Network, Toniic, Pymwymic, and The Impact, we have found that it is critical to fund the organizations that are collecting lessons learned and providing the industry the tools needed to organize itself. We also believe in the importance of sector-wide efforts to enable the industry to more consistently, accurately and holistically capture its impact. This helps investors better navigate the field, and even more importantly, protects against impact washing – which is why we were so pleased that a key priority for the Tipping Point Fund will be Data, Metrics, and Measurement.
Take, for example, our support of the Impact Management Project (IMP). IMP is working to create a global consensus on how to measure, report, segment, and compare impact. Their “impact classes” give asset owners a short-hand for understanding the type of impact an investment promises to deliver, which is a critical building block needed to safeguard the market. We’ve also benefited from the Lean Data methodology, incubated by Acumen and now managed by 60 Decibels, which collects and compares high-quality impact data specifically for early-stage entrepreneurs in emerging markets. In the last two years, we used their services to capture the impact of nearly 1/3 of our portfolio, putting the voice of low-income customers at the center, and helping us determine the scope of our impact. This kind of data is critical to helping investors – and those who would hold us to account – distinguish between investments that are little more than marketing fluff from those that have real impact.
The role of government cannot be underestimated, particularly in scaling a nascent field.
The problems we are trying to solve demand capital at scale – and government can play a critical role in facilitating that growth. Policy decisions often govern who can engage in impact investing, and how. In this way, it is among the most highly leveraged work that we do.
Take, for example, the work of the U.S. National Advisory Board. Under the auspices of Sir Ronald Cohen’s G7 Social Impact Investing Taskforce, Omidyar Network co-chaired a coalition of impact investors who forged the first unified policy recommendations that the U.S. Government could take to unlock more capital towards impact. The report – Private Capital for Public Good – was presented to key decisionmakers at the White House Roundtable on Impact Investing in 2014.
From there, the Ford Foundation went on to incubate the U.S. Impact Investing Alliance, which leveraged leading industry voices to push the agenda forward. In the five years since the report was published, policymakers have taken action on 80% of the recommendations. New policies have unlocked new capital from foundation endowments (including Ford’s), pension funds, and the new U.S. International Development Finance Corporation; and policies to drive more capital into Pay for Success (thanks to the leadership of Social Finance) and Opportunity Zones. And while the work is far from done, no one can deny the critical role that public policy can and should play to direct private capital toward public good.
That’s why Policy and Public Engagement is the second priority for the Tipping Point Fund, and will be the focus of TPF’s first request for proposals. This will help pave the way for additional capital to flow more easily into the market.
Those positioned to deploy flexible capital should take special care to address gaps in the market.
The Global Impact Investing Network estimates the value of the market at $502 billion, which represents significant growth from both traditionally philanthropic sectors, but also more mainstream capital. As this trend continues, we must not lose sight of the vital role of catalytic capital to extend and deepen the reach of the impact investing market. In Across the Returns Continuumand Beyond Trade-offs, we make the case that the full spectrum of capital is essential to bold and lasting change. Along with Rockefeller Foundation, we are partnering with the MacArthur Foundation on their Catalytic Capital Consortium, a bold commitment to highlight the important role catalytic capital plays in ensuring private capital can be targeted to reach some of the toughest challenges and communities in most need.
The need for this type of capital is great – not least early-stage risk capital in service of low-and-lower-middle-income populations in emerging markets. That’s why – as founding members of the Collaborative for Frontier Finance and in our partnership with ANDE – we have paved the way for more asset owners to fuel impact in the toughest markets. Addressing gaps in the market also underpins our support of the Tipping Point Fund to tackle two of the most difficult and under-funded challenges facing the industry – metrics and measurement, and public policy – that, if done right, could be truly catalytic in supporting the entire sector’s growth.
Indeed, on the eve of 2020, the impact investing market sustains more mainstream players than we never could have imagined: Goldman Sachs acquired Imprint Capital; private equity firms Bain, TPG, and KKR have launched major impact investing funds; and BlackRock CEO Larry Fink famously called on all companies to do more than simply make a profit. This growth has tremendous implications for the trajectory of the industry, but it also calls into sharp focus the urgent need to protect the integrity of the industry as it scales. As the conversation about the future of capitalism and the social purpose of business begins to expand, impact investors are uniquely positioned to play a leadership role.
And this is a shared mantle we should all adopt. Even in the earliest days, when the Rockefeller Foundation famously gave rise to the movement by giving it support and – critically – a name, they realized that field building was a team sport. They brought other leaders to the table, learned from their peers, and laid the foundation for the robust, diverse industry we see today.
The Tipping Point Fund offers us a new opportunity to build a collective agenda to ensure the growth, strength, and fidelity of the impact investing industry. Because at the end of the day, the industry should be about just that – impact. We were proud to launch TPF alongside a tremendous group of leaders: Blue Haven Initiative, David and Lucile Packard Foundation, Ford Foundation, John D. and Catherine T. MacArthur Foundation, Rockefeller Brothers Fund, Surdna Foundation, The Rockefeller Foundation, and the Visa Foundation. We look forward to the work we will do together, and hope others will be inspired to join us to fund the market infrastructure necessary to keep the impact in impact investing.