What is impact investing? This question is repeated and reexamined ad nauseum as both converts and newcomers explore the concept of investing for both social and financial returns. But perhaps a larger and more important question for the future of impact investing is “Why impact investing?” While each individual investor may have their own personal answer, many share a vision of fundamentally shifting capitalism to become more inclusive and fair. Conscious Capitalism. Collaborative Capitalism. A radical departure from how we’ve done finance until now. The possibility of a better future for all is why we industry lifers accept a lower financial return on our own careers to pursue both doing good and doing well.

While impact investing is not a silver bullet to cure all of capitalism’s unintended ills, it does have the potential to be a driving force in the movement towards a more equal and just society.

It is within this context that I reflect on The GIIN’s Roadmap for the Future of Impact Investing released last year. While many areas of the report resonated with me, I felt that the report missed the mark in three important places.

Power Dynamics

Money is power. Whether structured as a charitable grant, private equity, or social impact bond, there is a human power dynamic that plays out between the givers and the receivers. In its worst form, these power dynamics corrupt both sides leading to abuse and harm. At best, it makes trust and transparency more difficult to achieve, which in turn can limit the efficacy of our collective work.

To avoid these pitfalls, we have to talk about power dynamics and what investors can do to stop perpetuating the myth that we are more important than the people doing the hard work — social entrepreneurs, small business owners, and local social service providers. Luckily, there is a lot that impact investing can learn from the past missteps of philanthropy when it comes to power dynamics.

Though there is still significant work to be done, philanthropy has a litany of lessons learned when it comes to creating a more balanced power structure between the people with the money (the funders) and the people receiving the money (the grantees). Many a foundation has made the mistake of designing their grantmaking strategies and processes by focusing on the donor needs, desires, and ideas instead of the end beneficiaries, only to be surprised when their impact goals fell short. This has led to a significant loss of overall impact due to bureaucratic policies and delayed disbursements. Philanthropy is and has been course correcting for these fundamental errors built into the original structure. Grantee-centric philanthropy strategies from Peery Foundation and Whitman Institute, for example, are highlighting new ways forward, such as GrantAdvisor.org and the Fund for Shared Insight. These are approaches that can easily be adapted to impact investing. Values like speed, trust, transparency, and treating investees as partners rather than supplicants will benefit our sector as much as it has benefitted more traditional philanthropic actors.

Investee & End-User Voices

Where we go in large part depends on who we are listening to for directions. In impact investing, the proverbial navigator’s chair is too often occupied by capital holders and fund managers rather than the entrepreneurs and ultimate customers where the capital is being absorbed. To disrupt the current inequality in our capitalist system, we need to at least strive for balance in listening between those providing the money and those taking the money.

We need to stay focused on the end beneficiary not only for higher goals of inclusion and equity but also for self-interested risk mitigation. When business owners aren’t asked about what their actual financing needs are, it can lead to underutilized and poorly designed products.

For example, Capital Impact Partners (CIP) did what appeared to be sufficient research for their first California Freshworks Fund. They asked grocery store owners what they needed to grow and the answer was credit. CIP then went and designed their fund, and through extensive negotiations with investors, came up with an acceptable product offering. Their initial research however, did not go far enough in their questioning. All of the loans offered required collateral which most grocery store owners did not have access to. The Freshworks product offering, designed with a focus on investor needs requiring collateral, had to be completely restructured.

Philanthropy has learned that the best way to identify successful solutions to a community’s problems is to ask the community. Likewise, the best way to finance social entrepreneurs is to ask them what kind of capital they need, rather than ask investors what kind of capital they want to put into a fund. Impact investing would do well to learn some lessons from human-centered design. We need to ask the doers.

Diversity, Equity & Inclusion (DEI)

Lastly, Diversity, Equity and Inclusion was fully missing from the roadmap. This one is obvious. We have, of late, been inundated with the stats. Female founders received 2% of the venture capital invested in 2017. Less than 3% of VCs employ black or Latino investment professionals. How can we as a sector expect to reduce inequality in our society if we do not have an explicit imperative to bring more people of diverse backgrounds into decision-making positions? There is ample evidence and promising work taking off on this front (see Segal Family Foundation’s Africa Visionary Fellowship, Backstage Capital, and others) and it must be a key component of our sector’s strategy moving forward. For the GIIN to so blatantly miss the boat on this topic suggests that their other misses around power-dynamics and investee voice reflect a deeper lack of understanding than simply being overlooked or under-prioritized.


I believe we as a sector are at an inflection point. There is an enormous opportunity and as industry practitioners we have the imperative to do it right. Yet, in missing these three critical elements, I fear the GIIN’s roadmap will lead us in the wrong direction. The good news is that our path is not set and the sector can course correct.

We have the ability to leapfrog the decades of trial and error that both philanthropy and traditional financial markets have experienced. It is on us to learn from their mistakes, adapt our best solutions, and bring our own unique perspective to advance our vision for a new capitalism and investment ethos.

Sources: Roadmap for the Future of Impact Investing, The Global Impact Investing Networkhttps://www.fastcompany.com/40473294/one-reason-black-entrepreneurs-dont-get-get-enough-funding-black-vcs-dont-eitherhttp://fortune.com/2018/01/31/female-founders-venture-capital-2017/; MIE Plenary: https://www.youtube.com/watch?v=xayjbv7aCXw