As a social entrepreneurship aficionado, you must know Charly Kleissner. As he was leaving the HUB Global Board meeting two weeks ago, we had a quick chat with him about the highlights of 2012 and trends to emerge or continue in 2013.
HUB Blog: What are your feelings about the social entrepreneurship scene in 2012, what got you excited this year?
Charly Kleissner: I differentiate between the investors, the investees and the infrastructure, very exciting things happened on all three levels.
On the investors’ side we have seen modern global networks like TONIIC gaining membership traction and syndicating deals between multiple different investors all over the world. We have also seen the emergence of a serious impact measurement demand, with new reports coming out and a couple of investors actually pushing the envelope. I have also seen for the first time what I call the “100% folks”, putting 100% of their wealth in impact as opposed to one or two investments. There’s five or six of us 100% folks globally. We are investing in all asset classes. It is a great opportunity for us to aggregate demand for impact products, particularly on the commodities side. We only invest in impact commodities since most normal commodities have a negative ecological and/or social impact. It would make a huge difference if all extractive commodities would be mined in a way that is good for the earth and good for the community. One more exciting thing about 2012 is the emergence of 50+ million dollars investment funds. For the first time institutional capital decided to actually go into these funds and capitalize them.
At the intermediary level, the system will have to change from non-impact to impact: instead of having investment banks we need impact investment banks, instead of having merchant banks we need impact merchant banks, instead of having non-impact funds we need impact funds. There are emerging institutions in each one of these fields, like Total Impact Advisors and Sonen Capital. There has also been some significant products innovation by multiple players. In the US, for instance, ImpactAssets is preparing to cater to a whole new class of investors who will soon be able to get a fully diversified portfolio of impact investments in certain themes for as little as $25.000. I see this trend as the pre-cursor to retail products for young people with 100, 200, 1.000 dollars to invest. This will still take a couple of years, but it is certainly around the corner. Crowd funding platforms are also in the active experimentation stage. And we have new intermediaries, like Quadia (in Europe) and Sonen Capital (in the US), which are managing hundreds of millions of Impact Euros and Impact Dollars.
Finally, the third piece on the investment side is represented by social enterprises themselves. To assess the progress we need to differentiate between seed stage, early stage and growth companies. For those in seed stage it was the year of incubators, which replicated themselves all over the world. It’s clear that not everybody will be successful if success is defined by actually enabling those seeds to get to the next stage. Be that as it may, just the fact that there are that many incubators is good, because it means that it’s recognized as a need and new players are financing them now. In the US, the World Bank through the IFC is trying to put subsidized capital into these incubators. We have innovative programs, like the Investment Ready Program here in Vienna, which cater to a whole new geography of entrepreneurs that otherwise would not have any chance to learn business practices that actually matter. It will take a few more years to make connections and establish a trusted eco-system of investors for growth companies which need between two and fifteen million euros to accelerate their impact. The institutional capital is not really there yet; we need success stories as well as education of decision makers to move this sector along. Entrepreneurs who were successful in creating impact businesses need to get capital from institutional impact investors that will enable them to significantly grow their impact as opposed to becoming commercial only. If they end up selling and retiring, their businesses usually get bought out by somebody who doesn’t care about the impact. These are longer term issues of the industry that need to be solved.