IMPACT BEYOND FINANCIAL RETURN: FROM MEASUREMENT TO INTEGRATION

Irene Beccarini, PhD

Principal Investigators: Prof. Fabrizio Ferraro

Prof. Heinrich Liechtenstein

IESE Business School

5th Annual Meeting of the Knowledge Programme European Investment Bank

March 7th, 2017

Impact Investing has emerged as

• "an investment approach that intentionally seeks to create both financial return and positive social or environmental impact that is actively measured" (World Economic Forum, 2013: 7).

How is impact measured?

How is impact integrated in the investment process?

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Challenges in Impact Investing

We explore the process of impact integration

• We study experienced impact investing firms

• We observe the process at different levels: Venture firm, Fund, Portfolio firms

• We analyze:

how impact is defined and monitored

the conflicting demands venture firms deal with

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The Project

HOW DO WE DO IT?

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6

7

8

OUR WORK SO FAR…

Overview

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Firs

t Ye

ar Impact Integration

(Combo - UK)

3-Months participant observation at Combo Ventures

• Working paper on hiring and socialization

• Working paper on impact integration

Seco

nd

Yea

r Impact Integration (Buzz and Link)

5-Months participant observation at Buzz Ventures

• Analyses and preliminary findings

Started fieldwork at Link in Spain (February 2017-June 2017)

Futu

re Impact Integration

Follow-up interviews for Buzz

• Working paper on co-creation of impact

• Working paper on identity matching

More Interviews with impact investing funds in France, Italy, Spain, London

• Comparative study

BUZZ FIELDWORK, DATA, AND ANALYSIS

5-month participant observation

• 139 detailed field-notes on all their meetings, phone calls, and informal conversations

• 600 pages, 355.061 words

• 62 internal documents

Meetings, on-site visits, and calls

• Informants for creating the deal flow

• Entrepreneurs for assessing potential deals or closing deals, or entrepreneurs of firms that were being divested from the previous fund

• Relevant actors in specific sectors for the due diligence

• Potential co-investors in deals

• Investors of the fund

• Investment meetings

• Company meetings and events

In-depth interviews

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Fieldwork and Data

• Investment team

• CEOs of companies invested by the previous fund or to be invested in the new ones

• All interviews lasted between 45 and 105 minutes

Data Analysis

Field notes and internal documents

• We run a preliminary analysis of almost 40% of field notes

Mapping and cross-tabulation of projects

Comparison between invested and not-invested projects

Emerging Themes

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The deal flow

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Sectors Projects Received

Dead on arrival

Discussed in investment

meeting

First meeting

only Stand-by

Pre-investment

due diligence

Invested

Sustainable Living

18 6 4 3 2 3

Education & Skills

14 3 5 1 4 1

Health & Wellbeing

12 3 6 1 2

Finance 2 1 1

TOTAL 46 12 11 8 2 9 4

Sustainable Living…

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Social Impact

Second-order categories

First-order codes Representative quotes

Generating systemic change

Co-creation of impact “If they are willing to move more towards the model we are thinking of, it becomes a systemic Project. If we want to have such an impact we need to build it: differently, our job would be easy.”

Investing in high risk/return ratio opportunities

“Our philosophy is to go where the money from the private sector does not go because the risk/return ratio is perceived as too high.”

Changing the structure of the sector

“The real impact is that, if the new business model works, it might influence the whole sector.”

Influencing the offer in the market

“If I look at [Project], I realize we have changed the offer in [Geographical Area]. We have made the market transparent and regulated the prices. […] It is already having an effect on the prices of other private operators in the market.”

Attracting competitors in the market

“Our objective is to create startups that are successful in order to attract other operators.”

Social Innovation “We need to create a win-win process, a process in which all the elements of the chain win, not only the entrepreneur”

Distributing the value along the value chain

“We need to develop processes that do not penalize the productive chain. Also the public sector does good, but it pays its employees 7 euros per hour: what sense does it make?”

High quality at affordable price “We aim at offering quality products/services at an affordable price.”

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Coding Example

BUZZ EMERGING THEMES

Co-Creation of Impact

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Co-creation of Impact:

A Process Theory of Investment Decisions in Impact Investing

• Aligning theories of impact: Impact as systemic change

• Impact Investing firms need to play a more entrepreneurial role

• Impact is co-created

Gut feel

Similarities in implicit and visceral attitudes

• They develop their gut feel in their interactions with entrepreneurs

• and in the process of envisioning themselves in the investor-entrepreneur relationship

• Similarity in entrepreneurs and impact investing fund managers’ implicit and visceral attitudes, stereotypes and unconscious sub goals

• Is a necessary condition for identity matching between entrepreneurs and impact investing fund managers

Impact Investing has emerged as

• "an investment approach that intentionally seeks to create both financial return and positive social or environmental impact that is actively measured" (World Economic Forum, 2013: 7).

How is impact measured?

How is impact integrated in the investment process?

19

Challenges in Impact Investing

IMPACT BEYOND FINANCIAL RETURN: FROM MEASUREMENT TO INTEGRATION

Irene Beccarini, PhD

Principal Investigators: Prof. Fabrizio Ferraro

Prof. Heinrich Liechtenstein

IESE Business School

5th Annual Meeting of the Knowledge Programme European Investment Bank

March 7th, 2017