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Newberg: How Real is the Impact Economy?

   /   Apr 24th, 2012Interviews

Mark Newberg is a one-man balancing act who has taken on three positions with a common thread: impact.  Previously, he was the Senior Policy Advisor to the US Small Business Administration. Now, he dons three different roles while pushing for  business approaches that create financial profit as well as environmental and social benefit, or an impact economy: Senior Impact Advisor at Snowden,  Director of Impact Strategies at Stella Group Ltd., and Advisor at Five Stone Green Capital.

Dowser: When you meet with members of the private sector at work, or in conferences, do you find that there is a greater reception to these ideas and new business models that integrate social and environmental benefit along with profit?
Newberg: There are some that have started to turn the corner and see how this can help their businesses.  There are others who hear the words social and don’t think that fits with for profit.

A lot of this is messaging.  It  just requires explaining what this means to people.  For example,  I just wrote an article for Snowden that tries to explain this, using concrete examples of businesses, large businesses, that improve their bottom line, including impact.

What needs to be done to make this a more widespread approach?
We need to have a clear understanding that we’re talking about for-profit.  And that impact doesn’t mean no profit.

When we talk about businesses, businesses runs in terms of profit.  So the conversation has to be about profit, more precisely, how impact leads to profit for the businesses.

Is it just a lot of chatter on impact investing or is it actually happening?  Social entrepreneurs have expressed concern that there really aren’t that many high-risk investors.
What would you say if someone comes to you with a high-risk investment?  If you’ve got 10 minutes to make a pitch and the person pitching focuses on all the good that their organization will do for the first 5 minutes, it doesn’t really work.  Investors are waiting for the business model.

Part of this is message again.

Real impact business have gotten investments from solid venture funds.  And if you go through the portfolios of some of the funds, you’ll find impact businesses that are investments.  For example, Clayton Homes, which constructs green buildings and is LEED certified, is also owned by Berkshire Hathaway.  So, it’s out there.  When it comes to funds that just focus on ‘impact investing,’ there aren’t that many and in terms of scale, it’s still limited.

So, what do we have to do scale?  Do we have to go beyond the Acumen’s, Skoll’s, and Omidyar’s?
I wouldn’t say it like that.  But I think that the really interesting venture stage companies aren’t the ones that are for-profit and happen to have impact.  They are for-profit because they have impact attached to them.  The way they make money is by selling a product or service that automatically produces benefit.

If you go to an investor with a business that includes ‘impact,’ is it more likely to get attention nowadays?
Yes, but for the vast majority of the venture funds, I don’t see impact replacing profit as a first line of analysis.  It’s definitely something that will garner interest but it’s not the only criteria.

Are there certain parts of the country that have been more innovative than others and really progressed in terms of ‘impact’?
It’s really everywhere.  Startup America and Impact Investment SBIC are emblematic of that;  that was an effort by the Office of the Small Business Administration and the White House.  Yes, 75% of funds from venture capitals tends to go to New York, Massachusetts, and California in the US,  but the commercialization of those funds — as in the companies that transpire out of it — are spread throughout the country.  It’s just a question of finding them.

What role can the public sector play going forward in terms of facilitating this kind of change?
I think the public sector is still figuring out the most effective way to catalyze this activity.  We’re in a constrained budget period. Funds are limited at the state or federal level, so, that does make it harder for these kind of activities.

But, I do believe that there is an important convening role. For instance, last year, the White House and the Aspen Institute convened on the Impact Economy, producing a report from the event. Individual states are also adopting new corporate forms, serving as options for entrepreneurs.

In some cases, government purchasing can drive some of this stuff by attaching standards to the products and services to what government buys like green standards for housing and efficiency standards for energy-related products.

Competition such as Race to the Top has pushed school systems to adopt more innovative curriculum in schools.  The Social Innovation Fund drove high performing, innovative nonprofits to crystallize what they were doing.

And again, talking about this as a real and growing part of the American economy is really important; when you put the stamp of legitimacy on something, especially something that people have struggled to grasp.   For example, the JP Morgan Chase report that came out last year was really important.  It said that we’ve done research on it and the market is this size and it’s a real thing.  That mattered.

This is a real market.  That’s why it’s essential to consider it.

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