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SOCAP report day 1: Get investable!

   /   Oct 5th, 2010Business, Finance, News

For social entrepreneurs attending SOCAP10, the social capital markets conference underway this week in San Francisco, the call to action is: get investable!

The conference feels different from social change gatherings where the complaint is often that good ideas go begging for want of funding. The social venture fund managers here insist there’s plenty of money and instead a shortage of investable projects.

To be clear, by investable social ventures they mean for-profit companies that have not only a viable business model and an exit strategy — generally via an acquisition by a larger company that allows the fund to recoup its money and earn a profit — but, increasingly, quantifiable metrics and certified results.

“If investments are not rated for impact, they’re not impact investments,” said Jay Gilbert, co-founder of B Lab, a nonprofit ratings organization for social ventures. “They’re just investments with a good story.”

Organizers of the conference, in a cavernous warehouse on a former Army base on San Francisco Bay, trumpeted a potential investment pool of  $120 billion for projects that seek financial as well as social or environmental returns, based on a survey of 4,000 people with incomes of at least $80,000.

To get that money off the sidelines, many of the “impact investors” at SOCAP are joining forces to establish standards and create comparable metrics, not only for individual ventures, but for the funds themselves. The goal: the creation of impact investment as an “asset class” alongside stocks, bonds and money market funds. An asset class groups investments with similar characteristics, subject to the same standards and governance, so fund managers can target their investments.

Among the alphabet soup of standards and certification initiatives that speakers were slinging, IRIS and GIIRS appeared to be gathering critical mass. IRIS, for Impact Reporting and Investing Standards, is a set of definitions and templates for reporting on financial performance and the impact on the environment, the community and employees of a venture’s products and operations.

GIIRS, for Global Impact Investing Rating System, is a B Lab initiative that builds on IRIS, but assigns a rating score, much like Morningstar does for mutual funds or S&P or Moody’s for bonds.

The Rockefeller Foundation is requiring projects it funds to be IRIS-compliant and GIIRS-rated. A program manager explained that the foundation used to develop separate metrics for each investment, but was unable to compare impact across projects, or aggregate data from different regions. “To the extent we agree on common third-party tools, it streamlines the process for investees,” she said.

B Lab announced it now has agreements from 25 fund managers to put their 250 portfolio companies through the GIIRS-rating process by next March. A dozen North American funds, including RSF Social Finance, Good Capital, Satori Capital and Sustain VC, together with overseas funds previously announced, represent $1.2 billion in assets and have investments in more than 200 companies in 30 countries. “That’s something people can draw a box around and say, ‘That’s something I want to be part of,’” Gilbert said.

For social ventures, a variety of software tools are emerging to help manage the complexity of the new reporting standards. By increasing transparency and tracking impact, more capital should flow to impact investing, Gilbert said. Ultimately, the goal is to reduce transaction costs for raising capital and assessing social ventures, and make it easier for fund managers to create investment pools in particular sectors and geographies.

For funders, Gilbert paraphrased a parable attributed to the Lakota Sioux to illustrate what’s at stake. “If you want to plan for a year, invest in a company,” he said. “If you want to plan for a decade, start a fund. If you want to plan for a century, create an asset class.”

Dowser is a media partner of SOCAP2010.

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