The Future of Impact Investing
Impact investing has been getting increasing amounts of media attention and interest from both the for-profit and nonprofit fields with investment funds being created around the globe in both developed and emerging economies. But one of the main questions that most impact investment funds don’t seem to be asking themselves is “how are we creating impact through our investments in terms of the profiles of entrepreneurs we find and support?”, and “how can we change the future of impact investing and the entrepreneurs that are finding success and creating impact?”
To dive deeper into this topic, I went and spoke with Daniel Buchbinder, the founder and director of Alterna, an organization that support local Guatemalan entrepreneurs both at early stages as well as through access to finance and networks. They also organize the annual Foro Latino-americano de Inversión de Impacto (for Central America and the Caribbean), one of the largest industry-related events in the region which takes place in November every year in Antigua, Guatemala.
Daniel has been working in the region for a number of years and is committed to finding and supporting those entrepreneurs who are creating local enterprises. Part of the reason for this vision is that he wants to create deep and broad-reaching impact. One of the core missions of his work with Alterna is to “cultivate - open access to resources for local and early stage entrepreneurs and especially in sectors where there is no existing local of support such as creative industries, tourism science, etc.” He also believes in the importance of measuring impact in order to know concretely whether an enterprise, and the efforts of Alterna by supporting that enterprise, are really making a difference.
But the measurement side of the coin is a tricky one, especially in industries where the impact or value created is more intangible and lends itself to more qualitative impact. How do you measure the value of a digital news venture or a film production company working social injustice issues? These are some of the challenges that Alterna is trying to tackle with the entrepreneurs and companies they work with. Daniel believes that measurement of impact, even in the more qualitative-focused sectors, is crucial to the growth and scale of social entrepreneurship as well as impact investment in Guatemala, and the region as a whole. But Daniel also believes it's important to keep impact as the central core mission of the work we, as the “impact sector” of both entrepreneurship and investment, are trying to bring to fruition.
“We (as players in our sector and in the region) have a huge responsibility to be creative, transparent, and to take risks. And it seems sometimes that we are trapped between two extremes, with a tension between the traditional way of doing things (both with investment and entrepreneurship) and the new way (impact investment and social entrepreneurship), and no one is willing to be in the middle. This tension and having two extreme sides means that we aren’t able to grow and scale as quickly as we maybe should and it keeps us from being able to focus on creating something new and dynamic; I see this as a potential risk for the future of impact investing and social entrepreneurship because it means we could be replicating the same models as before but placing a new title (of “impact) on everything. We need to be careful and conscious that we are supporting new ideas, risky ideas maybe, and being open to supporting new entrepreneurs and not just ones that come from high social capital contexts. Otherwise, what change are we really creating if we keep making only well connected entrepreneurs better off while newer, perhaps younger, and local entrepreneurs get shut out because they can’t get access to the finance and training they need to be successful and sustainable?”
When asked how we as an “impact community” and ecosystem here in Latin America and especially for the local context of Guatemala can grow a more inclusive future for entrepreneurs, Daniel commented:
“We need to have more open and transparent conversations and be willing to share and talk about the challenges we all are facing - both in terms of developing talent and measuring impact, among other topics. There needs to be more interaction between all the players as well as getting new professionals to come and share what they have learned from other parts of the globe. We also need to be open and honest about what our expectations and goals are for growing and fostering this new sector of impact (both on the investment and the entrepreneurship side).”
As partners of Alterna for many years now, we at Pomona have also seen the need of being transparent and sharing information when it comes to impact measurement and supporting social entrepreneurs - both of which we strive to achieve by running our AgTech programs, speaking on various panels at conferences around the globe (including the FLII in Antigua and in Mexico), and sharing our ideas about measuring impact with our partners and learning from their experiences and expertise. It is our goal to see the growth of the ecosystem of entrepreneurship both in Guatemala as well as the region as a whole, and we aim to do that by sharing knowledge and resources with all actors both on the traditional side, as well as the newer side of impact investing and social entrepreneurship.