Q & A: Catherine Clark on Impact Investing

Expectations of capital sources are “not really aligned with the needs of early-stage social entrepreneurs”

By Robin D. Schatz

This story appeared originally at SAGE Business Researchers. Read the whole piece here. 

Impact investors are integral to the growth of social entrepreneurship, according to Catherine Clark, founder and director of the i3 Initiative on Impact Investing at Duke University’s Center for the Advancement of Social Entrepreneurs (CASE) at the Fuqua School of Business.

Impact investors either put money directly into ventures that aim to alleviate major social and environmental problems or invest in impact funds that focus on such ventures. JPMorgan Chase estimated in its 2015 survey that impact investors had $60 billion in assets under management.1

Clark, a pioneer in impact investing and for-profit and nonprofit social entrepreneurship for 25 years, is an adjunct professor at Fuqua and coauthor of “The Impact Investors: Lessons in Leadership and Strategy for Collaborative Capitalism.” She spoke with SAGE Business Researcher reporter Robin D. Schatz about social entrepreneurship, the role of impact investors and CASE’s philosophy on fostering innovation. This is an edited transcript of their conversation.

Does it matter how you define social entrepreneurship?

The field probably spent about 10 years arguing over the definition. I was at a series of research conferences over a decade where the first two sessions would always be people saying, “I think it should be this, and, no, I think it should be that.” After a while, people just stopped arguing.

The definition that we use is based on a piece of writing by the founder of CASE, Greg Dees.2 Greg is the one who basically founded the study of social entrepreneurship as an academic field. He was the first one to say this is not a hobby, this is not a variation on charity. It’s a discipline, and it can be studied and written about as a research field, and it can be understood.

Dees said social enterprises are organizations that pursue social value as their primary goal. Then he borrowed from a lot of the entrepreneurship literature: It’s run by people who have a heightened sense of accountability to the impacts they’re providing, that they are in an entrepreneurial sense not being limited by the amount of resources they currently have in hand.

There were a whole bunch of extremes of arguments in the field about whether a social enterprise needed to have earned income or whether a social enterprise needed to be in the nonprofit sector. Greg threw all of that away and said, “You’ll know it when you see them.”

And how do you know?

The two elements that I have pulled out from his six-point definition is the idea of intentionality and accountability. The accountability is that you’re going beyond the norm, and that will change how you are articulating your ability over time to meet that mission, and that you’re using business skills and tools to do it. It’s an entrepreneurial style and attention to how you’re getting your mission done. You’re looking for resources and accounting for your work.

Is social impact investing critical to the growth of social entrepreneurship?

It’s been really important, but there’s still a large gap between the excitement of a new thing and the investable enterprise. And every book that’s been written on impact investing in the last few years has emphasized this. I’ve been in rooms with investors on one side of the room saying, “There are no investable deals; we have all this capital, where are you?” and on the other side of the room are all these social entrepreneurs saying, “We’re right here.”

The problem is, the financial expectations of many of those sources of capital are not really aligned with the needs of early-stage social entrepreneurs. It takes a good five to seven years for any social enterprise to be truly investable. What we’re seeing is a bunch of people creating different kinds of funding structures. People call it patient capital, where instead of expecting a venture to grow and get big in five years, you have the capacity to wait for 10 years.

What have you learned from working with social entrepreneurs?

We’ve learned it isn’t enough to fund a stellar social enterprise in the domain and think they’re going to change that domain forever. They are not. They’re catalysts; they’re important catalysts and they’re going to learn stuff, and they’re going to communicate stuff and they’ve going to have a different way of looking at the problem that other people can pay attention to, but they need to work with major institutions in society for the change to actually happen.

Our theory of change as an academic institution is not to just create the catalyst but to create the helpers, whether that’s someone in government who’s going to change regulations around maternal health care in Kenya because of what they see that one incredible social enterprise has done, or whether it’s a private company that is looking to social entrepreneurs to figure out what the innovations are that they can promulgate…

This story appeared originally at SAGE Business Researchers. Read the whole piece here.