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Miller Center’s Approach to Impact Investing: Clearing the Runway for Takeoff

Several years ago, waiting for our 4-seater prop plane to take off from the Bolivian Amazon, I watched in fascination as a small team of men cleared the runway with machetes. We couldn’t see the end of the runway and it was littered with potholes, no doubt making it challenging to gain the speed needed to take off. Once in the air, the small plane bounced around in turbulence. All in all, a bumpy ride — not for the faint of heart.

The same can be said for the journeys of our social enterprise partners. The pathway to scale is overgrown with obstacles, and entrepreneurs often can’t see more than a few feet ahead of them at any given time. Gaping holes between funding inflows make it difficult to gain momentum. And the large amounts of funding purportedly available in the impact space are often not the right flavor of capital.

To continue the analogy just a little further, at Miller Center, we see our role as clearing that runway, laying down tarmac, and stocking the right kind of fuel so that the best social enterprises that are ready to take off can focus on flying the plane and not on wielding machetes.

Tugende, a tech-enabled asset finance company in East Africa and one of Miller Center’s leading social enterprise partners, recently closed a second Series A tranche of $3.6 million in equity financing to help meet intense demand for income-generating assets. Speaking to the CEO, I asked how he planned to spend his time now that he’s finished fundraising. He laughed and said, “That would be amazing, but we are never finished. In fact, we are working hard to close more debt to support our working capital requirements and getting ready to launch the Series B.”

Another recent success story among our social enterprise alumni is Ugandan fintech startup Numida, which supports semiformal micro and small businesses with digital working capital loans. The company recently closed a $2.3 million seed round, but the founder describes a similarly bumpy story of extensive time fundraising, a disjointed approach by impact investors, and long periods of due diligence even for very small sums.

What is the problem we’re trying to solve?

Sadly, these stories are best case scenarios for social entrepreneurs all over the world — because the money closed. An informal survey of Miller Center alumni indicates that founders generally spend over half of their time fundraising, and only about half of our program participants are successful in meeting or exceeding their “justifiable asks”. Even when they achieve success like Tugende and Numida, they typically have very short cash runways and are quickly back on the fundraising hamster wheel. The same survey indicated that the average maximum runway these companies ever have is 6–9 months.

Some in the social enterprise space will say that this is just the way business is done, and that the job of a social entrepreneur is to constantly fundraise. And that life on the conference circuit and jumping from accelerator to accelerator searching for the next investor are acceptable tactics to secure the funding future of your social enterprise. But at what cost? As we look to social entrepreneurs to solve some of society’s most pressing problems, how can we expect them to spend so much of their time and psychic energy fundraising rather than running their businesses and creating impact?

Miller Center believes that this model creates an unjust and suboptimal equilibrium that prevents social entrepreneurs from scaling, and perpetuates a neo-colonial power dynamic in the impact investing ecosystem. Why do we say this?

At first glance it would appear that there is plenty of capital to fuel the growth of social enterprises like Numida. The Global Impact Investing Network (GIIN) says there is more than $700 billion in assets under management dedicated to impact investing. The problem is that the focus, amounts, terms, and instruments on offer doesn’t always work for many of the social entrepreneurs we support.

  • Focus. The vast majority of this capital is focused on the global north — the US, Canada, and Europe.
  • Amounts. According to the GIIN report, the average ticket size for direct impact investments is greater than $5 million. The vast majority of our social enterprise partners initially seek between $50,000 and $2 million in investment.
  • Terms. The GIIN data also suggest that most of this capital expects market rate returns. While some impact investments can and should generate market rate returns, many of our social enterprise partners address issues where there are clear market failures and they generate many positive externalities that are not priced by traditional markets. Here, blended capital solutions and venture philanthropy are needed to support the growth of these innovative solutions, thus requiring us to accept below market rate financial returns.
  • Instruments. The lion’s share of this capital is deployed as either traditional risk-averse debt (fully collateralized, etc.) or in funds that attempt to replicate the Silicon Valley venture capital approach to equity investing. Our experience shows that these traditional financial instruments are often misaligned with many impactful and scalable social enterprises in our network. While there is much buzz around innovative finance such as program related loans (PRIs) and soft loans with below-market interest rates, and revenue royalty structures, the actual prevalence of these instruments in the impact space is rare.

Beyond this intrinsic mismatch between supply and demand in impact investing, there are also ecosystem challenges to overcome, including a lack of transparency, fragmentation, and systemic bias.

  • Lack of Transparency. While a few aligned funders have an interest and ability to serve this segment of the social enterprise market, entrepreneurs often find it challenging to find and connect with them. Investors’ thematic interests (investment theses) and funding criteria are often opaque and require insider information to truly understand. Consequently, social enterprises spend far too much time chasing the wrong funders.
  • Fragmentation. Most funders in the space have very narrow stage mandates. Whereas it is typical in venture capital for a single fund to invest in a seed, series A, and series B round, it is rare for an impact investor to join in multiple rounds throughout an enterprise’s lifecycle. What’s more, there is little coordination to prepare and hand off portfolio companies to the next stage of investor. This lack of sequential connectivity forces enterprises like Tugende or Numida to get right back on that fundraising hamster wheel immediately after raising a major round.
  • Systemic Bias. Finally, the impact investing ecosystem suffers from systemic bias against local leaders and women-led enterprises. My OpEd The Real Reason Women Entrepreneurs Struggle to Raise Funding in “Times of Entrepreneurship” details many of the hurdles women face. Local leaders — here we refer to those leaders with a deep connection to the communities they’re working in, an intimate understanding of the problems they face, and profound insight into viable solutions to those problems — also face enormous challenges. Our initial research suggests that local leaders raise 7 times less than their expatriate counterparts. Lack of access to networks presents difficult barriers, and one we can help address with our accelerator model. But the role of racism and white saviorism in the development and impact spaces cannot be overlooked.

Our evolving approach

Miller Center aspires to become the go-to partner on the demand side of capital in the impact investing space — connecting our social enterprise partners to suitable funding and working dynamically to ensure our most scalable and replicable enterprise partners have a path, not just to their next fundraising round, but to the full range of capital they will need to achieve their visions.

We have accelerated more than 1,200 social enterprises over the years, fusing our unique blend of global changemakers, deep executive mentorship, and Santa Clara University’s resources and values. We understand that access to appropriate and timely finance can make the difference between scale and, well, survival.

Our new approach entails forging strategic partnerships with a range of funders and investors to connect our social enterprise partners to the right capital at the right time in their growth trajectory. In short, to clear that runway. We aim to span the spectrum of funding — from the more philanthropic through to the more commercial. We want to catalyze grants, reimbursable grants, low-interest loans, revenue sharing, convertible capital, guarantees, commercial debt, and equity. We plan to accompany our partner social enterprises on this journey by supporting their efforts to develop their justifiable ask for their immediate funding needs, AND to imagine the trajectory of future funding as they scale.

Watch for upcoming articles on how we plan to achieve this vision. We invite you, our community, to provide input along our journey. We believe social entrepreneurship is a critical lever in ending poverty and protecting the planet. But it requires capital investment and we must find better, more accessible ways to fund the remarkable entrepreneurs creating innovative and sustainable solutions to the world’s challenges.

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How the Impact Space is Meeting the Moment and Embracing Anti-Racism

Derek Chauvin’s trial and conviction for the murder of George Floyd are over. But Floyd’s death, and too many other horrifying recent headlines underscore the ingrained racism in the US: the police shootings of Daunte Wright and 13-year-old Adam Toledo, the Atlanta spa shootings and the resulting spotlight on anti-Asian acts of violence, continuing anti-immigrant and anti-Latino policies and violence, and widespread voter suppression measures targeting people of color.
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Social Enterprise Advisory Council

Miller Center is doubling down on our efforts to accelerate social entrepreneurship to end global poverty for the next generation. Our new Social Enterprise Advisory Council is a key part of our strategy — helping to inform our decisions and bring about our most ambitious outcomes. The eight amazing entrepreneurs on our council are all partners and alumni of our accelerator programs. They hail from Cameroon, India, Kenya, Mexico, Uganda, and the US, with their impact also extending to Columbia, Ecuador, El Salvador, Haiti, and Tanzania.

Each enterprise is working in the areas of women’s economic empowerment or climate resilience (often both), with businesses focused on sustainable farming, women’s health, water and sanitation, food security and nutrition, empowering artisans, and energy access. All of them are having tremendous impact in improving lives and lifting people out of poverty.

Please watch my video introducing our inaugural Social Enterprise Advisory Council.

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Social Entrepreneurship Can Move the Needle on Women’s Economic Empowerment

As the month of International Women’s Day on the 8th and Women’s History Month in the US, March is a time to recognize and celebrate the accomplishments, strength, and resilience of women. It is an opportunity to honor the women who are our heroes, mentors, and role models, both the famous and the personal. For me, some of those notable women include the “notorious” Ruth Bader Ginsberg, Rosa Parks, and my mom, Val Ellis.

But while we commemorate how far we’ve come, it’s impossible to ignore how far we still have to go. Data compiled by UN Women shows that women are paid less than men globally, are more likely to be unemployed, and are disproportionately responsible for unpaid work, spending approximately “2.5 times more time on unpaid care and domestic work than men.” And we’re witnessing how COVID is only widening these gaps. A January article in Fortune dropped this bombshell: “Women accounted for 100% of the 140,000 jobs shed by the U.S. economy in December”, with the pandemic largely to blame.

Even though the social enterprise movement is at the forefront of innovation and sustainable change on so many levels, women entrepreneurs still must overcome far greater hurdles for recognition and investment compared to their male counterparts. My February Op-Ed in Times of Entrepreneurship: The Real Reason Women Entrepreneurs Struggle to Raise Funding highlights that women-led enterprises are drastically underfunded despite the fact that their businesses, on average, significantly outperform those founded by men. A Santa Clara University study led by Professor Maya Ackerman and cited in Forbes found that gender is the primary determining factor in funding, with women “65% less likely to get funded at early stages…and 35% less likely to be funded at later stages.”

Yet social entrepreneurship still offers some of the most compelling hope for women’s economic empowerment — as founders and leaders, customers, employees, and value chain contributors. My two Op-Eds published this month in Times of Entrepreneurship, Good Jobs For Women Are In Reach Through Social Enterprises and These 10 Social Enterprises Help Women Navigate The Grey Economy, focus on the ways social enterprises are providing both formal and semi-formal work opportunities for women.

We know that raising women’s economic status works! According to a Boston Consulting Group analysis, if women and men participated equally as entrepreneurs, global GDP would rise by approximately 3% to 6%, adding $2.5 trillion to $5 trillion to the global economy. And as women earn money, they are significantly more likely to invest in their children’s education and their communities than men.

Miller Center is working tirelessly to be part of the solution in changing the narrative for women, especially those living in poverty. One way we’re doing this is through our recently launched Women’s Economic Empowerment Accelerator for enterprises taking a robust and holistic approach to elevating women in all aspects of their businesses.

Our mission is to accelerate social entrepreneurship to eliminate global poverty for the next generation. To deliver on this ambitious goal, the evidence is clear — we must move the needle on women’s economic empowerment.

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Action Research With A Mission

Last week, our 2020 Global Social Benefit Fellows (GSBF) presented their projects working with Miller Center alumni social enterprises over the past 10 months. When I exited their Action Research with a Mission Virtual Open House I thought to myself, “I just might have the best job in the world!” I trust you’ll be equally inspired by our video.

The fellows’ presentations highlighted not only their resilience but also their ability to pivot and to provide meaningful contributions while working in an ambiguous environment. They also learned that they could, even from thousands of miles away, create a value exchange with their assigned social enterprises, have an impact, and be part of the solution to end poverty and protect the planet.

Miller Center has launched the GSBF Endowment to drive our vision of providing action research with a mission to Santa Clara University students. We are almost halfway to our $10M goal for this award-winning program from which 12 fellows have been awarded Fulbrights and 3 have been selected as SCU valedictorians. Support for the GSBF Endowment will continue our tradition of excellence as we round the corner on the GSBF 10th anniversary.

Thank you to our remarkable student fellows! We are tremendously proud and look forward to watching all you accomplish from here! Thanks also to the inspiring social enterprises who hosted our fellows, and to the families and friends who encouraged the students on this exciting, albeit virtual, journey.