- Three networks have formed to coordinate responses to the pandemic from impact investors
- Coordinating to share vital information and best practices helps the response on the ground and strengthens the sector’s post-COVID future
- Creating better and tighter feedback loops solves for a macro problem: how to connect the right investors with the right opportunities
In the Before Times, the world of impact investing was already a well-connected one. Coordinating a more formal pandemic response may yield a post-COVID solution to the ever-problematic gap between impact investors and social entrepreneurs.
“We tried to decide quickly what the most important set of activities should be to meet the needs of vulnerable people through social entrepreneurs — to get some of the first signals on the ground and react more effectively and efficiently,” Cathy Clark, head of Duke University’s Center for the Advancement of Social Entrepreneurship, said in a Karma interview.
In March, Clark led the launch of covidcap.com to aggregate all the offers of response funding coming from investors, philanthropists, and others. It was not impact-specific, but it fed into an existing desire to understand on-the-ground needs and push capital toward the entrepreneurs and nonprofits addressing them. At the same time, Clark was engaged in conversations about the infrastructure needed to act on real-time needs that would lead to the launch of the COVID-19 Response Alliance for Social Entrepreneurs.
“I don’t think there was an urgency around these rapid feedback loops before [the pandemic],” she observed.
The Aspen Network for Development Entrepreneurs (ANDE), a membership organization for small and mid-sized enterprises in emerging markets, is a member of the Alliance and the R3 network launched by the Global Impact Investing Network (GIIN). When the pandemic hit, ANDE looked for ways to support its members — which naturally meant reaching out to other organizations. Randall Kempner, ANDE’s executive director, is cautiously optimistic that the networks will make a difference, even if just to share best practices.
“The challenge that we all face as industry supporters is that to ask to expand your interest as a funder to a broader population within the sector — that’s a hard sell, and it’s especially hard now for those scrambling to help their own portfolio,” he told Karma.
The Alliance, with 40 member organizations, is the largest of the coronavirus response networks. The 11-member R3 Investment Coalition launched last week, shortly after the COVID-19 Coalition co-led by Sorenson Impact and Village Capital. The three networks are neither mutually exclusive nor duplicative, according to the participants, who all reported being in frequent contact with one another.
“To me, it’s very synergistic, and we’re all in touch to compare notes,” said Amit Bouri, the GIIN CEO, in a phone call with Karma.
GIIN is a member of the Alliance and the founder of R3 (“response, recovery, and resilience”), the newest of the three networks. R3 is designed to connect philanthropic and private investors with co-investors and/or new opportunities for pandemic-related deals.
R3: filling financing gaps
“We’re surfacing specific investment needs, making sure that if the need for financing happens anywhere in the world, the 11 members of R3 can make that information flow across the network,” said Bouri. “This is all about making sure financing gaps are filled sooner, to get the right types of capital where it’s most needed.”
Investors are eager to put money in solutions to the crisis while protecting the companies in their portfolios. Entrepreneurs, meanwhile, are struggling to either launch a pandemic-related solution or keep the lights on as the pandemic disrupts their plans. Even pre-pandemic, making the right connections was a challenge. With both investors and entrepreneurs at varying stages of stability, it’s even more complex.
“One of the things everyone is struggling with is that some companies don’t have a lot of cash on hand, while others may have just finished a fundraising round and have to manage their burn rate,” said Alix Zwane, CEO of the Global Innovation Fund (GIF), another member of the Alliance. “The randomness of that is a real imperative for all of us to manage how we respond. All of these alliances should help us get over that barrier.”
R3’s investor-specific lens and its focus on opportunities beyond social enterprises distinguish it from the other groups.
The Alliance: Sharing due diligence
The Alliance, a network of 40 organizations, grew out of an existing informal discussion group. It seeks to streamline the sharing of information among intermediary organizations and investors — particularly the deep, pre-investment analysis on companies that travel restrictions have made extraordinarily difficult to conduct independently.
“We see it as a place to share due diligence, reduce search costs, and figure out who has the resources to do what,” Zwane told Karma. GIF is also straddling both private investment and government aid: their capital comes from international development funds like USAID but is deployed as impact investments in emerging markets.
“What we’re hearing from [impact investors and aid groups] is the need to figure out how to go fast,” she said. “But that looks different when you think about the rules of the game in government versus impact investing.”
ANDE, part of both the Alliance and the R3 Coalition, is also monitoring the gaps in government responses. “There’s not an emerging-market government with the potential to come anywhere near what you see in the U.S. and Europe in terms of small-business-support packages,” Kempner pointed out.
The Coalition: Matching startups, investors
On the entrepreneurial side, the COVID-19 Coalition is connecting early-stage startups — the ones dealing directly or indirectly with the crisis — with relevant investors. They are doing so on Village Capital’s Abaca platform, originally designed to help entrepreneurs determine what type of capital was the best fit for their business and then match them directory-style with relevant firms or individuals.
“The problem we were solving [before COVID-19] was that investors get a thousand pitch emails a month and rely only on their personal network to screen because they don’t have time,” Abaca manager Andrew Hobbs told Karma. “Now it’s more interactive… investors are very eager to have that wider pipeline and look at deals they wouldn’t have before.”
The members of the Coalition, he explained, are tapping their networks to get both investors and entrepreneurs on the platform — and share some of the due diligence that Zwane, Bouri, and others say is newly critical.
What do these networks mean for the post-pandemic era? Clark wants the rapid-response feedback loops to become the norm. Hobbs would like to see more data-sharing efforts that allow entrepreneurs to bring their core information across networks and platforms. Zwane believes that the disruptions to supply chains will create new opportunities, particularly in Africa. Kempner and Bouri both want to bring more investors into the impact game.
“This crisis is likely to resolve some of the broader shift of the business-society contract,” Bouri said. “There’s a hard look at how businesses engage with workers, communities, and supporting a variety of stakeholders. Investors are doing the same thing.”