In the last few years, impact investing has been hailed as the next big asset class, with J.P. Morgan & Co referencing it as a $1 trillion investment opportunity. Cue the buzz. Cue “$1 trillion” on a larger-than-life billboard surrounded by blinking lights. Cue bright-eyed social entrepreneurs spurred into motion by that figure, hoping it means much-needed capital for their innovative ventures.
There is no dispute that market-based approaches to long-standing development problems present a significant opportunity. There is also no argument that impact investment can catalyze capital to maximize social and environmental returns. The reality, though, is that this is a fledgling sector with much to prove and with many underlying complexities. The truth is that the road to that “$1 trillion” figure is long and winding.
There is the obvious problem of deal flow. According to an article in The Atlantic this week, “How Financial Innovation Can Save the World,” many BOP-focused businesses “are too young or too risky to be "investable" by investors' criteria.”
It is a challenging environment for investors, but it’s also exceedingly difficult for entrepreneurs – many of whom are trying to prove innovative models among a hard-to-reach customer base with limited resources. A recent report by the Monitor Group and Acumen Fund, “From Blueprint to Scale,” noted that of over 400 enterprises surveyed in Africa, only 32 percent were commercially viable and had potential for scale, and only 13 percent were actually at scale.
At Invest2Innovate, or i2i, we encounter these issues on a daily basis. We are an intermediary organization that supports seed-stage social enterprises in new and untapped markets, beginning in Pakistan. We aim to strengthen the pipeline and promote deal flow by identifying and vetting high-potential enterprises, providing capacity development to grow these businesses, and connecting them to seed capital to further build these enterprises.
In order to better address the disconnects evident in this sector, we just launched i2i Angels, a community of angel investors committed to investing and supporting innovative and high-growth enterprises in Pakistan. i2i Angels aims to tap the Pakistani Diaspora – from which remittances have quadrupled in the last eight years – as well as local Pakistani networks to channel capital and resources to innovative young entrepreneurs. We aim to foster deep relationships between both angels and our enterprises, believing that trust, transparency, and collaboration are key in growing viable businesses in these markets. i2i Angels will be a key and intrinsic part of our model, helping to strengthen access to capital and the entrepreneurial pipeline in Pakistan, a country in which 60 percent of the population lives under $2 a day, and access to capital and finance are some of the major obstacles facing fledgling entrepreneurs.
There is no magic solution to addressing deal flow or working in high-risk markets. But ultimately we need organizations and innovators willing to take the risk to try different out-of-the-box solutions – tweaking, adjusting, and pivoting as necessary. Organizations like Agora Partnerships, Artemisia and others are also working to address such issues in other markets. In Pakistan, where the Diaspora community is very active and involved in philanthropy, entrepreneurship, and charity, there is a significant opportunity to build and channel resources globally and locally to support innovation and social enterprise. That opportunity was the inspiration behind i2i Angels – a community we aim to foster to promote long-standing impact in the country.