[This article was first published on the blog of the Acumen Fund.]
In April 2012, Monitor Inclusive Markets published From Blueprint to Scale: The Case for Philanthropy in Impact Investing, in collaboration with Acumen Fund and with support from the Bill & Melinda Gates Foundation. The report examines which types of funding are the most catalytic for growing social enterprises, from the earliest blueprint phase when business models are still being validated, to later stages when successful models are ready to scale. Our analysis and research paints a clear picture: impact capital alone will not unlock the potential of impact investing for the global poor.
The report has been widely discussed and debated within impact investing circles (including being the opening topic at SOCAP 2012 this October), but we wanted to bring these ideas to a wider audience. To that end, we recently published “Closing the Pioneer Gap” in the Winter 2013 edition of the Stanford Social Innovation Review.
The article focuses on the key issue identified in the Blueprint report: the importance of philanthropically-backed and low-return funds to fill the “Pioneer Gap” in the impact investing marketplace. The Pioneer Gap is one of the biggest hurdles social ventures must cross before they can reach any sort of scale. In very early stages, a social enterprise often relies on grants and the entrepreneur’s personal savings to test out its ideas. At later stages, once the business model has been proven and it is clear that the enterprise can scale its business, it can more easily can attract commercial capital. However, there is a huge gap in financial support between these very early stages and later stages that prevents many social enterprises from succeeding.
One way to catalyze the growth of social enterprises that provide critical goods and services to the poor is through “enterprise philanthropy.” Philanthropically-backed investment funds like Acumen provide targeted investments that are more concerned with social impact than financial return. To close the Pioneer Gap and create social change, that is exactly what the sector needs. Due to the extreme challenges facing those who are pioneering new models for inclusive business, truly realizing impact will require more, not less, philanthropy, and that philanthropic support will need to be delivered in innovative ways.