Impact investing is “the next place” according to our founder, Jim Sorenson. We sat down with him to talk about what got him started in the social impact sphere and where he sees it heading in the future.
Q: How did you first learn about impact investing, and what attracted you to it?
A: Before impact investing, I was an entrepreneur looking for innovative businesses that could really be successful. I stumbled upon an opportunity out of need and desperation that would begin my path to impact investing. The dot-com bubble had burst, tech companies had lost much of their valuations and broadband penetration was delayed. It created a very unfavorable environment for the video conferencing technology and business we had created.
At that critical moment, an opportunity came forward to utilize the technology we had spent tens of millions of dollars to develop for a different population — the deaf community. Some time earlier, I’d hired my deaf brother-in-law in the hopes that there might be a market for the deaf. It turned out to be completely providential. He brought a new service to our attention, Video Relay Service (VRS) which allowed the deaf to communicate with the hearing through a remote sign-language interpreter in real time over the internet. With the investment in the technology, drive and execution to really focus on this underserved market, the business took off and grew and succeeded financially, and I came to realize the profound impact on the deaf community in enabling capabilities that were heretofore unattainable for them.
Q: What was your first impact investment? How did you choose it, and how is it doing now?
A: Sorenson Communications, the telecommunications business for the deaf was my first impact investment. The development of the technology was started back in the mid-’90s and the company is still going today serving millions of deaf and hard of hearing people.
Following that, the Unitus Equity Fund was one of the very first funds I invested in. It was one of the first impact funds. It’s been incredibly successful, and is now on its fourth fund, operating as Elevar Equity.
Q: What are some common misconceptions about impact investing that need to be cleared up?
A: One of the misconceptions is that if you are making an impact investment, you have to give up a return, or you have to take higher risk. That’s not the case. Impact investing is really a spectrum of investing. On the one end, you may have philanthropy that will be making very high-risk, early-stage and catalytic Program Related Investments. The investment is made primarily for the social purpose. Financial gain is secondary, and they can’t be used for lobbying purposes. These investments are sometimes concessionary to other capital coming in in order to de-risk transactions to attract other investors who may want to invest.
On the other end, you have more market rate impact investors who may invest at a later stage when the risk and return characteristics of the company are market rate but the business that they are investing in solves a social problem or helps a population in need or that has been left behind. Impact investing is a wide spectrum of investing.
Q: You’ve called impact investing “the next place” when it comes to investing. What do you mean by that?
A: When I say the next place, I think there has been an interest by investors in investing in businesses that are more socially responsible, more sustainable and more environmentally friendly. We’ve seen a lot of assets move into funds that are now screening companies based on these criteria. It’s been estimated that about $8 trillion are now invested in funds and companies that have been screened for Socially Responsible and ESG criteria.
The next place, impact investing, focuses on positive screens. We are looking to invest in companies that address problems like access to quality education, health care, financial inclusion or help to revitalize distressed communities. There are innovative impact investments that help solve intractable social problems like recidivism, homelessness and addiction. This thematic approach requires more investible impact funds and the development of an enabling ecosystem of intermediaries, financial advisors as well as awareness and education in the investment community. Of course, demand is also important. I believe demand will be driven from the next generations and from women who surveys have shown align their investment decisions closely with investments that benefit society. That isn’t to say stodgy, old men like me won’t be interested!