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19 June 2017

Editorial: Entrepreneurs lead impact revolution

Sir Ronald, who stepped away from his private equity firm Apax Partners a decade ago to concentrate on impact investing and philanthropic work through the Portland Trust, said: “The impact revolution will be led by entrepreneurs.”

Author: James Mawson, Editor-in-chief

Sir Ronald Cohen, one of the founders of the European venture capital and private equity industry back in the 1970s after his return from studying in the US, gave an excellent speech at the Economist’s impact investing conference last week.

Sir Ronald, who stepped away from his private equity firm Apax Partners a decade ago to concentrate on impact investing and philanthropic work through the Portland Trust, said: “The impact revolution will be led by entrepreneurs,” and gave the analogy of the rise of VCs and entrepreneurs from the 1970s.

He said: “Technology and impact disrupt all traditional models,” and referred to the cover of W women’s fashion magazine which had “good is the new cool” as its title.

Gavin Wilson, chief executive of the World Bank’s private investment affiliate, International Finance Corporation (IFC), effectively said this disruption had already started to happen. He said at the same Economist conference that development finance has already undergone a fundamental shift: “Private capital is now at the heart of development.”

Sir Ronald added that he hoped we were about three years from the tipping point in impact investing, by which he meant about 10% of grant-making in the nature of impact funds, 4% of assets under management (AUM) and up to 10% of government procurement in pay-for-success impact models, and noted Ford Foundation’s decision to commit $1bn to impact as an important signal (read VillageCapital’s excellent blog on it here).

US-based non-profit Global Impact Investing Network (GIIN) said the 208 respondents to its annual survey managed $114bn in impact investing assets last year, with $22.1bn invested in 7,951 deals last year and expected growth of about 20% this year.

Rodney Schwartz, CEO of ClearlySo, a UK-based impact investment bank, said: “I won't rest until [all the financial assets] in the world is invested with an impact investing lens."

Sir Ronald pointed to these social and environmental-focused entrepreneurs, often structured in the form of B Corporations to have dual financial and impact goals in shareholder articles, as bringing dealflow to mainstream markets.

Given the overall venture market was nearly 10,000 deals with $134bn in funding last year, according to data provider Preqin, impact investing, which is primarily in private, illiquid instruments, is already an important part of the global market, particularly outside of North America and Europe.

At the Global Corporate Venturing (GCV) Symposium last month, where the corporate attendees was about $2.5 trillion in aggregate annual revenues and more than $100bn in venture AUM, it was seen how corporations, along with universities and governments, are helping the venture industry scale up and become more global.

While less than a third of traditional venture capital firms invest outside their home country, according to data provider Pitchbook, about half of corporate venturers invest in more than one country, according to GCV Analytics. And while the largest number of CVC deals are in rounds of less than $10m, they are involved in the majority of large rounds of at least $100m in size.

If consultants Bain in its HBR article earlier this year is right that the age of superabundant capital could reach $900 trillion then the issue is less about the world having enough capital than about connecting it to the right opportunities and what its intentionality is.

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