Top Trend #8 for 2011: Pathological Collaboration

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We need to create a social movement for finance like the civil rights movement that has the vision to unlock financial for one billion people.  We need to think seriously about legislation that reinvents foreign assistant, not dead aid but vitally live aid.  We need pathological collaboration. (Willy Foote, 2009)

Impact investors constantly brainstorm, talk through unexplored options, and compare notes with each other.  This baffles our counterparts in the commercial/banking world, which values secrecy and proprietary information. And yet the top funds in the sector–despite overlapping goals–only co-invest a handful of enterprises.  Funds are so focused on building their own companies as to make constant communication with others difficult.  That, however, is beginning to shift as funds look to collaborate with each other and with businesses, governments, nonprofits, and universities. Three examples:
  • The impact assessment movement (more on this later) has been driven by a coalition of organizations including foundations like Halloraan and Rockefeller, investors like Acumen Fund and Root Capital, corporations such as JP Morgan, and enterprises like D. Light.
  • The nonprofit, for-profit, and governmental sectors have come together through efforts like the G-20 SME Finance Challenge, sponsored by Rockefeller Foundation and the G-20 governments, which will bring tens of millions of dollars of funding to enterprises such as Grassroots Business Fund and Aavishkaar.
  • First Light Ventures has worked with the Hub-Bay Area and the related HubCap Fund, Dasra, the Idea Village, and Presumed Abundance on multiple enterprises and multiple projects (including launcging Village Capital).

In 2011 this sort of collaboration will be the name of the game.  Even well-heeled impact funds have become self-conscious of their limited capacity, high level of risk, and shrinking liquidity.  Governments facing limited budgets and a culture of increased performance assessment are looking for ways to do more with less. Some examples:

  • USAID and OPIC are launching a joint venture to do invest in emerging market  and actively exploring venture partners for their investments.
  • USAID has also created the Development Innovation Ventures vehicle, which conducts social impact assessment for cash-conscious for-profit venture and funds experimentation in expanding good ideas from one emerging market to another.
  • Funders increasingly look to “layer” their capital with nonprofit money. The New Orleans Startup Fund and the HubCap Fund-Bay Area, locally-funded nonprofits, funded locally, but invest in for-profit companies alongside both for-profit and nonprofit partners.
  • The Calvert Foundation and a coalition of others are pushing a government-guaranteed first-loss finance facility, called the Enterprise Impact Facility, that would leverage private capital for impact investing.
  • In the nonprofit spacer, SeaChange Capital and the LodeStar Foundation offering money and support to nonprofits that merge, in order to create efficiency, build economy of scale, and eliminate duplicated effort.

As the sector grows, funds will look to do more with less, leveraging the capital that they have available.  As a result, the first question to follow 2011’s big new ideas will be “who else wants in?”

By Ross Baird and Mark Hand. Photo credit: Nevit Dilmen. Check out our other top trends here.

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