For many years, we have been trying to stimulate entrepreneurial activity to address some of the most stubborn as well as newly arising social needs and problems. Today, we are at an inflection point: the path forward looks different than the one we’ve travelled. While access to financial capital remains important, providing financial capital alone isn’t enough to encourage innovation or to scale and replicate solutions that work. A new industry financing social impact can be built only “along with” and not “on top of” existing support mechanisms and funding vehicles for social ventures and enterprises.

“Impact investing” is predicted by analysts to become a $500 billion industry. It has been growing in popularity in the past few years, attracting a diverse set of players with a range of expectations regarding financial returns. Across the globe nearly 200 impact investment funds are now registered and many foundations, networks, and mainstream financial institutions are becoming active in this space.

But the growing excitement around the overall market potential and the higher return expectations of some newer entrants raises a number of questions. Are we creating yet another hype based on a bubble filled with good intentions and hope? Are we too narrowly focused on financial markets and thereby missing out on more holistic approaches to support social innovation?

I have the pleasure to chair a group known as the Global Agenda Council on Social Innovation. This council is in a unique position to discuss such questions in a frank and open way. The council, initiated by the Schwab Foundation for Social Entrepreneurship in collaboration with its sister organization, the World Economic Forum and guided by Mirjam Schoening and Katherine Milligan, brings together leading academics in the field of social entrepreneurship, pioneers in impact investing, and globally recognized social entrepreneurs to address some of the most pressing issues facing the impact investing industry. Greg Dees, Jacqueline Novogratz, Alvaro Rodriguez Arregui, Andrea Coleman and Asad Mahmood are just some of the leaders who contribute to this generative effort ensuring that this nascent industry reaches its potential and promise.

In our discussions, a number of issues pop up again and again.

1.Many studies offer unrealistic estimates of the size of the industry, raising expectations beyond what the sector can currently deliver.
2.Despite the current focus on generating returns, subsidized capital from philanthropists or foundations will continue to be critical.
3.Local knowledge is highly underestimated but remains the “x” factor as social needs are related to problems with local root causes.
4.The needs of young social ventures requiring seed capital is largely neglected, indicating that the industry might under-invest in its future pipeline.
5.As more social ventures are involved in traditional capital market operations, there’s an increasing risk of mission drift.
These are just some of the trends identified by our group and that warrant honest debates and interaction among all the stakeholders involved.

My own conclusion for the future of funding social innovation is that we need to consider social and human capital as equally important as financial capital. We need to create a level playing field for investors and investees (social entrepreneurs and their organizations). Investing in the education and knowledge base of both parties will allow us 1) to better understand the nature and types of “risk” involved for investors and investees, 2) to generate new asset classes, investment vehicles and non-financial support activities that are reflective of local realities and challenges on the ground, 3) to develop meaningful schemes for evaluating outcomes and impact and develop fair schemes to compare social enterprises across issue domains and geographies, and 4) to speak with one voice when demanding new regulatory frameworks and legal forms.

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