My Twitter feed is clogged these days with commentary celebrating the growing clout and maturity of the impact investing industry. It’s got tremendous momentum! It’s gotten past pesky arguments about impact versus return! It’s gone from aspiration to a thing!

I love that more and more people with money are thinking about impact, but there’s two striking things about this commentary: 1) There isn’t very much money in play, and 2) the excitement is coming from those dispensing the money, not those seeking the money.

I work with those who are seeking the money, mostly for early-stage ventures focused on poor people in poor countries. Where impact investors see orderly progressions of staged capital and robust funding ecosystems, the people I work with mostly see a disorganized mess. While impact investors talk about abundance, they see scarcity.

Many entrepreneurs have launched for-profit ventures in good faith, impelled by a relatively few—but brave—seed investors, only to find that, no, there isn’t much money out there for them. And what is there can be much harder to get than the grant money nonprofits must raise.

Three Buckets of Money

At Mulago, we love the idea of a thriving impact investing ecosystem, but in our world, it’s still mostly theoretical. Maybe someday it will be relevant to our entrepreneurs, but what we see now is better captured by a simpler notion of three buckets of money—call them free money, real money, and maybe money.

Free money is grant money. It comes from philanthropists, foundations, and development/aid agencies. It is ostensibly focused on maximum impact, but it often serves other agendas. It can be a hassle to get, but basically you just have to find the right people and persuade them that good stuff will happen if they give it to you. Then you never have to pay it back. The catch is that if you are structured as a for-profit, not many people will give it to you.

Real money is money—debt or equity—from investors who expect a return. A real return. Maybe they care about impact, maybe not. Maybe they want to wring every nickel they can out of the deal; maybe they have other priorities. Whatever their motives and aspirations, they’re serious about getting their money back and serious about making something on their investment.

And then there’s maybe money—maybe, as in, “Maybe we’ll get it back,” and “Maybe it will get this venture all the way to real money.” Maybe money comes from: a) smart investors who understand the risks and want to give high-impact start-ups a chance, and b) less-smart investors who think they’re investing real money. Some of the smart investors see maybe money as a kind of recyclable philanthropy that they can re-invest in one high-impact idea after another. The kind of people who consciously invest maybe money are obsessed with impact. They’re not as concerned about return; many would be happy if they just could preserve capital across a portfolio.

When it comes to buckets of money, size matters. The free money bucket is pretty big; development aid and philanthropy total more than $150 billion a year. Just a fraction of that is available to social entrepreneurs working in poor countries, but it’s still a lot. The real money bucket is exponentially bigger— trillions and trillions. Only a fraction of that is available in poor countries, but it’s still a crazy amount of money.

I have no idea how much maybe money is really out there. Impact investing straddles real money and maybe money, and the Global Impact Investing Network estimated that about $16 billion came into Impact investing in 2015. Apply a “real impact that would not have happened otherwise” filter (Tesla? Really?), and a big chunk of that goes away. Only a fraction of what remains goes to the poorest countries, and only a fraction of that is focused on the truly poor in those countries. What’s left is, well, not much. It’s hard to imagine a less-precise estimate, but it squares with what I see out there for early-stage ventures focused on the poor: not that much.

Whatever money is or isn’t there, the hard truth is that no for-profit idea achieves big scale without real money. And impact at a scale that really matters comes from industries—lots of similar businesses—not one-off businesses. Nobody wants to invest real money into businesses that don’t generate solid profits, and nobody wants to imitate them either. You can’t scale on maybe money, and you can’t get to real money without real profit.

Surviving to Real Money

Imagine this: You’re a social entrepreneur standing at the edge of the Maybe Money Desert. Far in the distance are the Real Money Mountains, where glistening snows turn into rushing rivers of capital. To drink from those rivers, you have to survive a desert crossing that includes lots of iterative R&D, a persuasive proof of concept, creation of a great team, and all the other stuff that will make you worthy of real money. There are oases here and there, but they’re tricky to find and often hard to get into. Mirages are a real problem.

All you’ve got to start off with is a plastic jug of Seed Capital. It’s got to get you at least to the first oasis. It leaks a little bit, and you’re almost certain to be thirstier than you thought you’d be. Available maps are lousy, and while there are some guides, they’re mostly people like me. You don’t stand much of a chance unless you can plot a decent route ahead of time and you probably shouldn’t fill up that jug until you do.

So good luck with that.

One thing to think about, though: There is also a Free Money Helicopter Service that could—if they wanted to—ferry you part or even most of the way across the desert. However, their corporate slogan is a little discouraging: “We Pretty Much Only Love Nonprofits.” You might be able to talk your way on for at least a short ride, but most likely, you’ll be watching them fly overhead as you trudge through the cactus.

Here’s the thing, though: If you’ve got a truly high-impact idea that needs a lot of R&D and business model development, but could someday be worthy of real money—and hence impact at scale—you should be on that helicopter! The point of philanthropy and aid is to make impact happen that would not happen otherwise. If the helicopter delivers a truly high-impact business idea close to the mountains and that idea gets to scale, that’s a huge win for philanthropists, as long as the focus remains on the target population.

We need structures that will allow great ideas to mature with grant funding, wherein entrepreneurs can develop technologies and business models under conditions that minimize that dash across the desert. Too many good ideas are going to die out there if they have to survive on the existing supply of maybe money. As a funder, I care only that effective solutions for the poor get to scale. If the free money entrusted to me makes that happen, I don’t care who is enriched down the line.

Getting More Good Ideas Across the Desert

Don’t let good ideas die! Here’s what philanthropists, investors, and entrepreneurs can do get good stuff into the mountains:

Philanthropists: Provide grant funding to nurture high-impact for-profit ideas: be willing to fund nonprofits that can transform into (or spawn) for-profits when worthy of real money. If you can’t do that, at least expand the pool of maybe money through program-related investments (PRIs)—loans, equity stakes, and guarantees—which count as part of your 5 percent distribution and are easier than you think.

Investors: Don’t invest in an idea or team unless you believe they can eventually get to real money. If you invest maybe money to help ventures get there, do so knowingly, in ways that make it easy for the doers and under terms that won’t discourage next-stage investors.

Entrepreneurs: Don’t delude yourself: Talk to a lot of those who have and have not survived the crossing. Think hard about creating a smart nonprofit structure to give your good idea a chance and don’t launch a for-profit venture until you can plot a viable course across the desert. It is hard to get on that helicopter, but it’s a lot better than lying facedown in the sand. 

Read more stories by Kevin Starr.

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