Wharton and Harvard Kennedy School dual-degree candidate Chian Gong reflects on how her hands-on student experience helped launch her into impact investing.
Impact Investing is en vogue, particularly in this generation that seeks a greater purpose in their day-to-day work. I am part of the new vanguard of professionals that wants to believe their work will make a difference in the world.
Yet, despite its increasing prevalence—it is clear that impact investing is still in its nascent stages. The word can be used to mean a dozen different things; metrics and benchmarks are still forming.
In my two years at Wharton, both in and outside the classroom, I’ve had an opportunity to learn more about impact investing. I took a host of finance and entrepreneurship courses, joined the Wharton Social Venture Fund (now known as the Wharton Impact Investment Partners), and have spent my past two summers working in impact investing. In those summer roles, I spent time at NewSchools Venture Fund’s Seed Fund (now Reach Capital) and at the Silicon Valley Social Venture Fund.
Through this set of firsthand experiences, I’ve begun to grapple with the many unresolved questions in the field. Below are a few themes to consider as either an individual or an organization delving into impact investing.
The first question is: What is your objective? Is it financial return? Catalyzing an industry, or learning? There are organizations that have chosen impact investing as a vehicle for each of the aforementioned objectives. It is important to align on this objective, as it will be a key driver of your investment strategy.
For example, NewSchools Venture Fund’s Seed Team entered seed stage investment with a vision to catalyze investment in edtech and to help build the ecosystem for early stage education technology. They invested significant time and money into building a community of investors and entrepreneurs. As a result, they have catalyzed an additional $100M in funding through direct introductions to other investors in just three years
Tied closely to this primary objective is the question of where and how the organization wishes to create impact. As has been established by many of the thought leaders in impact investing, anything from negative screens to a return-driven investment portfolio to impact-first equity investments can fall under the umbrella of impact investment.
As part of my work this summer with Silicon Valley Social Venture Fund, I spoke with investors across this spectrum, from foundation investors who helped develop creative debt and equity instruments to further a non-profit’s scale to a fully returns-driven fund whose investment thesis hinges upon the idea that companies that do good will do better. Ultimately we decided that we wanted to invest in organizations where impact is core to the business—a valuable screen for filtering our investment pipeline.
The most enduring challenge in impact investing is still impact measurement. While there are useful metrics for impact within each vertical or business model (e.g. % of students at or above grade level in education or greenhouse gas emissions reduction in environment), the industry is still struggling to come up with a way to compare across these different verticals. In many organizations measurement is still focused on outputs, rather than outcomes, as outputs are much easier to track.
One of the reasons that Silicon Valley Social Venture Fund was drawn to the idea of impact as a core to the business model is that this aligns our impact objectives with the company’s desire to scale. Ideally, we want impact measurement to be a valuable operational metric and a value-add to the companies we invest in, rather than an extra burden of reporting.
We are at an exciting point in impact investing; more and more organizations are exploring how impact investing can align with their objectives, whether its an expansion of investment opportunities for clients at Goldman Sachs or a new tool for impact at foundations like Rockefeller and the Gates Foundation.
Taking into account these three considerations—objective, impact, and measurement—are the first steps to launching into impact investing.
Chian Gong is a third year full-time MBA/MPA joint degree candidate with Wharton and Harvard Kennedy School. She has worked in impact investing, education, and management consulting and is passionate about investing in education.
Student Perspectives is a recurring feature on the WSII blog, and any claims or views expressed are reflective of the authors’ and not The Wharton School.