The Stanford Social Innovation Review (SSIR) is a great source for articles and case studies about social ventures. Here is a recent article about a successful impact investment in Tanzania. Upon first glance, the deal seems straightforward—a private fund invests in a new recycling plant in Arusha if the company meets certain milestones. The story twists when the private fund explains what they look for in an investment. Instead of listing typical MBA financial terms, like margin, payback, and free cash flows, the firm looks for “significant potential for social and environmental impact; an acceptably clear path toward financial viability; strong, driven leadership; and a business where our investment makes a difference.” In this case, the investment created strong financial returns and positive social/environmental impacts, so everyone walked away happy. What happens when financial returns fall short and social & environmental impacts exceed expectations? Are traditional financial terms the proper way to assess the “success” of impact investments? Are there other ways for a social venture to “sell” excess social and environmental impacts to balance financial shortfalls or for an impact investor to “reinvest” social or environmental impacts into a new venture? I don’t have answers to these questions, but I’m hopeful impact investors and social entrepreneurs will helps find answers.
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