Economy Remix: What is Impact-First Investing?
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Welcome to the Remix. Thanks for joining our latest spin around the economy.
This column examines a group of fund leaders who are seeking to transform the field of impact investing. Back in 2021, I wrote about a national fund-building cohort facilitated by the Boston Impact Initiative to develop a set of funds that deployed “integrated capital”—that is a mix of grants, loans, and equity investments—to support Black, Indigenous, and people-of-color business ownership.
The cohort effort sought to replicate a place-based impact investing model that Boston Impact Initiative had pioneered. Today, that Boston fund reports that in its first decade of operations, it has placed roughly $15 million in investments in over 85 companies. Of these firms, people of color own 72 percent. Combined, the 85 businesses employ 962 workers. More than two dozen of these firms have full or partial worker ownership.
Now the national effort to replicate the Boston example is starting to achieve results. Since 2021, there have been four cohorts involving 69 fund managers from 38 organizations. To date, 18 funds (or pilots of funds) have been launched nationwide.
A new report, titled Fearlessly Funding Economic and Racial Justice and authored by Boston Impact Initiative staff, tells this story. The report both defines the impact-first investing approach and delves into survey results from 15 of the funds to get a sense of both how the funds operate and what obstacles remain to be overcome.
Regarding the former, a few key principles are: 1) impact-first investing means a conscious focus on what is sometimes called “concessionary” or below-market-rate returns; in short, unlike standard impact investing, impact-first investing rejects the notion that transformative social impact can occur without the willingness of investors to accept lower than market-rate returns; 2) the use of a combination of grants, loan and equity (“integrated capital”); and 3) a heavy focus on the role of nonfinancial support, such as technical assistance, coaching, and network-building.
As for achieving greater scale, survey results indicate the need to build field infrastructure, including structured funds geared toward raising capital that explicitly finances an impact-first approach, back-office support (such as accounting), and a need to develop the next generation of business leadership and fund leaders of color.
As you read this article, I encourage you to reflect on the role impact-first investment might be able to play in your community.
Until the next Remix column, I remain
Your Remix Man:
Steve Dubb
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