Miller Center Transformative Frontier
Eradicating poverty, helping the world’s poor become resilient to climate change, and empowering women economically are crucial goals for the future of humanity. Social entrepreneurship and impact investing are important avenues to achieve these goals.
Still, there is an estimated $2.5 trillion annual gap in financing the world’s Sustainable Development Goals (SDGs). While many hope that private capital can address this deficit, the fact is that 80% of small and growing businesses (SGBs), small and medium enterprises (SMEs), and social enterprises (SEs) lack sufficient capital to thrive, grow, and scale.
At Miller Center for Social Entrepreneurship, we are committed to helping social enterprises prosper and scale so they can deliver their intended social and environmental impact. Securing appropriate funding is vital to social enterprises at all stages of their development, yet we see major funding gaps that threaten the long-term success of the social enterprise movement.
To help address these gaps, we are launching The Transformative Frontier™: A Quarterly Review of Impact Investing, a publication designed to explore and spark conversations about the capital needs of social enterprises and how they are being fulfilled.
Transformative Frontier Spans the Entire Investment Spectrum
The term “Transformative Frontier” refers to the whole spectrum of investments, from pure philanthropy to market-rate financial returns by impact investors. It also encompasses everything from small seed-stage grants, prizes, and investments to significant capital infusions for late-stage social enterprises as they scale.
At the philanthropy end of the spectrum, charitable organizations can make their donations and grant money go further by adopting an investment-oriented approach that returns some or all of the invested capital to its source, or what we call a “round-trip” of capital. This approach represents a great improvement over donated capital’s one-way journey from charitable organization to recipient.
At the other end of the spectrum, Miller Center recently released a white paper on Total Portfolio Activation for Impact to help foundations, money managers, and other impact investors achieve market-rate returns on their investments. We also need to consider other financial instruments—with a range of associated returns—that can enable social enterprises to thrive.
Impact investors are defined by their intentions to generate social or environmental impact. There is little evidence that most forms of impact are likely to generate market rate returns, and many may not return even 100% of invested capital. True impact investors starting at the market-rate end of the spectrum will need to adjust their expectations if we collectively are to achieve the SDGs and cross the Transformative Frontier.
And in the “missing middle” of the spectrum, we want to spur innovations in capital that will help social enterprises bridge the gap between smaller capital investments in their early stages and larger capital infusions as they scale. These are typically in a mid-range between $50K prizes and awards and $2M investments.
Our Methodology—And An Invitation to Join Us
The Transformative Frontier presents investment trends across geographic regions, sectors, deal sizes, deal types, deal counts, and social enterprise stages. It is anchored by data and graphs discerned from impact investors engaged with Miller Center. The Transformative Frontier also shares deal flows from our world-class GSBI® (Global Social Benefit Institute) program participants, as well as social enterprises that haven't been engaged with Miller Center.
To survey and examine the Transformative Frontier, we constructed a Miller Center Impact Investor Universe comprising 230 investors derived from a starting pool of more than 400. We currently receive investment histories from 167 of these investors, and we expect this number to increase. In 2015, investors within the Impact Investor Universe invested $1.7 billion, with a median deal size of $1.5 million.
To be included in the Impact Investor Universe, investors must have explicit intention to create impact. Miller Center’s focus is on poverty eradication. Investors are screened for three factors:
- First, we examine each investor’s description of their investment strategies and goals to make sure they are focused on poverty eradication.
- Second, we review historical investments.
- Third, we analyze larger deals or “outliers” to ensure strict congruence with Miller Center’s definition of impact investing, i.e., intention matters.
Each quarter in The Transformative Frontier, we will share recent data we have gathered and analyzed from our Impact Investor Universe, with the intention of shedding light on some aspect of the social enterprise-funding spectrum.
We invite you to join us in an ongoing conversation about this Transformative Frontier, and how we can collectively work to eradicate poverty, address the U.N. SDGs, and boost the economic empowerment of women worldwide through the funding and support of social enterprises addressing these issues. Together, let’s collaborate to help provide social enterprises worldwide with the financial instruments and funding structures that will propel their success.