Online Platforms Link Impact Investors and Triple Bottom Line Companies
Social stock exchanges and match-making services aim to address a gap in a growing market.
March 12 , 2012
On the one hand, there's a burgeoning interest in a brand-new asset class. Called impact investing, it focuses on for-profit companies with a social mission. Enterprises from J.P. Morgan Chase to the Rockefeller Foundation , which estimate the market could grow to as much as $1 trillion over the next 10 years, have been trying to develop the area for several years now. And, by some accounts, there are thousands of so-called double- and- triple- bottom- line companies--businesses with a financial, social and /or environmental mission – – in operation worldwide.
On the other, however, matching impact investors with social enterprises – – another term for these companies – – is another matter entirely. There have been few effective platforms for linking up the two sides. (Social enterprises include anything from companies selling wind farm technology to organizations providing micro-finance to villagers in India.)
That is, until now. Recently, a growing number of efforts, from London to Singapore to New York, have sprung up to address that gap, many incorporating online systems into their platforms. "It's social technology for social change," says Adam Spence, founder of the Social Venture Exchange (SVX), a Toronto-based platform aiming to launch later this year. "Technology is the enabler."
For the moment, most of the activity is taking the form of online matchmaking services. Take SVX. It links via an online platform accredited investors with Ontario-based social enterprises of anywhere from $100,000-$25 million in revenues looking to raise $25,000-$10 million. To be included on the exchange, interested companies first have to go through an exhaustive vetting process that's largely done off-line to make sure they're not only viable enterprises, but also are the real McCoy, that is, companies with a serious social mission at their core. Then, they're listed on the platform, with the relevant information of interest to potential investors. After that, it functions much like any online dating service, according to Spence, with prospective investors reading over company profiles and then contacting them. Ultimately, transactions are conducted off-line.
That's only the beginning, according to Spence. With backing from TMX Group, which runs the Toronto Stock Exchange, among others, he aims ultimately to create a fully regulated public social stock market for Ontario for retail investors that would be conducted online. Getting to that point will take some time, according to Spence, due to both the technological complexity and the regulatory hurdles that need to be met. What's more, for now, most social enterprises are small. For a real public stock exchange to have legs, there needs to be a critical mass of companies large enough to be listed.
Similarly, another online marketplace for impact investors and companies, two-year-old New York-based Mission Markets, also aims to create a larger public exchange. To boost investor interest, according to CEO Sam Salman, they're engaged in an ambitious research project to collect data that, they feel, will prove how profitable social enterprises are compared to more conventional companies. But, down the line, they envision creating something even more ambitious: an online hub connected to social stock exchanges around the world, through which investors can get information about listed companies. Actual transaction orders would be made through a broker. "This would be an alternative trading system with many exchanges connected to an online information system," says cofounder Mike Van Patten.
Closer to becoming a reality is Impact Investment Exchange Asia , better known as IIX. It started about a year ago, when social entrepreneur Durreen Shahnaz launched a private online marketplace in Singapore with the intention of using it as a stepping stone to creating a public exchange. Called Impact Partners, so far it's raised $70 million of capital, listing 12 social enterprises with $5 million or under in revenues raising $1 million to $6 million , and "more than 100 in the pipeline," according to Shahnaz, and more than 120 investors. "It's allowed us to get our feet wet," she says.
But later this year, she plans to launch IIX as a public exchange through which actual trading will happen online. IIX is working with an exchange partner that has an already up and running platform it can leverage. Due to regulatory restrictions in Singapore, the exchange will be open only to accredited investors initially. But, eventually, according to Shahnaz, once it's a proven concern, the platform will be opened up to the general public. Says Shahnaz: "This represents a fundamental step in a big, global movement."
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