In growing the opportunities for impact investing, intermediaries play a critical role in bridging the needs and the capability of organisations looking for finance with investors who want to make impact investments. Impact Generation Partners was set up in 2015 by Quentin and Amanda Miller to help bridge that gap and advise purpose-driven enterprises and family offices.
We spoke to Quentin about his organisation and its role in growing the market for impact investing.
Impact Generation Partners is the new kid on the block in the growing Australian impact investment ecosystem. Can you tell us about what motivated Amanda and you to establish the business?
Amanda had been working in philanthropy while I had been working in corporate finance at a global investment bank. We agreed with on the view that philanthropy alone would not be enough to solve all the issues the world was facing. We identified that a powerful tool to tackle these issues was investment capital. We knew that there were a growing number of businesses solving social problems, and a growing number of people and institutions that wanted to invest in these businesses, but not enough intermediaries enabling this.
We formed Impact Generation Partners (ImpactGen) to work with businesses that needed help becoming investor ready to raise capital, and also with a range of potential investors, educating and advising them on how to engage with impact investing.
Amanda and I were able to combine our individual networks and skills in the financial and philanthropic/social sectors to bring all of our resources together, to help move capital into businesses that are solving significant social problems. We like to refer to this as moving capital from “Wall Street” to “Main Street”. We were also looking for impact investments ourselves, and where appropriate, we invest in the businesses that ImpactGen advises.
We are strongly motivated by the belief that the companies that ‘do good’ will be the businesses that do well financially. We called our business Impact Generation Partners for two reasons:
• we work with businesses that generate both positive social and financial impact
• we believe that the next generation is the ”impact generation” – they make decisions about how they live their lives; including how they invest their money in line with their values, and with regard to the social impact of those decisions.
They are the generation that wants to combine profit with purpose, money with meaning, and success with significance.
Last year, supported by an Impact Investment Readiness Fund grant, you worked with the innovative start-up organisation Hireup, which provides an online service for people living with a disability to find and hire support workers.
What kind of work did you do with Hireup in helping them prepare for and secure $2.5 million in investment to scale up their business?
When ImpactGen started working with Hireup, the business was at the stage where it had run a pilot program, and had a MVP (minimum viable product). It had a revenue stream that had been tested and a basic tech platform. It had a small team and needed funding to scale the business, hire staff, improve the tech platform and market the service being provided. Hireup had been able to get to this stage with the support of a Myer Innovation Fellowship, which co-founder of Hireup Jordan O’Reilly was awarded from The Myer Foundation. In order to raise the capital to scale up, Hireup needed to become ‘investor ready’, so that it could be presented to investors.
ImpactGen and Hireup applied for and were awarded a grant from the Impact Investment Readiness Fund (IIRF) , which helped to pay the legal, accounting and other advisory services needed to prepare the business to raise external capital.
The services that ImpactGen provided Hireup included:
• assisting with the development of the business/financial model;
• developing the financing strategy and structure;
• assisting with the due diligence process;
• preparing an investment memorandum and other marketing documentation;
• undertaking an indicative valuation;
• sourcing external investment;
• negotiating the investment terms;
• communicating the transaction to key stakeholders; and
• engaging with and managing external professionals (eg. lawyers, accountants) required to execute the transaction.
What attracted investors to Hireup? Is there general advice you can offer to social entrepreneurs and businesses so they can better understand and meet the needs of potential investors?
Generally, investors are attracted to businesses that are solving big problems, and are led by people who are passionate about solving a particular problem and have the capacity and team to do so. Also relevant, is the ‘size of the prize’ – how large the market for the problem being solved is.
In the case of Hireup, we had co-founders Jordan and Laura O’Reilly. They are siblings who had lived experience of the disempowerment people with disability faced, caused by the existing attendant care system. They have dedicated their lives towards solving this problem. The passion, drive and focus of Jordan and Laura was clear to investors.
Investors were also attracted to Hireup’s compelling and highly scalable business model in the context of the National Disability Insurance Scheme (NDIS). Under this scheme 460,000 Australians will be given their own care packages to manage, valued at $22billion in total by 2019-2020. Given the impending roll out of the NDIS and the fact that Hireup had already proven its model, investors recognised that the timing to invest capital into the business to enable it to develop and scale, was opportune.
ImpactGen meets many social entrepreneurs and for-purpose businesses looking to raise external capital. Our advice would be for businesses to undertake a thorough analysis of the problems they are solving, identify what their solution is and how they will execute it. In addition, it is important to consider the type of capital being sought (debt vs equity) and the proposed use of funds.
While Amanda has extensive experience in philanthropy including working with the Myer Family Company, your background is in investment banking and corporate finance, including being managing director for global investment bank UBS.
What shift has been required in advising and understanding the needs of clients for whom social or environmental impact is equally important to profitability?
The financial skill set required when advising on an impact deal is almost identical to advising on any other type of corporate deal. I like to say that it is important not to lose sight of the second word in “impact investment”. This means the deals must stack up financially from an “investment” perspective and provide investors with risk adjusted market based or above market based returns.
Over and above this, impact investors are seeking a social and/or environmental return on their capital deployed and it is critical to be able to measure and report to investors on this. This is a new and rapidly developing area with a range of global benchmarks and standards being put in place. The measurement of social and environmental return is also highly relevant in the context of the Social Impact Bonds (SIB) which have been structured in conjunction with numerous governments and municipalities globally.
There is a lot more work to be done in educating potential investors about the impact space. Namely, that they do not have to compromise on financial returns just because they are also getting social and environmental yields. We actually believe that over time we will see more empirical evidence emerge showing a positive correlation between financial returns and social and environmental returns.
Having moved from working in large, well developed markets to the relatively nascent impact investment space, how do the markets compare? What potential do you see for impact investing in Australia?
The first observation to be made about the impact investment space in Australia, and for that matter globally is that the number of deals being done, the deal sizes, the capital being allocated and the players involved are significantly less than that which exists in the mainstream corporate advisory and capital markets.
However, I am pleased to say it is growing and I see the winds of change evolving.
The recently released GIIN 2016 Annual Impact Investor Survey showed that 158 respondents committed a total of USD 15.2 billion to 7,551 impact investing deals in 2015 and plan to increase capital committed by 16% in 2016, to USD 17.7 billion and number of deals by 55% to 11,722. In the GIIN Survey, respondents indicated continued improvements in the sophistication of the impact investing industry, including ‘professionals with relevant skillsets,’ ‘research and data on products and performance,’ and ‘sophistication of impact measurement practice’.
In Australia, although the impact investing market is currently nascent, it is gaining much momentum. Impact Investing Australia’s 2016 Investor Report surveyed 123 Australian investors, who account for more than A$333 billion of Australia’s A$2 trillion funds under management. The survey found that to maintain the current momentum, supply of ‘investable’ deals must increase to meet rising demand.
The survey also found that there appears to be an unmet need from investors for financial services and advice that incorporate social and environmental impact. Lack of reliable research, information and benchmarks and the lack of a recognised investment framework are cited as key deterrents to investors entering the market.
In addition to general capital pools being deployed in impact deals, another reason that impact investing is increasing globally and in Australia, is that philanthropic trusts and foundations are starting to measure the social impact of their investments and grants. Foundations are also providing ‘blended’ or ‘layered’ capital; that is they are using philanthropic capital to build the capacity of social enterprises and not for profits, then following this with investment capital.
I see much potential for impact investing to continue to grow, across all asset classes and investor types (philanthropic, family office, corporate, institutional, government) in Australia. As the Impact Investing Australia Investor Survey found, Australian investors are increasingly eager for their investments to deliver social impact in addition to sound financial returns. With social enterprises and not for profits becoming more aware of the benefits impact investing offers, and with large pools of capital interested in this space, there is much potential.
A strong impact investing ecosystem will be enhanced by more education around impact investing, more examples of successful impact deals, improved tools for measurement of social outcomes, and more intermediaries entering this space. With much of this being worked on by many determined and passionate organisations, including ImpactGen, the future for impact investing in Australia looks promising.
What do you think we can learn from overseas when it comes to developing the field for intermediaries and recognising their catalytic value?
Amanda and I attended the SOCAP (Social Capital Markets) conference in the US in 2015. We gleaned that although Australia has come a long way, our ecosystem is not as developed as that of the US. The range of investment products that are available are also not as deep. There are far more specialised funds, intermediaries, investors and enablers in the US and UK than in Australia. For instance, there are wealth advisers who specialise in impact investing opportunities and financial instruments and a wide variety of venture capital and private equity funds investing in social enterprises.
There are more impact investments to choose from, across all asset classes. Culturally, the US seems to be more willing to take risks, even if that means that a poorly performing investment (whether financial and/or social) becomes a lesson to learn from. Australia’s ecosystem, in terms of intermediaries and diverse financial offerings, needs to continue to develop.
There appears a need for representatives who can help not-for-profits and social entrepreneurs navigate the complex financing marketplace.
We need to invest in capacity building and investment readiness, such as the IIRF and the Myer Innovation Fellowship, as the ‘grant-to-investment transition is broken’ and social entrepreneurs need assistance from professional advisers in taking investment.
Intermediaries can also play a role in pro-actively developing more innovative ways of investing for impact, which will often involve blending public, private and philanthropic capital. It is exciting that this is already happening at an exceedingly fast pace and with great momentum.
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