lørdag 29. august 2009

Analytics for toeing the fine lines in social venture investing

The young field of social venture capital is finally getting some detailed metrics.
A style of investing that takes cues from the traditional venture capital industry while aiming to solve global problems like hunger, poverty and health care, social venture capital sits on a delicate line between seeking financial return and having tangible social impact.
Environment Planning Group Limited, a Gujarat, India-based Acumen Fund investment, aims to provide safe water
Figuring out what those trade-offs should be and how to measure them is the tough part. So New York-based Acumen Fund, a venture philanthropy fund, and a group of Google engineers put together the Pulse software system to give Google-style analytics for returns on both fronts.
The Salesforce application comes out this fall and is being tested by more than 50 non-profits and charities. It tracks what a more conventional investor might look for — revenue, return-on-equity and assets and liabilities. But it also follows less traditional metrics that a non-profit user can design like school drop-out rates for an education program or mosquito bed-net sales. Acumen will offer it for free to non-profits and work out other financial arrangements with some of the larger foundations.
Sensitive to the conflicts that might arise over how to measure social impact, Acumen Fund developed the technical part of the software separately from the qualitative part, said Brad Presner, who managed Google’s business analytics team before coming to the fund. (That means that even though Acumen Fund uses it mostly for projects in the developing world, a religious philanthropy could use it to track impact in its community.)
Acumen also wanted to create benchmarks across the entire industry, so that social venture funds like Root Capital or E+Co would have a way to keep track of what works and compare returns. The fund built a wiki and asked other partners like the Rockefeller Foundation to contribute ideas.
Designing metrics encompasses a lot of sticky questions: social venture capitalists have to weigh whether it might be better to fund a project that has a shallow impact on a larger group of people or a very deep effect on a handful of lives. When there are trade-offs between boosting financial returns and benefiting a disadvantaged customer base, they have to figure out what to prioritize.
Venture philanthropy, or philanthrocapitalism, is a young field that was borne out of the successes the venture capital industry saw in the 1990s. Newly wealthy entrepreneurs and investors wanted to donate but needed accountability and a better understanding of how their dollars were having impact. So they started applying some of the metrics and business practices from traditional investing into charitable work. Returns in this area are not meant to be competitive with private equity- or venture capital-sized returns. Instead, social venture capital is a more disciplined form of charity that requires a self-sustaining business model and some of the listening mechanisms built into a market-based approach.
Acumen Fund, which manages more than $40 million, looks for businesses that can scale up to impact more than 1 million people and operate on their own within five to seven years. They raised money from the Skoll Foundation, which was created by eBay’s first president, Jeff Skoll, to develop Pulse. Eventually, Presner said the fund would like to grow it into an industry standard and spin it off into an independent project.

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