Kevin Starr of the Mulago Foundation wrote a nice explanation of the need for and sweet spot of impact investing, Somebody’s Gotta Get Rich.
Impact at problem-solving levels of scale doesn’t come from one-off businesses.
“Levels of scale” as in making a noticeable difference in the world, rather than simply telling a good story imagining a world different from how it is today.
Kevin sums up the sweet spot with a great diagram. It’s one of the simple descriptions that makes you smack your head and wonder why you’ve not seen it a hundred times before.
A. The market needs to be big enough to merit the effort to create the company, big enough to merit overcoming the friction to get funding, and big enough to make a difference in the world.
B. The opportunity needs to be profitable enough to merit creating a company, to pay the employees, to repay any investors, and to have enough left over to keep growing, as many problems are regional, national, and global.
C. Impact needs to be baked into the product or service. This lets management focus on running a business, building product, and selling to customers, rather than being sidetracked worrying about making an impact on top of all of that effort.
And circling back to the evocative title, yes, the founders need to benefit from their effort at making all this happen. I do hope when enough impact entrepreneurs succeed a virtuous cycle gets formed with them becoming impact investors in the next wave of entrepreneurs. Such a cycle is how Silicon Valley became much of what it is today.
For all of Kevin’s own words, read investing, Somebody’s Gotta Get Rich on the Stanford Social Innovation Review.