How do we invest across the returns continuum?
Learn more about Omidyar Network’s framework for investing for both social impact and financial returns.
The impact investing industry has long debated whether there is a necessary trade-off between financial returns and social impact. While many impact investors are eager to answer definitively one way or the other, Omidyar Network’s 12 years of experience and $1BN in investments have led us to a different answer:
Our newest report, Across the Returns Continuum, published in the Winter 2017 edition of the Stanford Social Innovation Review, introduces the framework by which we consider the potential financial returns and social impact of our investments. We have defined a returns continuum that extends from fully commercial investments at one end to philanthropic grants at the other — and includes a broad range of viable investment profiles, some of which involve a trade-off between social return and financial impact, and many of which do not.
As a philanthropic investment firm, our intention has always been to support firms with the potential for significant social impact. At the beginning of our journey, our portfolio reflected our initial belief that only commercial-grade investments and nonprofit organizations were capable of such impact. But along the way, we identified something of a middle ground — subcommercial firms that have significant impact on the market in which they operate, by pioneering a new and innovative market, impacting public policy, or providing industry infrastructure. These firms — because of the populations they are trying to serve, or the countries in which they operate — often require more patience and upfront capital than commercial investors are willing to provide.
And so we expanded our investing framework to not only include fully commercial investments and grants, but also subcommercial investments that are intentionally pursuing significant market-level impact. Across the Returns Continuum provides an in-depth look at this continuum, offers examples of the type of investments made in each category (commercial, subcommercial, and grants), identifies the conditions under which we consider subcommercial opportunities, and explores what we’ve learned from the complexities we’ve encountered along the way.
In issuing this report, we hope that others will recognize that when it comes to the stale debate about social impact versus financial returns, the answer can — and should — be both. We seek to engage in conversation and debate that is rooted in real-world experience, so that as an industry, we can better enable investors to align their investment decisions with their expectations for both impact and returns.
Read the full report here.