Impact investing and its measurement – second guest post by Vineet Rai

Vineet Rai is a close friend and founder of Aavishkaar Venture Management Services ( that manages several social impact funds. He has also set up several other institutions like Intellecap, Intellecash and Intellegrow that serve related dimensions of social and impact investing. I played a not-so-small role in the setting up of the first Aavishkaar Micro Venture Capital Fund. At some level, that was the seed that has grown into this big tree under Vineet’s dynamic and passionate leadership. At another level, considering Vineet’s earlier jobs with GIAN (Grassroots Innovations Augmentation Network in Gujarat in the 1990s), he might well have achieved what he has (and what he will, in future) now, with or without the Aavishkaar Micro Venture Capital Fund 1.

This blog has carried one of his guest posts earlier this month. Here is the second one. This blog is very pleased to host him.


The Brooking Blum Roundtable (held in early to mid-August 2013) was a discussion around Private Equity, Impact Investing and Development.  This was a gathering of 40 speakers from across the globe and included Madeline Albright , Former Secretary of Foreign Affairs, USA, Strobe Talbott, Her Deputy of State,  Richard Blum, Cofounder TPG and Trustee of ASPEN and Brooking Blum, Kemal Dervis, Ex-Secretary-General of UNDP,  Mary Robinson, Ex-President of Ireland and currently UN Special Envoy to Great Lakes Region, Elizabeth Littlefield, the President of OPIC,  Rajeev Shah, Administrator of USAID and some ordinary mortals that included people like me.

Some of us were given an opportunity to lead specific sessions and I was asked to speak on Private Equity and Development, I made the below points. Below are my six points for you to read and reflect.  Public responses are welcome rather than the private one and would encourage a discussion around these points.

My first point is to emphasize on some obvious statements “All Investments create impact” and “Impact Investing is distinct from commercial investing”.   Based on current definitions and the broad positioning around impact investing, its look scarily similar to commercial investing.  Both use entrepreneurial initiative to build institution that generate returns and create impact.  The current definition of Impact investing that attributes “intentionality” as the defining metric to segregate them is inadequate, subjective and weak.

My second point is that drawing the distinction between commercial investing and Impact investing based on outcome metric of return and impact is flawed.  The key distinction actually lies on the input side and not on the outcome side.  My definition of Impact Investor thus is “Investor who can innovatively rework the risk – return paradigm, merge a frugal investing thesis and manage to invest in hitherto commercially un-investible sectors, geographies or enterprise and generate reasonable returns and impact”.  To achieve the above would require fund manager to scout, invest and mentor large number of geographically dispersed entrepreneurs in challenging environment and underdeveloped ecosystems  forcing him to innovate the fund economics, his expenses, and the exit models as also to live up to outcome measures on returns and impact.

My third point is that Impact Investing is geographically and developmentally contextual.  In the underdeveloped world, the distinction between Impact investing and commercial investing may not be that stark. In developing and transitioning economies, impact investing might focus more on challenging geographies or issues of exclusion to bring people within the national mainstream while commercial investing would focus on tried and tested risk mitigated areas. The developed world may need Impact Investing to address challenges emerging out of dysfunctional markets. The key point is for effective impact investing local understanding is critical and patience is a virtue that cannot be ignored.

My fourth point is linked to impact measurement.  We need to look beyond the current practice of summing up the impact of underlying enterprises as the measure of impact for funds.  The  metric should include kind of “risk” investor took,   kind of geographies they invested in, the fund economics and its sustainability, innovations they supported on ownership, business models and exits.

My fifth point is related to the role of philanthropy in Impact Investing.  Philanthropic capital has a catalytic role to play in building and supporting the ecosystem needed to let Impact investing thrive.  However, it may be important for philanthropic institutions to make sure that in trying to build a sustainable world they are not investing in and creating unsustainable impact funds.

My final point is that Impact Investing has to go a long way to prove any correlation with issues concerning poverty alleviation beyond anecdotal references.  It is important that we collectively pause and think about the risks and consequences of over hyping this emerging innovation.

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