LAVCA spoke with Paul Carttar the co-founder of the International Venture Philanthropy Center (IVPC) and former Director of the Social Innovation Fund (a priority program of the Obama Administration), about the significant role of private investment in effecting social change through impact and ESG.
…many of the most exciting “impact investment” opportunities relate to very early-stage, high-risk technologies or enterprises that are in fact the “stock and trade” of VCs.
I would expect to see more VCs position themselves explicitly as social impact investors, which is likely to imply a significant increase in their emphasis and capabilities relating to due diligence around social outcomes.
Carttar is a speaker at the 2019 Foro Latinoamericano de Inversión de Impacto, Feb 19-21 in Mérida Mexico. He will speak about how to scale impact through innovative public-private partnerships.
LAVCA: Tell us about your background as it relates to social impact investing. What are you involved in currently? Does your work touch on Latin America?
Paul Carttar: My career of more than thirty years has spanned sectors – public, private, and nonprofit. At present, I am a partner and co-founder with the International Venture Philanthropy Center (IVPC). IVPC works to advance and strengthen the practice of social investment globally and is currently developing investor networks in Africa and Latin America.
Before IVPC, I served as the initial director of the Social Innovation Fund (SIF), a priority program of the Obama Administration. Prior to the SIF, I was an Executive Partner with New Profit, Inc., a leading social investment firm in Boston, and before that I was Chief Program Officer for the Ewing Marion Kauffman Foundation, where I oversaw all youth and entrepreneurship programs. In 1999, I co-founded the Bridgespan Group, a nonprofit strategy consulting firm launched with Bain & Co.
I began my career as a research assistant to Dr. Arthur F. Burns, former chairman of the US Federal Reserve Board. After receiving my MBA from Stanford University, I spent several years with Bain & Company, the international consulting firm. I later held executive positions in two private, venture-capital funded companies in the healthcare industry.
LAVCA: What was the goal of the Social Innovation Fund and what lessons did you learn from your work with the Social Innovation Fund?
Paul Carttar: The purpose of the Social Innovation Fund was to mobilize public and private capital to increase the scale of nonprofit organizations that had evidence of impact in low-income communities throughout the US. During my three years as head, we invested USD 170 million of public money and leveraged it with more than USD 300 million in private capital seeking high social impact.
Key lessons we learned:
- It is very important to have strong evidence of a program’s effectiveness in creating value for the people it serves – before significantly growing its scale.
- Evidence is hard to get and usually very ambiguous – so judgment is still critical.
- Working within government is very challenging because of bureaucracy and politics – but both can be overcome with patience and strong, consistent leadership.
- To form true, sustainable, productive partnerships, it is essential that parties go beyond inspiring words and create deals that deliver real meaningful value to each.
LAVCA: What sectors, business-types, or non-profits have seen the most success when it comes to affecting social change globally? Are there any markets in Latin American that stand out as a good impact investment opportunity? Why?
Paul Carttar: In terms of creating large-scale, sustainable change across the entire globe, I think it’s indisputable that private sector business has had the greatest success. The best evidence of that is the fact that between 1990-2010, as documented by the UN Millennium Goals, the number of people experiencing “extreme poverty” was reduced by half, from 40% to 20% of the world’s population – and the primary force behind that was business-driven economic development, especially in China. We must continue to emphasize overall economic development, especially in low-income countries and regions and with companies that maintain high standards of ESG compliance. However, many significant problems will persist that need to be addressed through other means, and will require a mix of approaches. “Impact investment,” for example, leverages the key advantages of private business development while also being accountable to social goals. Nonprofit approaches have also seen success in changing lives, but they tend to face more formidable obstacles to scaling.
LAVCA: Tell us about your process for identifying and committing to companies and organizations? What do you look for in a company/organization?
Paul Carttar: In both my social and business investing, I have emphasized discipline and rigor in first determining the most critical goals and objectives one is aiming to achieve – which in the case of social investments begins with the nature of the impact sought. The key then is to ascertain what realistic potential any given organization or company has to deliver desired results under what circumstances, with what risks and financial implications. Accordingly, across all situations, the most important thing to look for is a strong track record of actual performance.
LAVCA: How do family offices play a role in impact investing globally? Do you see demand in emerging markets or Latin America specifically from family offices to invest in impact?
Paul Carttar: Family offices are among the more active players in impact investing, certainly in the US. This is for good reason – they have significant resources; they are private, so have greater flexibility to define desired standards of performance; they are tightly controlled, so able to make decisions based on the values and aspirations of just a few people; and by definition involve people whose financial needs have for the most part been met but who often have high and increasing aspirations for influencing society. While my experience in Latin America is more limited, I am aware that family offices are players, as they are in Africa, where I’ve done more work.
Family offices are among the more active players in impact investing…
LAVCA: Are you seeing an overlap with traditional VC fund managers and impact investing? How do you see this evolving going forward, especially as tech relates to impact?
Paul Carttar: There definitely is an overlap between traditional VCs and impact investors, for the obvious reason that many of the most exciting “impact investment” opportunities relate to very early-stage, high-risk technologies or enterprises that are in fact the “stock and trade” of VCs. Because impact investors are often aspiring to achieve full market rates of financial return, the VC skill set is core to assessing the investment’s attractiveness. The big issue VCs are not structured to evaluate is potential social impact, but the fact is that this side of the equation typically receives far less emphasis than the financial side. Moving forward, I would expect to see more VCs position themselves explicitly as social impact investors, which is likely to imply a significant increase in their emphasis and capabilities relating to due diligence around social outcomes.
…many of the most exciting “impact investment” opportunities relate to very early-stage, high-risk technologies or enterprises that are in fact the “stock and trade” of VCs
LAVCA: What do you see as the biggest opportunities and challenges to socially responsible (and overall impact) investment globally? What advice do you have for impact investors in Latin America?
Paul Carttar: I believe the biggest opportunity is to increase – even marginally – the positive social effects of investments that are now solely (or even primarily) financial in nature. Given the trillions of dollars invested in the mainstream capital market, marginal improvements in impact – or even just better ESG compliance – can have enormous effects. The greatest challenge, I believe, is to be disciplined and diligent about defining the social effects desired (even if just ESG) and to holding investments accountable to the established standard. Consistent with this, my advice to impact investors in Latin America is to determine as clearly as possible what nature of social impact one is seeking and to then be relentless in understanding performance and ensuring that goals for social impact are met.