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Business Finance

The Sector-Based Approach to Impact Investing

Want to change the world, or at least an industry? To spark and nurture social change, impact investors need to focus on whole sectors rather than individual firms, writes Omidyar Network in a recent report. Omidyar Network is a philanthropic investment firm that invests in both for-profit and non-profit organizations. It is focused on fostering economic advancement; areas of investment include microfinance, low-cost education for the poor, and mobile payment platforms.

While Omidyar has found that investing in firms drives sector-level change, sector development ultimately matters most. The social impact of a firm should be measured as a combination of its direct impact and sector level impact. When considering a firm’s sector impact, Omidyar are less likely to under-invest in game-changing organizations.

In fact, Omidyar divides firms into three categories according to their impact in growing a whole industry sector: market innovators (the “trailblazing entrepreneurs”), market scalers (who enter after the model is “de-risked”), and market infrastructure (which advance a sector by addressing collective needs and building a supportive ecosystem). Investment in each category is equally important.

This is the second of a three-part series released by Omidyar; the third discusses gaps in capital funding.

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