“The old capitalism was about making money. The new capitalism is about making a difference.”
Sir Ronald Cohen, Impact
Sir Ronald Cohen is considered by many to be the father of Impact investing.. He was born in 1946 to a working class immigrant family in London and attended a State school. After graduating from University, he joined McKinsey & Co. as a management consultant and in 1977, he co-founded Apax Partners, a private equity firm. Apax Partners became one of the most successful private equity firms in the world, and Cohen became a billionaire.
In his book “Impact“, Sir Ronald Cohen (SRC) argues that the current capitalist system is not working for everyone, and that we need reshape Capitalism to create a new system that is more inclusive and sustainable.
In simple words, SRC claims that before impact investing existed, we measured the attractiveness of an investment opportunity simply by measuring its NPV/Future cashflows/ profit potential. But in his view, an important new addition to investment decisions should be the impact the investment might have on society, the planet, etc.
Cohen’s vision for a new capitalism is based on the idea of impact investing. Impact investing is a type of investing that seeks to generate what’s called a “double bottom line”, a combination of both financial and social returns. This means that impact investors are looking for investments that will not only make them money, but that will also have a positive impact on the world. SRC puts this framework to practice in Social Finance, a social impact investment firm he founded to manage his philanthropic activities.
Cohen believes that impact investing is the key to creating a new capitalism that works for everyone. He argues that impact investing can help to solve some of the world’s biggest problems, such as poverty, inequality, and climate change.
- Investing in renewable energy: Impact investors have invested in renewable energy projects that are helping to reduce greenhouse gas emissions and combat climate change. For example, the Acumen Fund has invested in a solar energy project in India that is providing clean energy to rural communities.
- Investing in microfinance: Impact investors have invested in microfinance institutions that are providing loans to small businesses and entrepreneurs in developing countries. For example, the Grameen Foundation has invested in microfinance institutions that have helped millions of people lift themselves out of poverty.
- Investing in education: Impact investors have invested in education initiatives that are helping to improve the quality of education for children in developing countries. For example, the Bridgespan Group has invested in an education initiative in Kenya that is helping to improve the reading skills of primary school students.
- Investing in healthcare: Impact investors have invested in healthcare initiatives that are helping to improve access to healthcare for people in developing countries. For example, the Clinton Health Access Initiative and the Bill and Melinda Gates Foundation have invested in a malaria prevention program in Africa that has helped to save millions of lives.
The key principles of Impact Investment
In “Impact,” SRC provides a roadmap for how we can reshape capitalism and create a new system that is more inclusive and sustainable. Below are the key principles of impact investing and the trade-offs investors might want to consider to maximise impact:
- Intentionality: Impact investors must have a clear intention to generate both financial and social returns. This means that they must be willing to sacrifice some financial returns in order to achieve a positive social or environmental impact.
- Measurability: Impact investors must be able to measure the social and environmental impact of their investments. This is important for a number of reasons. First, it allows investors to track their progress and to ensure that they are making a real difference. Second, it allows investors to compare the impact of different investments. Third, it allows investors to communicate the impact of their investments to others.
- Scalability: Impact investors must invest in businesses and organisations that have the potential to scale their impact. This is important because it allows impact investors to reach more people and to have a greater impact.
- Sustainability: Impact investors must invest in businesses and organisations that are sustainable over the long term. This is important because it ensures that the impact of the investment will be lasting.
- Alignment: Impact investors must align their investment decisions with their values and beliefs. This is important because it ensures that impact investors are investing in businesses and organisations that they believe in.
5 takeaways for startup founders and investors looking for impact
If you are a startup founder or an investor, there are a few key takeaways from “Impact” that you should keep in mind.
First, you should consider the impact of your business on society. What positive impact can your business have on the world? How can you use your business to solve some of the world’s biggest problems?
Second, you should look for ways to measure the impact of your business. This will help you to track your progress and to ensure that you are making a real difference. This in an area that is currently improving with AI and new tools that make impact measuring easier and more actionable.
Third, you should connect with other impact investors. There is a growing community of impact investors who are looking for businesses to invest in. By connecting with this community, you can raise capital and get support for your business.
Finally, you should never give up on your vision. The world needs more businesses that are making a positive impact. If you have a vision for a business that can make a difference, don’t give up on it.
The book is a good reminder that you don’t have to be a billionaire to make an impact. As the back cover says, Impact is about answering the question ‘What kind of world do we want to live in?’
The book made me reflect on the amazing opportunities that were given to me as a result of impact investing as well as my own impact as an investor and member of society. Sam Zell sadly passed away yesterday at the age of 81. Zell is mainly known as a billionaire entrepreneur and real estate tycoon. But Sam Zell’s impact investing in Israel’s Zell Entrepreneurship program for outstanding students, changed my life and and the lives of its many alumni.
While I wouldn’t consider myself and our work at Remagine Ventures as “Impact investing”, the book helped me put in context the activities and values we incorporated in our work. For example, my partner’s initiative to launch a paid internship program for Ethiopian students at the Reichman University in partnership with Israel at Heart, or my work at Techbikers, that raised close to $1 million to date to build 11 schools and 50 libraries in the developing world, in partnership with Room to Read.
If you are interested in learning more about impact investing, I encourage you to read “Impact” by Sir Ronald Cohen. It provides a vision for a new system that is more just and equitable, and it offers a roadmap for how we can make that vision a reality. In the future, I hope that impact considerations will become part of all investments.