Updated: Apr 15
Part 2 of a 3-Part Series on Common Myths of Social Impact Investing
An Op-Ed by our Founder and CEO, Andrew Vo
Continuing on our 3-Part Series on "Common Myths in Social Impact Investing" - please be sure to read Part 1 of this Series before continuing.
❌ Myth #2 - Social Impact Investing is Philanthropy
Social Impact Investing, with a common misbelief that is a charity or a donation for a good social clause like Poverty, Hunger or Homelessness, should be reclassified as Diversity Investing as highlighted here.
Bill and Melinda Gates, the world’s top philanthropists, are rethinking their work in America as they confront what they consider an unsatisfactory track record.
Many investors have failed to realize the Diversity Investing, as opposed to "Non-Diverse Investing", will be the new normal of investing, especially in Venture Capital, as Diversity (when thinking about Founders' gender and racial profiles) is just another "alpha source."
Social Impact Investing is about Delivering Returns, not Donating Capital.
Why does this matter?
1️⃣ On the investment side when companies are being shaped by Founders and VCs.
According to a seminal report by Harvard Business Review on "The Other Diversity Dividend", by examining the decisions of thousands of venture capitalists and thousands of investments, Diversity significantly improves financial performance on measures such as profit, EBITDA, and return on equity.
2️⃣ On the investing side for Investors/LPs when selecting VC fund managers.
Diversity has demonstrably shown to improve investor / LP returns by investing in Female Decision Makers / GPs instead of the current makeup consisting of 78% Male Caucasian VCs with an average age of 50 (from a sample of U.S. VC Senior Decision-Makers).
Of many examples available, a recent study of “Women in the Venture Capital Ecosystem” shows that although 12% of decision-makers at U.S. venture capital firms are female, 70% of top-quarterly performing U.S. venture capital funds are led by female-decision makers.
Stay tuned for the final part of this 3-Part Series, leading up to a mini-feature video entitled "Myths about Social Impact Investing."