Would you like a 500-times return on your money?
QUESTION: I read the previous
column about Jonathan Gartner and his excitement about impact investing. Isn’t philanthropy
the best way to help people? I have
heard that impact investing yields a low financial return. Why should I be
interested in it? . . . Sam in Montecito
Certainly,
philanthropy is vitally important to our welfare at the community, county,
state and federal levels. In a recent meeting at the Community Environmental
Council, it was noted that 25% of all jobs in California are in the non-profit
sector.
That is
a remarkable number. They help with everything from substance abuse, animal
welfare, art and cultural activities, after school programs, the needs of seniors
and the aging, minority and women’s rights, environmental issues, homelessness,
food, health, to mention just a few. To address your questions, I would like to
break it into two parts and then give an example.
First a
disclaimer. Clearly, non-profits do an enormous amount of good. Just look at
the partial list above. We would have little art, starving people and every
other kind of social ill without them. That is not the question.
The question should
be, “Is the philanthropic non-profit model always the most effective way to
produce social change?”
It certainly is not the only model. Government is
involved in dealing with many of the same problems and has a vast array of
programs directed at the same targets. But most non-profits are only a month
away from running out of money. They often are limited in their ability to
produce prolonged change by, among other things, their lack of resources. In
the paradigm of “give them a fish, teach them to fish and finally change the
fishing industry,” most are closer to the “give them a fish” model. Given their
focus and resources, they have little choice. But what if there were an
organization that made money while addressing social needs?
Then it would not
need to raise new money every year. If it were profitable, it could build on
its successes, be able to broaden its reach, and attack the problem in a much
more expansive way.
Childhood obesity in America is a great example. It has become
a national problem.
Kirsten Saenz Tobey and Kristin Groos Richmond were concerned
about this problem and the way it hinders learning, so they set out on a
mission to change the way students are fed by creating Revolution Foods. It
became a national company that provided healthy food to schools. And it made a
profit doing so. How much money would have to have been donated to create that
change? And they did it without increasing the school lunch cost. Clearly,
there are more ways of producing social good beyond traditional non-profit
philanthropy.
Now on to the second question: “Isn’t impact investing just
a low return way of investing?”
There are three dimensions to impact investing. Since all impact
investments are designed to create social good, they have to measure their IMPACT,
which is the first dimension.
The second dimension is RISK. The third is RETURN.
If you imagine a three-dimensional space, there are impact investments present
in all quadrants of that space. There are impact investments that have little
impact, high risk and little return. There are impact investments with high
impact, low risk and low return. And there are impact investments that have
moderate risk, high impact and phenomenal return! Let’s take the example of Apeel Sciences.
What is Apeel Sciences & what
is its product line?
Apeel Sciences is a
company based in Goleta,
California whose edible plant-derived coating product Edipeel can
reportedly enable produce – avocados and other types of fruit and vegetables –
to stay fresh two to three times longer, which
promotes more sustainable growing practices, better quality food, and less food
waste for everyone.
For growers, suppliers, and retailers, Apeel is the only
post-harvest solution that creates an optimal microclimate inside of every
piece of produce, which leads to extended shelf life and transportability without
requiring refrigeration, controlled atmosphere, or preservatives.
Apeel was founded in 2012 by James Rogers, after
receiving a $100,000 grant from the Bill
and Melinda Gates Foundation, to help
reduce post-harvest food waste in developing countries that lacked a
refrigeration infrastructure. The company is fighting
the global food waste crisis by utilizing nature’s approach to preventing waste
in the first place — a sustainable approach to the world’s growing food
demands.
“In America, food waste is not only a
sustainability issue–it’s a massive economic black hole,” according to Fast
Company’s Assistant Editor Eillie Amzilotti, who covers sustainability, social
good, and alternative economics. “Each year, people in the U.S. throw away an
average of 400 pounds per person, and retailers lose a combined $18 billion per
year on tossed produce (globally, food waste accounts for $1.2 trillion down
the drain). Through its rapidly scaling partnerships, Apeel is working to
position itself as one facet of the solution to this problem.”
Was Apeel Sciences a low return investment?
According to an anonymous source—as a private company, its
value is not public—Apeel is now valued at 500 times its initial investment. If
that is accurate, one share of stock is now valued at 500 times what it cost
the original investors. Whatever the number, its value has gone up enormously. Sam,
that certainly isn’t a low return.
Additionally, beyond extending food life, the company has
also produced local jobs which benefit our community.
I truly believe that a commitment by Santa Barbarians to
further the cause of impact investing will have a transformative effect on our
community. It will help us address many of our social ills in a more effective,
cost-effective manner while helping the community economically.
So, Sam, no, I don’t believe that non-profit philanthropy
is always the best way to create social good and/or that impact investing will always
provide a low return. There are too many examples in the world these days that
prove otherwise.
Thank you for your question.
This column was published in the Montecito Journal 12/27 December 2018 vol 24 issue 51
This column was published in the Montecito Journal 12/27 December 2018 vol 24 issue 51
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