Impact Grid - Designing a transparent,secure & decentralized platform for Impact Investing, powered by blockchain technology
- 1. 1 Investrata Foundation for Social Entrepreneurship TRANSPARENT IMPACT INVESTING DECENTRALISED Impact Grid Designing a transparent, secure, decentralized platform for Impact Investing, powered by blockchain technology
- 2. 2 Investrata Foundation for Social Entrepreneurship 40 33 8 6 5 3 3 2 0.2 8 10.6 10.6 12.2 0 5 10 15 2012 2013 2014 2015E Annual Impact Investments – Survey Based (US$ billion) Source (Multiple): JP Morgan GIIN, 2012 – “Perspectives on Progress: The Impact Investor Survey”, 2013 & 2014 – “Spotlight on the Market: The Impact Investor Survey”: Eyes on the Horizon: The Impact Investor Survey 2015 (Note: Number of respondents for each year were as follows: 2012: 88, 2013:125, 2014: 124, 2015: 146, The Cambridge Associates Impact Investing Benchmark Despite skepticism, Impact Investing continues to grow as an asset class globally While the market size has yet not been fully quantified, the aggregate assets indicate that the market is substantial, with significant potential for growth AUM Private Equity Private Debt Equity-like Debt Public Debt Public Equity Real Assets Pay-for-performance instruments Others Deposits & Cash Equivalents Total AUM by Instrument (%) 100% = US$ 60 billion • Impact investors committed US$ 10.6 billion to impact investments in 2014, and plan to invest 16% more, US$ 12.2 billion, in near future • Investments directly into companies represent a much larger proportion of assets under management (74%) than do indirect investments (20%) • Private Debt and Private Equity are the most prominent instruments, accounting for 40% and 33% of assets under management, respectively. Eight percent is allocated to Equity-like Debt while less than 1% is allocated to Pay-for performance instruments Highlights
- 3. 3 Investrata Foundation for Social Entrepreneurship A diverse set of factors are contributing to the growth and global recognition of the asset class Source (Multiple): The Impact Investor Survey by GIIN, JP Morgan, 2015, http://www.axial.net/forum/impact-investing/ Early evidence of the effectiveness and profitability of past impact investments increases the confidence of private sector actors to enter this sector in emerging markets Evidence of scalable business models that create social and environmental value Financial crisis of 2008 showed that there is a need for more transparency and accountability Broader considerations of risk in investment decisions Over the next 40 years, Generation X and the Millennial Generation are likely to inherit an estimated US$ 41 trillion from the Baby Boomer Generation. Since the inheriting generations have an inclination for social good, and want businesses to play a more active role in society, impact investing is likely to grow Transfer of wealth from baby boomers to children Macro factors such as population growth, increasing demand for natural resources, environmental pressure, people living longer, chronic public health challenges, etc. will together lead to higher demand for impact investing Recognition by world leaders that current trajectory is not sustainable There is a growing commitment of asset- owners and corporations to deploy capital in an accountable, responsible, and transparent manner Growing commitment of asset-owners and corporations to deploy capital Finding that capital deployed with positive intention is both effective and critical in catalyzing solutions for social challenges, there is an increased co-operation between government and private sector Increasing confidence by governments and philanthropists Impact Investments Growth Drivers
- 4. 4 Investrata Foundation for Social Entrepreneurship However, key challenges continue to hamper mainstream adoption and expected hyper growth Source (Multiple): The Impact Investor Survey by GIIN, JP Morgan, 2015, Charting the Course – a report by WEF, 2014, SocialVentures. Lack of appropriate capital • Inadequate funding from the private sector • Differentassetowners have differentpreferences,and there is a clear lack of capitalacross the risk/return spectrum Fund size is too small for investors • Size of most funds is often too small for mainstream investorsto handle (average impactinvesting fund is around 20% of venture capital fund) • Cost of fund managementtakes a biggershare of returns to investors Illiquid Products / Difficulty in exit strategies • Investorconcernsover illiquidity arise due to the absence of an established secondarymarket. • This issue is compounded in the context of a fund. • Especially when fund managers wish to rebalancetheir investments or investors want to sell their units. Shortage of quality investment opportunity • Lack of investmentready social enterprises • Limited channels for investors to leverage for deal flow and pipeline • Nascentmarketmakesinvestors rely on word of mouth and informalnetworks which acts as a barrier Lack of uniform definition & understanding • The “impact”side holds differentmeaningsto different enterprises/funds – some are more socially inclined,while others are more financially inclined • This leads to confusionover the real set up of impactinvesting Difficulty of measuring social outcomes • The industry needs a set of robust social impactrating standards and reportingtools. • This is crucial given that impactinvesting is still evolving and investorattitudes towards social returns vary dramatically. Supplysidechallenges Demandsidechallenges Key Challenges While impact investing has entered the mainstream mind-set, it is yet to become a part of the strategy, operations and business culture of individuals and mainstream investment institutions Under-developed intermediary market • Too few intermediariesconnecting those interested in investing for socialimpactwith social sector organizations that need capital to achieve positive social change • Existing financial instruments are restricted to a selectcategoryof individuals and institutions
- 5. 5 Investrata Foundation for Social Entrepreneurship Meanwhile, a set of emerging technologies / trends show promise and have grown exponentially in the past few years Developed: around 2009 (Bitcoin) What it is: A permission- less distributed database that maintains a continuously growing list of transactional data records hardened against tampering Key Notes: The underlying technology that powers digital currencies, payment systems and distributed ledgers Developed: around 2009-10 What it is: A mechanism that enables broad groups of investors to fund startup companies and small businesses in return for private securities. Can be equity- based, debt-based or a hybrid. Usually facilitated via online platforms Key Notes: Growing exponentially. Approved in a number of countries. Expected to overtake VC. Developed: around the mid 2000’s What it is: Also called collaborative consumption, it is peer- to-peer-based sharing of access to goods and services coordinated through community- based online services Key Notes: Popular deployments include online marketplaces such as AirBnB, Uber, TaskRabbit, DogVacay, PoshMark, etc. Developed: Before 2000 What it is: Generally, refers to software whose source code is published and made available to the public, enabling anyone to copy, modify and redistribute the source code without paying royalties or fees Key Notes: Leading open source software include Ubuntu Linux, WordPress, Hadoop, Magento, Drupal, Hyperledger,etc. Blockchain Technology Crowd Investing Open Source Sharing Economy Together they can effectively address many of the teething challenges and help propel the mainstream adoption and growth of impact investing
- 6. 6 Investrata Foundation for Social Entrepreneurship Impact Grid is a project to harness the potential of key emerging trends & technologies for Impact Investing The goal is to design a transparent, secure and decentralized exchange to connect impact investors, social enterprises and others in the ecosystem and rapidly scale socio-environmental impact Initially conceived to address our need for smart and transparent impact fund management, the plan swiftly evolved towards building a platform to transform impact investing A platform for intermediaries to offer and administer impact investing instruments (funds, bonds, etc) A modern approach to design and structure new financial instruments for impact investing A consensus based mechanism to systematize impact measurement and reporting A meaningful way to track, measure, evaluate and report social impact A crowd investing marketplace directly connecting impact investors and social enterprises Democratizing impact investing. Making it available to all. With an active secondary market An open Impact marketplace (going beyond financials) Fostering open socio- environmental innovation via peer-to- peer collaboration / asset exchange Impact Grid – A blockchain-powered next gen platform for Impact Investing
- 7. 7 Investrata Foundation for Social Entrepreneurship Impact Grid will bring together the existing industry actors in a whole new way …… and add a host of new ones The decentralized exchange will facilitate the design and creation of a new breed of financial instruments for impact investing while allowing existing structures to scale A transparent, secure and decentralized system will allow for better trust and governance while seamlessly connecting a host of next-gen social entrepreneurs, impact investors and intermediaries Source: WEF, 2014 Retail Clients (<$100k) Pension / Sovereign Funds Mass Affluent ($100K-$1MM) Endowments / Foundations HNWIs ($1MM-$50MM) Insurance Companies UHNWIs ($50MM-$100MM) Hedge Funds / Mutual Funds Family Office ($100MM-$1B) Development Finance Institute (DFIs)Billionaires (>$1B) Capital Providers Wealth Advisors Fund Managers Investment Funds Financial Intermediaries Other Intermediaries (Consultants, Lawyers, Service Providers) Depository Institutions Investment Targets Financial Services Fees Financial Services Fees Investment Net Return Investment Gross Return Direct Investment Investment Return Fees Technical Assistance Principal & Interest Debt Capital Principal & Interest Debt Capital Key Tracks flow of capital Tracks Relationship
- 8. 8 Investrata Foundation for Social Entrepreneurship The project will have three phases, beginning with the design for a smart platform to administer an impact fund 2016 2017 1. Smart Impact Fund Platform 2. Crowd Investing / Lending One Simple Impact Fund Investors -> Fund -> SocEnts. All records and transactions and transactions maintained and managed on the blockchain #ImpInv Marketplace Democratizing Impact investing: A primary and secondary marketplace for social enterprises and impact investors 2018 3. Open Impact Exchange Peer-2-Peer Exchange Fostering socio- environmental open innovation via peer- to-peer collaboration / asset exchange An open source project, Impact Grid will allow anyone to extend, integrate and deploy an impact exchange
- 9. 9 Investrata Foundation for Social Entrepreneurship There exist some key dependencies including currently evolving technology and access to necessary resources Evolving Technology Its still early days for blockchain and related technology / protocol which continues to evolve • Uncoordinated - diverse group of developers • Still broadly associated with Bitcoin and other cryptocurrencies Regulation The jury is still out with many governments and associated regulatory bodies still trying to understand emerging trends and related technology. • Blockchain , Crowd Investing, Peer-to-Peer lending Capital and Resources Capital and resources to build a platform that will facilitate cross-border, cross-functional ecosystem collaboration • Regional expertise • Patient Capital Dependencies
- 10. 10 Investrata Foundation for Social Entrepreneurship We are eager to hear from you and welcome individuals & organisations to join us on this journey to advance social change We try to do our part, practice what we preach and maintain a minimal physical and carbon footprint Reach us Additional Resources What is Impact Investing: https://goo.gl/3APU8M What is Blockchain Technology: https://goo.gl/crv1Di www.impactgrid.org facebook.com/ImpactInvesting.in @ImpactIN info@investrata.org