What is your theory of change?

(Note: this post first appeared on the Acumen Fund blog.)

On Sunday, March 1st, I had the opportunity to speak on two panels at the 10^th Annual Harvard Social Enterprise Conference.  The SE Conference is an impressive, energetic gathering, that packed in more than 1,000 attendees on a snowy day in Boston.  The backdrop of the financial crisis was everywhere, and you could tell that many students on campus are thinking differently about their careers.  At the same time, nearly every panel referred to the opportunity presented by the Obama administration, specifically the potential for the Office of Social Innovation, which from all reports is on the verge of being created.

A keynote by Linda Rottenberg kicked off the day, providing perspective on the arc of the social enterprise sector over the last decade.  Linda asserted that we spent the first 10 years answering the question, “What IS social enterprise?” and that we’ll spend the next 10 answering, “What have you DONE?”  I agree with Linda, though I think that the sector still has a long way to go in terms of clarifying our language and explaining in simple terms what we are and the unique value we bring in combining the best of the private and public sectors as levers for change.

In my morning panel, I had the opportunity to share the stage with Jeff Walker, Ex-Chairman and CEO of CCMP Capital and Chairman of Millennium Promise; Michael Chu, one of the founders of Accion Internacional (an early microfinance pioneer) and Co-Founder and Managing Director of IGNIA Fund; and Peter Kellner, co-founder of Endeavor and Co-Founder and Managing Director of Uhuru Capital Management (launched on Monday), a fund of funds that will give a portion of its management fees to support social enterprises.

The room was packed, with close to 150 people in a classroom that comfortably seats 90.  Early in the discussion, Michael Chu observed that, across the panel, we represented “a spectrum of theories of change,” each complementary in nature.

Michael makes a good point, especially given that, from the outside, it may look like we’re all trying to bring capital to bear in a new way to fight poverty and make social change.  But the theories of change do differ.

Millennium Promise uses almost all philanthropic capital to catalyze a set of simultaneous interventions in Millennium Villages, and the results in terms of increased agricultural output, decreased disease burden, and improvements in well-being in these villages are impressive.

Acumen Fund, with our focus in India, Pakistan and East Africa, has set out to provide critical goods and services to the poor, as a way of removing barriers and bringing choice and opportunity.  With more than $40 million in approved investments that have touched more than 30 million lives, we have a solid investment track record and have invested in many of the most successful social ventures in the geographies where we operate.  We are “impact first” investors, and our main goal is return of our capital, not return on capital.

Endeavor’s principle aim is to foster the growth of “high impact” entrepreneurs in the developing world – to create a vibrant entrepreneurial economy to catalyze change.

And IGNIA, which began making investments in 2008, is leveraging its experience with Compartamos microfinance bank which, in its recent IPO, gave outsized financial returns in addition to its large-scale social impact.  Michael Chu was clear that IGNIA’s goal is to invest in small- and medium-sized enterprises with an explicit goal of “above market” returns.”

Given the amount of opportunity, the scarcity of capital, how underserved these markets are, and the potential of entrepreneurs to create new business models that integrate the best of the private and public sectors, this is not a question of which is the “right” approach.  Rather, our collective opportunity is to roll up our sleeves, do the work, be rigorous and transparent about what we are seeing and learning, and to be relentless about sharing lessons learned so that the sector as a whole can better understand where and how we can use the market as a listening device to learn how best to lift millions of people out of poverty.

Fortunately, thanks to the ANDEs network, the Rockefeller Foundation’s Global Impact Investing Network, and Acumen Fund’s PULSE platform to collaborate on metrics, the sector as a whole is creating the platforms we need for more collaboration.  Stay tuned.

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