At Liquidnet, we help solve some of our customers’ largest problems by improving how the capital markets function. We use technology to give the world’s leading asset managers access to large-scale trading opportunities around the world. In designing our Corporate Impact strategy, we asked: Why stop at the capital markets? How might we apply what we do best to issues in the social sector?
We see markets on a spectrum: On one end, investors in capital markets deploy money in order to generate financial returns. On the other end, donors in philanthropy deploy money in order to generate social good. In between is the emerging practice of impact investing. Like investors in the capital markets, impact investors intend to make money. And like donors in philanthropy, they also intend to make a measurable social or environmental impact.
Through Liquidnet For Good, we are applying our core strengths and knack for innovation to improve two major ways society finances social good: philanthropy and impact investing.
Philanthropy is made up of dedicated people and organizations who are working on some of our most critical social and environmental issues. In the U.S. alone, there are over one million nonprofit organizations, and hundreds of billions in donations flow to these organizations annually.
Yet as a whole, there is potential for philanthropy to perform even more effectively. Donors don’t know if their dollars are making a real impact, so they struggle to find the best organizations to support. Nonprofits don’t have a standard way to report their progress, and they spend too much time searching for the information and money they need to do good. And the people we seek to help don’t have a reliable way to provide feedback, so nonprofits and donors often don’t benefit from their insights.
We know that markets are not perfect, and the reason why society requires a vibrant social sector in the first place is due in part to market failures. That said, philanthropy is missing two aspects of a well-functioning market: good data and feedback loops. That’s where Liquidnet For Good has focused our efforts.
Liquidnet joined forces with amazing partners, including some of the largest foundations. Working behind the scenes, we’re improving the way philanthropy creates and uses data, and bringing the practice of feedback loops to nonprofits and donors, so they can better listen and respond to the people they seek to help — the people who are too often least heard.
Accessible, useful, and timely information — good data — allows people and organizations to make smarter decisions. Effective philanthropy requires not only good data, but also the ability of good data to reach and inform donors, nonprofits, and the people they both seek to help. This “information infrastructure” underpins philanthropy’s ability to learn, adapt, and improve.
A social sector powered by information will ultimately allow money to flow more effectively and easily to the organizations having the greatest impact; it will help make nonprofit programs and services more responsive and therefore more effective; and it will enable a culture of continuous listening, learning, improvement, and innovation. All of this will lead to greater impact for people and communities around the world.
To bring good data to philanthropy, in 2010 Liquidnet For Good launched an initiative called Markets for Good. This multi-year collaboration brought together dozens of organizations from around the world working to improve the flow of data and resources in philanthropy. In 2015, we transitioned Markets for Good to our partners at the Stanford Center on Philanthropy and Civil Society (Stanford PACS), which brought Silicon Valley and academic connections to the initiative. In 2017, Stanford PACS aligned Markets For Good with other efforts, where it now lives on as Digital Impact. Digital Impact improves the digital infrastructure for civil society and helps social sector practitioners and policymakers use digital resources safely, ethically and effectively for maximum impact. This work reinforces our understanding that good data is fundamental to the successful functioning of any market.
All the data in the world alone cannot help philanthropy be more effective. Good data needs to be coupled with good listening.
In the capital markets, companies go out of business and investors lose money if they are not responsive to the needs, preferences, and voices of their customers. But philanthropy lacks this same alignment of incentives. While funders provide the money nonprofits need to provide programs and interventions for the people they both seek to help, there is no inherent feedback loop built into the system. Nonprofits spend too much time and energy trying to anticipate and meet the needs of the people and organizations providing them with resources to do good work. The people being served by nonprofits often do not have a choice, and their voices are not usually heard.
We wanted to do something about this, not only because we felt it was the right thing to do, but also because we think that listening to the people you seek to help is also the smart thing to do. True feedback involves not only listening but also acting on what you hear, which leads to more effective programs. So Liquidnet For Good partnered with several leading foundations to launch the Fund for Shared Insight in 2014.
This collaborative effort among funders pools financial and other resources to make grants to improve philanthropy. Shared Insight emerged from the belief that foundations will be more effective and make an even bigger difference in the world if they are more open: if they share what they are learning and are open to what others want to share with them, including grantees and the people they seek to help. Shared Insight does this by providing grants to nonprofit organizations to encourage and incorporate feedback from the people philanthropy seeks to help; understand the connection between feedback and better results; foster more openness between and among foundations and grantees; and model openness by sharing what is learned. One of the Shared Insight’s most exciting initiatives is Listen for Good (L4G), which seeks to bring the Net Promoter SystemSM (NPS®), to philanthropy. The goal of this matching grant program is to support diverse, customer-facing nonprofits to initiate or improve their practice of systematically collecting and using feedback from the people they seek to help.
Advancing Impact Investing
According to the Global Impact Investing Network (GIIN), “impact investments are investments made into companies, organizations and funds with the intention to generate social and environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets, and target a range of returns from below market to market rate, depending on investors’ strategic goals.”
We believe this emerging practice has exciting potential, but to reach scale, four things need to come together:
1. Increased demand for impact from people and organizations with money to invest
2. Increased supply of investable opportunities that have a measurable impact
3. Intermediaries equipped to effectively match this supply and demand
4. An overall enabling environment supporting this field
To do our part, we established the Liquidnet For Good Fund, a donor advised fund through the nonprofit ImpactAssets. We use this Fund to invest in companies that are improving the impact investing market by bringing the data, insights, and talent necessary for scale.
Advancing impact investing requires accessible information. As with any field, practitioners need trusted guides who can provide context and analysis, helping to make sense of trends and developments. So the Liquidnet For Good Fund provided catalytic capital to launch ImpactAlpha, a media company covering the impact investing market. ImpactAlpha is a source of news, trends and insights from a team of dedicated journalists working the impact beat.
We know that markets flourish when market participants have accurate and accessible information. For impact investing to accelerate, we believe there needs to be more data about what is happening in the space. Our investee ImpactAlpha also owns ImpactSpace, the world’s largest open database of companies, funds, deals, people and organizations active in impact investing. This data will allow us to track the market, spot trends, and ultimately help more people understand the possibilities for impact investing.
Maintaining impact investing’s momentum means cultivating the next generation of purpose-driven talent who will work for and even start the companies and funds in the market. Liquidnet For Good has been a long-time sponsor and Steering Committee member for the MBA Impact Investing Network & Training (MIINT), a partnership between the Wharton Social Impact Initiative, a center within The Wharton School of the University of Pennsylvania, and Bridges Fund Management, a dedicated sustainable and impact investment firm.
MIINT is an experiential lab designed to give nearly 600 business and graduate students at 25 of the world’s leading business schools a hands-on education in impact investing. Through six months of training, student participants learn how to think like an impact investor and are asked to define an investment thesis, source investments, conduct diligence and present their recommendations to a panel of experienced impact investors. At the end of the program each spring, MIINT concludes with a final competition hosted at Wharton, where student teams present real-life impact investing opportunities to a panel of expert judges. The winning companies earn an investment of up to $50,000 from the Liquidnet For Good Fund.
Impact Investing in Practice
Liquidnet For Good has been involved in bringing two distinct and exciting clean energy projects to Rwanda: a utility-scale solar power plant and an off-grid solar company.
In 2014, our signature charitable partner, the Agahozo-Shalom Youth Village (ASYV), agreed to lease 42 of the 144 acres it owns to a developer who built a utility-scale solar field. In return for the use of its land, the ASYV receives an annual lease payment, helping to sustain the nonprofit’s budget over time. The first of its kind in all of East Africa, this nearly $24 million, 8.5-megawatt solar photovoltaic power plant is designed to provide up to 6% of the entire country of Rwanda’s energy supply. This solar field is an important step forward in closing the Rwandan energy gap.
Separately, through the Liquidnet For Good Fund, we provided seed capital to Ignite Power, a Pan-African developer and financer of safe, clean energy solutions for rural communities. Ignite Power provides families with an affordable solar unit that provides four lights, a radio, and a mobile phone charger. Among other benefits, the units allow children more time to study their schoolwork at night. Ignite has already become the largest solar financing company in Rwanda, on track to connect 250,000 homes across Rwanda to clean, off-grid energy by 2018 — representing 20 percent of Rwanda’s population. Plus, Ignite Power has trained and employed 1,400 workers, 70% of whom are women.
Ignite Power Customers