Unlocking Value Through Values: How Impact Investing Spurs Innovation to Improve Society
By Liz Ivaniw Jones
In just a few decades, innovation has revolutionized how people live, work and play. But while billions of dollars in venture capital fuel innovation in sectors such as entertainment apps for the world’s wealthiest, fundamental challenges such as the paucity of affordable food and housing afflict nearly 11 percent of the global population, according to the World Bank.
To discuss those disparities and how business innovation can also be a solution, the University of Virginia Darden School of Business welcomed about 60 alumni, entrepreneurs and practitioners to a recent presentation by Ross Baird, founder of Village Capital, and Darden Professor Elena Loutskina.
Baird, a 2007 UVA graduate and current UVA adjunct professor, spoke with Loutskina at an invitation-only Darden Ideas to Action event held at Darden’s Sands Family Grounds in the Rosslyn district of Arlington, Virginia. The evening event and networking reception was offered through a collaboration among three of Darden’s Centers of Excellence: the Batten Institute for Entrepreneurship and Innovation, Richard A. Mayo Center for Asset Management and Institute for Business in Society.
In opening the program, Sean D. Carr, assistant professor and executive director of the Batten Institute, noted the event’s importance “integrating thought centers across the Darden enterprise as an influential, positive voice in the dialogue about business and public policy.”
In discussing the content of his new book, The Innovation Blind Spot: Why We Back the Wrong Ideas—and What to Do About It, Baird detailed his strategy to find and fund the best innovations to help solve society’s most intractable problems.
“Startup activity is in a long-term decline,” Baird said, “and our rigid, one-size-fits-all model of allocating investment resources doesn’t always find the best ideas.”
Baird argued that today’s innovation funding process is structured with major vulnerabilities, or “blind spots,” that cause inequities across the entrepreneurial landscape.
“In short, we’re looking in all the wrong places for the right ideas — the trailblazing ones that speak to the broader values of society in making a difference.”
Baird contends that selection process tends to bypass novel initiatives and skirt diverse outliers, in large part because a small number of traditional investors, concentrated in a few cities, make high-stakes funding decisions based on relationships, familiar social recognition patterns and proven successful ideas.
“As a result,” he said, “aspiring entrepreneurs face what’s essentially a closed system. Access to funding comes down to where you live, who you know, what you look like and — because many times investors don’t grasp the problems entrepreneurs are solving — what you’re creating or building.”
Baird offered a stark picture of how those systemic blind spots play out:
“Seventy-eight percent of startup investment in the U.S. goes to just three hotbeds of entrepreneurship — Massachusetts, New York and California. And just 2 percent of investments go to women founders, while less than 1 percent go to companies started by people of color.”
In contrast to mainstream venture capital (VC) firms, Baird’s firm, Village Capital uses a novel “peer-review model.” With the goal of “democratizing entrepreneurship” and leveling the playing field for its portfolio companies, fully 90 percent of its investments are made outside the traditional three-state investment hub, 43 percent of Village Capital’s portfolio companies are female-led and 34 percent are founded by people of color.
The firm boasts an impressive company survival rate as well. While only 50 percent of traditional VC-backed startups are still in business after the five-year mark, 91 percent of Village Capital firms are operational.
In his conversation with Loutskina, Baird attributed much of his company’s success to what he calls “one-pocket thinking.” Most investors, he said, engage in “two-pocket thinking,” separating their daily work and profits from their personal values and charitable giving — an approach that partitions “what we do for a living” from the “causes we care about.”
Joey Burton, executive director of the Institute for Business in Society, said it is that kind of thinking that resonates so deeply with Darden students and young investors. “Darden’s faculty, including Elena Loutskina and Mary Margaret Frank, are currently attempting to quantify the difference between traditional investing and social impact investing. That research is being used in their impact investing course at Darden, and as a result, our students are better prepared than ever to re-orient investment strategies for social good.”
George Craddock, executive director of the Mayo Center, also lauded Loutskina’s contributions to Darden’s curriculum in the growing impact investing space. “Elena has been a leader in the field at Darden, helping to launch the ‘Impact Investing’ course, providing a finance perspective to the field and partnering with leading practitioners like Ross Baird.”
The University of Virginia Darden School of Business delivers the world’s best business education experience to prepare entrepreneurial, global and responsible leaders through its MBA, Ph.D., MSBA and Executive Education programs. Darden’s top-ranked faculty is renowned for teaching excellence and advances practical business knowledge through research. Darden was established in 1955 at the University of Virginia, a top public university founded by Thomas Jefferson in 1819 in Charlottesville, Virginia.
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Darden School of Business
University of Virginia