Portrait of a social investor: An interview with Sam Moss of Gray Ghost Ventures

Social finance is becoming an important new area of research for FAI. As we delve into that arena, look for blog posts on this topic by us and others. Here we’re pleased to feature a guest post from impact investors Gray Ghost Ventures.

How does Gray Ghost define impact investing?

Impact investing is a pretty broad arena. The part we focus on is looking for market-based investment solutions to poverty alleviation—the merger of both societal impact and financial return. It’s a broad spectrum, but within that we’re probably closer to the expectation of market-like returns, whereas others would not necessarily be on that edge—there are others who are seeking social impact and a financial return, not necessarily market-like. While we respect all the different pieces, we think that unless you get a financial return, you’re less likely to get to scale and replicability, because it’s less sustainable and more dependent upon other sources of funding that are more fickle and erratic.

What kind of investments are in Gray Ghost’s portfolio?

We have several different portfolios. We have a microfinance portfolio, the vast majority of which is invested in funds, rather than directly in microfinance institutions (MFIs), and within that, we look for market-like returns on both the equity and debt portions of our portfolio. We invest in funds because we felt that in order to more appropriately invest in MFIs directly we would have to have a much larger staff than we did, and be located in indigenous locations where the MFIs were located to better understand how to both invest and then to assist those MFIs in their performance. Being based in Atlanta, we were not likely to do that as effectively as someone based in-region. So early on we sought to find fund managers in-region whom we could help support and provide catalytic, anchor capital.

We also have a portfolio of direct investments in enterprises which also are focused on poverty alleviation and providing access to goods and services to under-served populations in the developing world. While there are a range of things we did initially just as pilots, we are increasingly focused on investing in cell phone and adapted technologies upon which you can build business platforms. So we have a portfolio of direct investments in early stage business, predominantly in India but not exclusively, and predominantly around mobile technology but not exclusively.

Another portfolio is our affordable private school financing initiative through the Indian School Finance Company (IFSC). We are directly lending to affordable private schools which are serving low-income populations where free public schools—government schools—aren’t meeting the needs of that population.  Affordable private schools have sprung up, and as they are successful and need to expand, few traditional lenders will consider loans to them, and it tends to fall outside the expertise or focus of microfinance institutions, so there was this gap in financing for affordable private schools. That’s why we created the IFSC, to bridge that gap and to demonstrate first a pilot and then to demonstrate that loans to these institutions would be repaid at high rates and that an investor could create a portfolio that would be attractive from a return-standpoint.

Finally, we have an incubation group that focuses on early stage enterprises in the concept phase, providing seed capital to explore their viability. These are widespread investment opportunities, particularly around incubators in Berkeley, Denver, New Orleans, and Mumbai at this stage, and providing small amounts of capital that can be invested in these companies.


How has impact investing changed since Gray Ghost entered the scene?

One, it actually has a name, “impact investing,” which is relatively recent. That sense of having both high social impact and financial return was grouped under “social investing”. We’ve also seen more and more investors beginning to be attracted to this space.  Where it was relatively lonely early on, we now find that there are increasing numbers of companies which has resulted in the creation of the Global Impact Investing Network , (the GIIN), which several early social investors, now impact investors, created a year ago.

Today, impact investors include both companies like Gray Ghost dedicated to impact investing, and companies that take impact investing as just one of their activities. Groups like the Rockefeller Foundation, which has started to look at the investing side and has been and early proponent and in the vanguard, you have large banks with dedicated social finance sectors that have funds that have been created explicitly for impact investing.  Firms and funds started by focusing on microfinance are now expanding to the broader world of investing in other kinds of companies and small and growing businesses that complement each other.

Looking forward, what are the trends in impact investing and where do you think it’s headed?

I think what we’re seeing is an increasing number of investors—I don’t know that it’s a tidal wave, but there’s increasing interest in impact investing from a variety of sources— and that it has widespread interest in a variety of different financial sectors. It’s inevitable that it will become an increasingly large activity, particularly as people start seeing the success of the early adopters. 
Currently, impact investing is an extremely collaborative space because a number of groups have had to work closely together to share ideas and share investment opportunities. I think it will continue to be collaborative because one of the key purposes is trying to change the world and to have an impact on the quality of life for all peoples. As a consequence, I think that while there is a measure of self-interest that may creep in and erode some of that collaborative nature, because there’s that sense of trying to help the condition of other people collaboration will continue to be key.

What are the biggest challenges facing impact investors?

Among the biggest challenges is, because you’re talking about social impact, trying to measure what social impact is. Where there is great refinement on financial impact or financial returns, social returns are just in the embryonic stages of being measured. But there are great efforts underway to quantify impact.

The other challenge which is starting to be more easily breached is the sense that somehow impact investing, financial and social return, are contradictory concepts. So we’re trying to prove that they’re not mutually exclusive, which will require both data and time. We are early in the development but with time we will have the data to prove the case.

Do you think it’s possible to have a standard language and standard metrics for social return the way we do for financial return?

I think it’s possible to have a common language for impact investing and there are efforts underway to at least codify the language, so it means the same thing whenever someone uses a term. Trying to come up with the universal characteristics is hard. There may be some very narrow pieces of it that are applicable across sectors and across companies, but we’re still delving into that. But with time and effort we’ll find greater commonality and a more common language that can be used to measure and communicate out what social impact is.