Measuring the Total Return

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Extracting the Value of Social Return
Reporting Pension Funds Investing to Build
Strong and Sustainable Communities Harvard Law
School, June 10 2008
Research Funded by Kauffman Foundation
2
BACAF Investment Profile
Institutional Investors Public Pension Funds
Funds of funds
18 Private Equity Funds
120 Portfolio Companies

• Owned (led) by women or minorities
• Located in/employing residents of, LMI areas
• In areas with limited access to capital
• Serving minority markets.

3
Investment Profile Differs From Traditional VC.

• More Traditional Business Sectors

• Geographic Diversity

lt 1M
1-10M

• Company Sizes Range Smaller

.Financial Return Objectives Do Not.
financing MBEs offers high returns due to the
existence of an underserved market. - Bates and
Bradford, 2007
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Underserved Market Investing Has Ancillary Social
Returns

• Employment
• Minority-owned firms employ 4.7 million workers.
• Minority-owned firms more likely to hire
  minorities.
• Entrepreneurship
• Minority Women owned businesses
  under-represented and under-capitalized.
• Economies
• Inner City Rural firms create jobs where most
  needed. For example, "Inner City 100 employ
  73,000 (nearly half inner-city residents).
• Environment?

5
BACAF Results

• 2005
  2006 2007
• of funds invested 6 14 18
• Total fund size 1B 2.2
  3.8B
• of companies 24 60
  113
• employees 5,027 13,508 12,636
• 75 reporting
• The data presented on this slide is incomplete
  and preliminary, prepared for purpose of this
  presentation only.

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Underserved
(All Categories) 70 Entrepreneurship
minority controlled 32 women
controlled 4 Economies in
LMI communities 35 Underserved market
9 Employment minority
34 female
42 health insured
50 retirement
33
The data presented on this slide is incomplete
and preliminary, prepared for the purposes of
this presentation only. 91/120 companies ever
funded reporting. About half of active
companies reporting (between 53 and 65 out of 113
active portfolio companies
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Lessons to Learn

• Ways to address Fund resistance
• Confidentiality
• Added work
• Consistency? Accuracy? Bias?
• Practical Matters
• Tradeoffs between realistic and ideal.
• Who pays?
• How long often? Exits/Post-Exit? Financial
  Results? Leverage?
• Conventions for analyzing heterogeneous
  investments
• How to realize value from the information?
• Build a meaningful benchmark Will there ever be
  standard(s)?
• How can social impact reporting attract more,
  scale capital?

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Moving from custom measurement to

• Define a space or policy

• Screen investments to get in the room

• Report - Tracking documenting
  clearinghouse(s)

• Benchmark relative performance

• Quantify impact impact policy, drive
  innovation

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Define Screen Report Benchmark MeasureImpact
Attract Scale Capital -- Identify benefits
without the capital having to do much new work.
Draw innovative capital human and financial
into high-impact activities.
Output
Indicators Impact
Specialized Hard to replicate Matches
specific programs
Efficient, Standardized
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What are we after here - more capital or better
results? -Betsy Zeidman

• Either way, measurements are key.
• Different forms of measurement have different
  values to different investors from pension funds
  to foundations.
• From the institutional, scale-investor
  standpoint, is it a
• 1.High Level ETI Classification?
• 2.Rating System?
• 3.Specialized Impact Analysis?