By Marina Leytes and Beth deBeer
This blog is the first in a series which aims to educate and to clarify some of the confusion around the emerging field of impact investment in Israel and globally. It will present a high-level overview of the challenges and opportunities for transforming the nature of Jewish philanthropy. The blogs over the coming weeks will provide readers with (1) a better understanding of what impact investment is (2) an overview of the current landscape in Israel (3) strategies to engage for both individuals and institutions.
Around the world, philanthropic organizations are exploring innovative and sustainable models to solve social issues as people seek out more meaningful ways to allocate their time and money. Impact investing can provide an innovative way for individuals and organizations to align their values and investments, as it seeks to create intentional and measurable social and environment impact alongside financial return. Often referred to as venture philanthropy, impact investment can be considered a sustainable approach to the Jewish tradition of tikkun olam.
The upcoming impact investing conference “Doing Well By Doing Good” will be a pioneering event in Israel. As a global leader in innovation, Israel has made great advances in diverse fields from technology to agriculture. That being said, Israel also faces many socio-economic challenges such as high poverty levels, unequal income distribution, and high unemployment rates among Arab-Israeli and Haredi populations. The government continues to decrease allocations to social sector moving away from the welfare state paradigm while diaspora giving to Israel has being steadily declining over the last few years. In fact, May 2013 report by OECD ranked Israel as a county with one of the highest poverty levels and lack of public funds to address it.
How can Israel harness its business and innovation acumen to meet the pressing social needs?
Supporting social enterprises – businesses that strive to achieve social and environmental impact in a financially sustainable way – may provide the solution. Lauded as “start-up nation,” Israel succeeded in developing a robust hi-tech industry and has the highest number of start-ups and venture capital investment per capita in the world. Yet, the country’s social enterprise sector is currently lagging behind the UK and US. Accessing current landscape and its experience building a hi-tech sector as well as learning from the international experience can open up new opportunities and help move the Israeli private sector and philanthropy towards positive social investment.
The good news is there is no lack of start-ups with innovative ideas for social good in Israel. The Israel Venture Network (IVN) has recently assessed that there are approximately 200 active social businesses in Israel. These social enterprises currently employ thousands of people from disadvantaged populations and have a scope of activities estimated at NIS 200 million a year. IVN expects that provided support, Israeli social businesses have the potential to employ roughly 100 thousand people from disadvantaged populations with a scope of activities reaching roughly NIS 10 billion from self-generated revenue in just ten years. Many Israeli start-ups aim to improve social and environmental outcomes not only in Israel but globally. Given its history, Israel understands the needs of developing nations and, therefore, these innovations and technologies can be scaled and adopted to developing countries’ needs and emerging markets.
In order to grow as a sector, impact investing needs infrastructure to support it both on the supply and demand sides. On the demand side, what the social enterprises often lack is mentorship and patient capital to ensure that the ideas become a sustainable business ready for investment. There is a need for a more systematic approach; a favorable legislation and incentives are needed for individuals and organizations to get engaged. While Israel is laying out the foundation for this to happen, much is still left to be done. As more agencies and nonprofits like the Federation Employment & Guidance Service (FEGS) continue to close their doors because of financing issues, the question of how to sustainably support social services becomes even more pressing. The time has come to change the philanthropic strategy.
Activating the resources and multiple forms of capital is the key to creating systemic change that will last. By allocating their financial capital in a sustainable manner, one can expect to do more with their money over time. Using one’s human capital – knowledge and expertise – to mentor and guide social enterprises is critical as well. With shared insight, instead of a one-time gift or donation, long term impact goals stand a more realistic chance of being achieved. Lastly, one can utilize their political and social capital to provide a much needed leadership for the nascent sector, share their knowledge and serve as role models to engage others.
In fact, there is an emerging new class of philanthropists in Israel – these are people are in their 30s and 40s who made their wealth in hi-tech and venture capital sectors. They have entrepreneurial mindsets and are looking for new smart way to give, applying business strategies to philanthropy. Impact investing can help harness the power of these new philanthropists while providing them with an avenue to invest in causes they care about in a sustainable and accountable way.
Impact investing is a lens that requires a change of mindset – for entrepreneurs, investors, intermediaries, philanthropic organizations and policy makers. Knowledge exchange, collaboration, and the creation of new strategies and systems are all critical elements for developing a sustainable solution for supporting social services. The first impact investing conference in Israel will provide the opportunity to do just that, and will help Israel on its way to becoming a leading social start-up nation.
The next blog in this series will provide a more in-depth overview of the impact investing sector in Israel and takeaways from the conference.
Beth deBeer is Founder and Director of iImpact Consulting Network. She is helping to bridge philanthropists and social activists with impact investment opportunities that support Jewish values and Israel.
Marina Leytes is Head of Industry Engagement at iImpact Consulting Network. She has a background in private equity and has previously worked as a Project Manager for the World Economic Forum Impact Investing Initiative.