By Beth deBeer and Marina Leytes
This is the second article (read the first article here) in a series of blogs dedicated to the growing impact investment field in Israel. Following the Doing Well By Doing Good conference held on March 16, 2015, there has been a continued momentum around impact investment opportunities in Israel. The goal of this article is to provide a brief overview of the conference, including key questions raised by the participants, and shed light on the path forward.
The waves along the shoreline are low, while onlookers see a wind from a distance picking up force. Inside, four hundred people convene within the Carlton Hotel in Tel Aviv to discuss impact investing as the wave of the future. Global leaders set the stage providing an overview of the current state of impact investing field and its potential in Israel. There is consensus in the room that deploying capital for social good with intentionality and measurement – impact investment – is worth considering. The idea of earning profit while simultaneously pursuing a social mission, is no longer a new concept. While newcomers are many, there is already a cohort of familiar faces and a brief history of impact investment in Israel.
The recent launch of NIS 22.5 million-capped fund to support impact investment is just one indicator that impact investment has already made its way to Israel. The fund was established with support of the government, UJA-Federation NY and private investors to invest in two funds: Israel Venture Network (IVN) and Dualis. While both Dualis and IVN have a focus on the development of local social businesses, other investment funds which have both domestic and global applications continue to emerge. Investments are categorized as “impact investments” when they are driven by an intentional positive mission and create measurable social change.
These recent developments suggest that impact investing in Israel can work. Israel’s innovation in business models, spill-over/history of success in the venture capital industry, and philanthropists looking for innovative and sustainable strategies – all indicate a strong potential for impact investing market.
That said, several important questions remain. How large is the sector in Israel and what is its potential for growth? What infrastructure is needed to ensure the growth? Will there be a market to support new impact investment products? There remains the chicken and the egg dilemma of what comes first: capital or deal flow, and what next steps are needed.
While there is a strong interest to utilize impact investment to address Israel’s social and environmental challenges, there have been many significant barriers. Some investors are hesitant to invest because of the perceived or real inability of the local social enterprises to scale. Israel, as “start-up nation” has been home to many new and innovative ideas – yet does not always create businesses that lend themselves to investments. Many “start-ups” do not have proof of concept or even a formalized business plan.
These concerns are common for a nascent and growing market. Steps are being taken to create infrastructure on both demand and supply sides. For example, Social Finance Israel and Portland Trust have been putting efforts into creating new instruments such as social impact bonds, a pay-for-success model of financing which have been previously launched in both the UK and US. Impact investment funds, such as Impact First Investments and Lonomics, are harnessing the power of Israel’s technology and innovation to create positive change around world. Incubators such as Pears Program for Global Innovation at Tel Aviv University are helping to convert social enterprises into investor-ready businesses.
On the supply side, private investors and family offices, including Beyond Family Office, have been looking to bring in a critical mass of capital in order to shift the needle and move the market forward. The fact that UJA-Federation committed $1 million to the IVN and Dualis social funds from the investment side of the foundation is a strong signal for other investors and can open gates for larger capital flows.
While Israel has been described as “ripe for impact investing,” pathways are needed for capital to flow and be properly absorbed. We can look to the pioneers who developed both the successful Israeli agriculture sector and the high tech and venture capital industries. All understood the need for education, innovative products, supportive leadership, and adaptability to create an effective marketplace. The same elements hold true for the impact investment sector. We have yet to see all the ways in which the government, intermediaries, institutional investors, angel networks, family offices and foundations, and even crowd funders can catalyze and channel capital for impact.
The important outcome of the conference is the consensus between local and international players that impact investing can be a powerful tool to transform Israel. Various “impact investment” approaches are being attempted across the country and are united by a common search for both quality deal flow and capital. While the models for “impact investing in Israel” are still being chiseled out, a clearer picture with defined market players is emerging.
Beth deBeer is Founder and Director of iImpact Consulting Network. She is helping to bridge philanthropists and investors with impact investment opportunities which support Israel. She can be reached at [email protected]
Marina Leytes is Head of Industry Engagement at iImpact Consulting Network. She has a background in private equity and has contributed to building the impact investing and development finance sectors in her role as a Project Manager for the World Economic Forum’s Impact Investing Initiative as well as the Redesigning Global Development Finance Initiative. She can be reached at [email protected]