Social impact via bonds or venture capital

The combination of a desire to do good and a desire to generate both social and financial benefit has resulted in financing via “Social Impact Bonds.”

These offer a return on money invested, but only if the social benefit has been realized, as Marc J. Lane discusses in his book “The Mission-Driven Venture.”

Lane calls such arrangement not bonds but a futures contract on social outcomes.

Like any such contract, however, it needs more than kind thoughts and good intentions. He suggests taking the following into consideration when thinking of establishing a social impact bond partnership:

  • Define the social problem. The starting point is to define the social problem intended to be targeted and to identify the population to be supported.
  • Time the intervention. It then must be determined at what point it’s best to intervene and which services will most likely improve social outcomes.
  • Get the proper programs. These will have to be demonstrated based on their effectiveness and costs.
  • Establish the metrics. Operationally practical social metrics that stand as proxies for impact will have to be identified, along with a measurement methodology that’s reasonably acceptable to investors.
  • Test the value proposition. Anticipated cost savings for improved social outcomes must be estimated.
  • Make the case. A financial model must be structured that delivers both savings to the government and a reasonable return to investors.