IC Blog Inside Impact Investing: Investors’ Circle’s biannual community wide e-zine publication

Spring 2013

What Investees Think: Creating Constructive Discourse around the Investor-Investee Relationship

By Kai Hopkins, Keystone Accountability.

It seems that meaningful evidence of investee and investor performance has eluded impact investors.  In 2010, Keystone surveyed 330 investees who provided anonymous feedback on seven leading impact investors - Acumen, E+Co, GBF, Gray Ghost, IGNIA, Root Capital and CAF Venturesome. Keystone’s What Investees Think survey showed that weak relationships leave both investees and investors in the dark.  Survey feedback was frank, accurate and – as the participating investors all testify – effective in driving improvement.

Creating an authentic and constructive discourse about the investor-investee relationship in the emerging field of impact investment requires investee feedback, not just industry-agreed standards and external rating systems.  Keystone’s new report, What Investees Think, contains all the anonymized data findings from the Survey and identifies a significant opportunity to redress the gap in the existing field-level measurement, reporting and rating tools with systematic investee feedback.

As Jed Emerson notes in his foreword; “The power of what Keystone Accountability has brought forward in the current report is shown in one simple finding: Surveys of investees work!” The report highlights areas of strength and areas in need of improvement, and provides a powerful understanding of what effective impact investment looks like from the position of investees. For example, survey respondents reported that they have no idea what investors do with the reports that they prepare for them and note that investors do not provide sufficient resources or expertise to enable them to meet their reporting requirements.

The Survey addresses several essential questions, presented below with accompanying headlines. It appears at an aggregate level, the weakest areas have to do with value adding through non-financial support and transparency, while the strongest areas are investor’s technical competence, efficiency and credibility. Weaknesses are mainly in the nature of omissions – things they don’t do, but should – and strengths flow from the exemplary comportment of their staff. While investees indicate inadequacies in current non-financial support, they express a strong demand for it. Across the board, impact investors would benefit from being more proactive in soliciting advice and guidance from their investees.

Efficiency: How efficient are your operations?

The answers here varied widely across participating funds, ranging from unacceptable to adequate. This is clearly an area where investors can and should improve. For some questions the difference between investors was over 100%.

Net Value: What value do you add to investees beyond investment capital?

Investors do not add as much value beyond capital as they could. When asked whether they agreed that non-financial support received resulted in significant improvements in their performance, 46% of investees did not agree. Only 13% percent strongly agreed.

Learning: How well do you enable learning and improvement by investees?

This index considers the openness and flow of communications and the learning realized while engaging in monitoring and evaluation tasks, and is an area where investors are performing well.

Credibility: How are you seen in terms of peer standing, responsiveness and professionalism?

This index essentially compared the investor to investee experience of others, and on the whole, all the investors performed well. This tends to support the hypothesis that the participating impact investors are all high performers.

Transparency: How open and complete are you in your communications with investees?

Investors are not as open and complete in communications with investees as they should be. Some of the lowest scores in the Survey were for the thoughtfulness of investor responses to reports investees provided.

Net Effectiveness: Overall, how effective are you at enabling investee success?

The focus here was about investor-added value to the investee business, and there is a wide variation in the scores across the investors. Even within this band of high performers, there is considerable of room for improvement.

Each participating investor received a confidential report that enabled it to see its feedback with benchmarks to the other six investors, who were anonymized. Their reports provided analyses and recommendations geared to their unique opportunities for improvement, and benchmarking their performance provided a much needed reality check to their impact measurement conversation. One investor commented that “we knew that the survey would be useful, but when we received preliminary results, we realized it was much more valuable than expected”.

It appears that merely having the right intent is not enough. If you are looking to improve performance, you need to have honest investee feedback benchmarked against others’ – and now you can.

Keystone is now repeating the process, and the Impact Investment Survey 2013 is now open to subscription. Register by the end of May and you will have your benchmarked investee feedback by the end of August.

Kai is the Finance and Operations manager at Keystone Accountability. Keystone helps organizations develop new ways of planning, measuring and reporting on their results, focusing on incorporating the voices of beneficiaries and other constituents.  You can contact Kai at kai@keystoneaccountability.org.