Impact Investing: A Theory of Financing Social Entrepreneurship

Benjamin N. Roth

Working Paper | HBS Working Paper Series | 2019

Impact Investing: A Theory of Financing Social Entrepreneurship

Abstract

I present a model of financing social enterprises to delineate the role of impact investors relative to “pure” philanthropists. I characterize the optimal scale and structure of a social enterprise when financed by grants and when financed by investments. The analysis yields two heuristics to guide impact investors. First, investments allow a financier to discipline inefficient spending. Second, investments may enable a social enterprise to exploit new opportunities for profit and may increase the enterprise’s scale relative to when grant financed. I quantify these heuristics for the case of Husk Power, a social enterprise that has received impact investment.

Keywords: impact investing; Social Entrepreneurship; Finance; Investment; Mathematical Methods;

Language: English

Format: Print

42 pages

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Citation:

Roth, Benjamin N. "Impact Investing: A Theory of Financing Social Entrepreneurship." Harvard Business School Working Paper, No. 20-078, February 2020.

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Impact Investing: A Theory of Financing Social Entrepreneurship

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