(This blog was co-written by Andrew Humphries, Associate, Programs, and Rishav Kumar Thakur, Researching Reality Intern at CCS)

Ankur Shah delivered a compelling presentation to the CCS Interns yesterday about “patient capital” (philanthropic investments) conducted by Acumen Fund.

He argued that Acumen is engaged in something “between” pure for-profit and pure not-for-profit enterprise. Unlike a for-profit venture, the fund’s aim is not to make a net monetary return, but to break even.  The fund acquires grants from donors who receive no return; Acumen invests in such a way that the positive returns from some of its ventures compensates for losses in other parts of portfolio. Unlike a normal not-for-profit venture, on the other hand, donors don’t give their money away for projects that purchase inputs that may be rapidly consumed, delivering minimal or only short-term impact to beneficiaries. Rather, Acumen attempts to invest in sustainable, scale-able businesses that it thinks can increase the welfare of poor and ill-served through the goods and services they provide.  The overall goal is to maximize the long-term “social return” on the funds donated.

Firstly, Mr. Shah argued, businesses seeking a return on their resources must conform more closely to the needs of the intended beneficiaries.  The ultimate beneficiaries are seen as customers—not patients or recipients.  Mr. Shah argued that this tends to increase accountability among the service providers to the intended beneficiaries.  If they don’t like the product, they don’t have to pay for it.

Secondly, businesses have the incentive to use the resources efficiently, to reduce costs and decrease prices paid by the consumers over time.

Finally, revenues collected from customers can be used to scale-up the business, thereby, reaching more customers and employing more people in value-creating jobs.

After the presentation, we were left with some unanswered questions:

1) How sustainable or scale-able is the Acumen model itself?

By focusing on breaking even on a nominal basis (leading to a negative real return over time) the fund must continue to rely on donations.  While the fund seems to be a smarter way of engaging in philanthropy, it still has some of the “problems” of other philanthropic giving.  Why not try to have the portfolio generate a net positive return? Paul Polak, Founder, iDE, and Author, Out of Poverty makes a compelling  case for this.

In answer, Mr. Shah argued that there is usually a trade-off between “social impact” and monetary return, which raises a second question.

2) How does one measure social impact and weigh it against monetary profits?

Mr. Shah argued that because of the nature of the ventures they support, it is often difficult enough to get a zero return let alone aspire for a positive return.  But given the reasons he offered above about accountability and efficient use of funds, why aim at investing in a portfolio of businesses that may not have a positive return? Does Acumen hope that social benefits generated by the successful businesses will outweigh the opportunities forgone because of financial losses? If yes, then how do they measure or estimate these seemingly in-commensurable costs and benefits?

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The opinions expressed in this essay are those of the authors. They do not purport to reflect the opinions or views of CCS.