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Old Meets New: Traditional Investors Venture into Impact Investing

By: Anya Jia

· Impact Investing,Social Entrep,Startup

The world of impact investing is expanding rapidly. Global Impact Investing Network (GIIN) reported that investors grew their impact investing assets from $114 billion to $228 billion from 2017 to 2018. The growth is largely attributed to the rising recognition of impact investing as a style of investing with strong returns and measurable social impact. Many traditional investment firms have started jumping into this field. Bain Capital launched a $390 million impact fund last year. In the same year, UBS raised 252.71 million for a private equity impact investment fund.

Although China’s impact investment industry is still at a budding stage, there is an increasing interest among investors. Fontaine Capital, a Chinese venture capital, recently initiated its first impact investment. Diinsider had a chance to speak with Fontaine’s investment senior vice president, Yilei Zhang, who covers fintech, corporate service, and new energy sectors, to talk about his experience and his new role as in charge of impact investing.

Yilei Zhang, Fontaine's Investment Senior Vice President

Photo from Yilei Zhang

Diinsider: It seems that you initiated the impact investing in Fontaine Capital. What made you interested in impact investing?

Yilei: My previous experience in the public and private sector made me realize the value and the importance of investing on social innovation. When I was a teenager, I dreamt of becoming a documentary photographer with the purpose of getting public’s attention on social issues. I decided to study financial journalism and public policy in school and then interned at the United Nations Development Programme where I supported the implementation and localization of the Sustainable Development Goals (SDGs) in China.

I saw many marvelous jobs done by the public sector while realizing its disadvantages such as limited funding and lack of efficiency. As a result, I started my career in an investment firm as an investment manager where I was able to accumulate knowledge and experience in investing.

This year, I was invited to a UN social innovation competition where I met many social entrepreneurs and learned about their businesses. The most impressive one is a social enterprise that produces wearable devices for the blind. It’s great to see that most of them have clear social missions and creative ideas but the lack of sufficient funding and expertise, hinder them from bringing considerable social impact as well as financial returns to run a sustainable business. That moment awoke me to pay more attention on social entrepreneurship, which is lagging behind in China and needs support from all parties.

We hope our work in Fontaine Capital can enlighten more people about the compatibility of financial return and social impact, as well as giving social entrepreneurs confidence and resources.

Diinsider: Could you tell us about the social enterprises you’ve invested in so far?

Yilei: We started the process of our first investment last July, 2018. We have planned to make an equity investment and provide continuous support to Ricedonate, an innovative charity platform where users who wants to raise money for a charitable cause can crowdfund donations for their exemplary behavior. So far, Ricedonate has raised $3,000,000 charity funds for over 600 charity organizations, impacting over 2.7 million lives.

Diinsider: In addition to financial investment, do you provide other forms of support?

Yilei: We also provide networks as well as various trainings in company management to our selected social entrepreneurs. Meanwhile, we plan to create a shared workspace for social enterprises in Beijing. In the future, we will also provide consultancy on business model execution as well as investor referrals.

Diinsider: Is there any particular social issue you focus on?

Yilei: To be honest, whether or not choosing a particular social issue is something we are currently struggling with.

On one hand, even though we are aiming at investing in good projects that would solve any kind of social problems, we don’t have enough resources and expertise at this point. If we invest in a social enterprise which is not our expertise, we might not be able to provide appropriate support.

On the other hand, if we focus on one particular social problem, there is a chance we might miss some good projects with great ideas and intentions but urgently requires investment. Also, the number of social enterprises in China is very limited at this moment. If we only target at one social problem, we might not be able to find sufficient target companies.

Personally speaking, education is one I care for the most. I hope to see more social enterprises focusing on encouraging social responsibility for children.

Diinsider: What are the other challenges for you besides the choice of social issues?

Yilei: From the macro perspective, we are concerned about the economic development of China under current complex international relations which might restrict the growth of social enterprises as a whole.

Diinsider: So how do you select which social enterprise to invest?

Yilei: We are looking for emerging mission-driven leaders with crossover thinking and strong learning ability, who can focus first and foremost on social value creation and optimize financial value creation at the same time. We also place innovation at the top of our priority list when we are looking into a social enterprise or finding a new product or service.

Diinsider: How do you measure the social impact of your investments?

Yilei: At this moment, we don’t have our own measurement. We currently refer to the impact measurement stated on the GIIN website. In the future, we will develop our own.

Diinsider: Geographically speaking, who can benefit from the impact investing?

Yilei: Although we currently focus on social enterprises in the Asia-Pacific region, down the road we will target all social enterprises, no matter where they are located, as long as they meet our standards.

Diinsider: What makes Fontaine unique from other impact investing companies?

Yilei: What we are trying to build here is not merely an impact investing firm. We hope to establish an ecosystem for the social innovation industry. This ecosystem will have a strong networking effect that will benefit all our investments. Social enterprises we invest in will be active participants and contributors in this ecosystem rather than stand-alone individuals. They could help each other, share development experiences, and promote each other.

Meanwhile, we will spend more effort on the post-investment service, including company empowerment and resource sharing.

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