Where’s our next James Gutierrez (in NYT) or Patrice Peyret?  Calling rock-star entrepreneurs who are determined to improve the lives of the underbanked.

Our fund is a “double bottom line” venture fund.  This means we execute against two goals: to make excellent financial returns and to demonstrate we’re investing in companies which can reach millions of underbanked people in the US and save them money and help them get ahead.  The cottage industry of “impact investors,” as appears to be the preferred nomenclature these days, is a motley bunch, including funds who’s second bottom line is job creation, renewable energy, international microfinance, community development, organic farming, education, health, even defense.  Some are mostly charitable, that is, they “discount” financial returns in order to achieve greater social or environmental impact.  Others give only lip service to the impact.  Reasonably, investors don’t know what they’re getting into when someone announces they manage an “impact fund.”

And there is good reason for skepticism:  The notion of doing well and doing good in parallel sounds fine and dandy, but doing EITHER halfway decently is pretty darn tough (consider that the single-bottom line venture capital asset class consistently yields negative returns).  We believe that impact motivated discounted returns for venture capital and private equity are a recipe for disaster, and not likely to yield either compelling returns or genuine impact. Consider how wildly actual venture returns fluctuate.  How can any manager know how much they are discounting in order to gain some hard to describe social or environmental impact?  When the fund returns 10% IRR is that because the discount, poor performance or a tough fund vintage?

Our philosophy is to align the asset class and type of impact.  We chose venture capital because the companies we hope will make the impact we want, are venture ready: great management teams, multiple billion-dollar addressable markets, technology-centric, scalable, low cap-ex companies with plenty willing acquirers and a decent IPO market.  The reverse is also true: the companies we invest in are the leaders in providing low-cost, efficient financial services that are good for people.  We measure “good” relative to what’s out there today and in the short- and long-terms.  So, cost savings over a Western Union remittance is good.  Being able to build credit at the same time is awesome.  A lower-cost loan is good.  One that helps you save for your kids’ college is great.

We believe aligning asset class and type of impact should also carry through into the business.  We want our portfolio businesses to create great impact as a function of making more money.  Sound obvious?  It’s not.  It is the opposite of how most impact oriented organizations, i.e. nonprofits, do business.  Money comes from funder, the end-user customer usually suffers as a result.

Consequently, when social entrepreneurs pitch their business to us, more often than not, it is not venture ready.  Sadly, I have found that most self-described social entrepreneurs – do gooders who have chosen the private sector as their instrument for change – are fundamentally ill-equipped to build great businesses.  Their teams often lack maniacal high-performers, their business plans are frequently vague, they are not married to their P&L and often given to process over results.  I should say, I’ve been there.  I speak with experience.

The flip side is harder to recognize.  Plenty of good entrepreneurs are just looking to make a buck or work some market inefficiency.  They’ll tell us what we want to hear, but they don’t really care.  We find this shows up again later.

Our challenge is to find the great entrepreneur, who also shares a deep social commitment to improve the lives of their lower-income underbanked customers.  People like Progreso Financiero’s James Gutierrez and Plastyc’s Patrice Peyret.  Or iSend’s Steven LaBella or L2C’s Mike Mondelli!  Or the Sosa Brothers.  Where are you?  We want to partner with you.