Amazon: http://bit.ly/GapsImpInv Linkedin: https://uk.linkedin.com/in/laurakromminga Twitter: https://twitter.com/LauraKromminga Deficiencies in the German Impact Investing Market, Adaptability of the UK's Market Development. Presentation held at the Impact Hub Berlin on November 5th 2015.

1. Deficiencies In The German
Impact Investing Market
Adaptability Of The UK’s
Market Development
Laura Kromminga
Presentation based on Master Thesis
Impact Hub Berlin
November 5th 2015

2. Agenda
November 5th 2015 Laura Kromminga 2
• Research Questions
• Definition & Method
1. UK and German Markets
2. Challenges in Germany
3. Adaptability
• Conclusion

3. Research Questions
What are the differences between the UK's
and Germany's impact investing market?
Which challenges does the German market
currently face?
Which initiatives taken in the UK may be
adaptable in the German market to meet
the current challenges?
November 5th 2015 Laura Kromminga 3
1
2
3

4. November 5th 2015 Laura Kromminga 4
Sociallymotivated
Commerciallymotivated
Revenue
below costs
Socially motivated organisation,
using managerial tools to earn revenue
Revenue
equal to
costs
Small profit
Market-like
profit
Source: own illustration

5. Organisation type
Socially-
motivated
Socially-motivated organisation, using managerial tools to
earn revenue
Commerciall
y- motivated
Organisation classes I II III IV
Revenue earned through
business activity
Non, total
dependence
on grants
and
donations
Below costs Equal to
costs
Small profit Market-like
profit
Market-like
profit, not
invested into
social cause
Schematic view of revenue
Investor
strategy
Primarily
commercially
-motivated
Socially-
motivated
Philanthropy
Source: own illustration

6. November 5th 2015 Laura Kromminga 6
Market
Infrastructure
Demand Supply
Socially motivated
Commercially motivated
Philanthropy
Impact Investing
intentionally target specific social
objectives
along with a financial return
and measure the achievement of both

7. Revenue and Funding
November 5th 2015 Laura Kromminga 7
Source: http://impactinmotion.com/wp-content/uploads/2015/03/Closing-the-gap_Final.pdf

8. Two different Markets
United Kingdom
• Growth Phase
• More social investors,
more experimentation
• 2,5% of GDP (social
sector)
• Impact Investing still
small, but growing
fast
Germany
• Experimental Phase
• Large social sector &
established welfare
organisations
• 3,7% of GDP (social
sector)
• Impact Investing
nearly irrelevant
besides grants and
donations
November 5th 2015 Laura Kromminga 8
1

9. Market Phase
November 5th 2015 Laura Kromminga 9
1

10. UK Market development
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1
Source: http://www.socialimpactinvestment.org/reports/UK Advisory Board to the Social Investment Taskforce Report September 2014.pdf

11. UK Market development
November 5th 2015 Laura Kromminga 11
1
Source: http://www.socialimpactinvestment.org/reports/UK Advisory Board to the Social Investment Taskforce Report September 2014.pdf

12. German Market
November 5th 2015 Laura Kromminga 12
1
Source: http://impactinmotion.com/wp-content/uploads/2015/03/Closing-the-gap_Final.pdf

13. Planets
Pro Con
Public Funding
Most commonly 100% return,
can provide legitimacy and
connections
Many requirements with hidden
costs (application,
administration and reporting)
Commercial Banks
No restrictions of use Expect a return and certain
volume, access difficult for
social entrepreneurs
Companies
Usually low restrictions of use,
entrepreneurial commitment
High expectation of own
visibility, commitment often not
connected to core business
Foundations (Donations)
Minus 100% return, sometimes
take on risk
High requirements (Application,
restrictions of use, reporting)
often short cycles
Donors (Donations)
Minus 100% return, few
restrictions of use, fast
decisions
Limited resources, rarely
expertise or time
Social Investors (Loan, Equity)
(relatively) low return, few
requirements, expertise
No small volumes, expect the
right to control
November 5th 2015 Laura Kromminga 13
1
Source: http://germany.ashoka.org/sites/germany.ashoka.org/files/2013-02_Ashoka Thesenpapier-Finanzierungen-neu-denken.pdf

14. November 5th 2015 Laura Kromminga 14
Germany
United Kingdom
Demand for impact capital Development of supply
Supply of impact capital Development of demand
Low welfare state
Public innovates to solve social
problems
Social Enterprises fill the gap
left by social service
organisation
Well developed welfare state
Public demands the solution of social
problems from government
Social Enterprises are an
addition to existing welfare
system
1
Source: own illustration based on Expert Interviews

15. Methodology and Research
Qualitative
Semi-structured
Interview
Changing Guideline
11 Interviews
2 Focus Groups
Core of the market
November 5th 2015 Laura Kromminga 15

16. November 5th 2015 Laura Kromminga 16
Focus Groups

17. Key Area City Constraint found in Focus Groups Country
Demand
Berlin Social Entrepreneurs less business oriented both
Oxford Lack of investment readiness of Social Entrepreneurs both
Market
infrastructure
Berlin Many businesses are social businesses without knowing that both
Oxford No clear definition of a Social Enterprise / Social Business both
Oxford Lacking an overview of the sector both
Supply
Oxford Investors lack knowledge both
Berlin
Venture capitalists are "too lazy" to get involved into something
unknown to them
both
National
context
Berlin Strong history of family businesses and SME culture Germany only
Supply Berlin Venture capitalists mind-set does not fit to the sector Germany only
Supply
Berlin
Venture capitalists are more risk avers, highly value reliability,
lacked empathy with social entrepreneurs
Germany only
Demand Berlin Social Entrepreneurs believe that business is a "form of evil" Germany only
Policy
Framework
Berlin Legal structures are hindering (for businesses and investors) Germany only
Supply Oxford Lack of financing models UK only
Policy
Framework
Oxford Lack of (e.g. tax) incentive for social crowdfunding UK only
November 5th 2015 Laura Kromminga 17
Source: own illustration

18. Problem Areas
Problem area Detail
Policy framework
Legal structures are a hindrance (for businesses and investors),
mixed finance and foundations
Demand
Social entrepreneurs less business-oriented, lack managerial
skills, are not investment ready, lack business motivation, want to
protect their social mission
Market
Infrastructure
Many businesses are social enterprises unknowingly, no data,
hype around ‘Social Entrepreneurship’ and ‘Impact Investment’,
lack of networks between investors and businesses, government
has not understood the greater impact
Supply
Venture capitalists are more risk-avers, highly value reliability, lack
empathy with and knowledge about social entrepreneurs, missing
networks between investors (planets), general lack of supply,
protection of social mission
November 5th 2015 Laura Kromminga 18
2
Source: own illustration

19. Challenges in Germany
Policy framework
• Lack of evidence that market is
beneficial
• Lack of awareness
• Legal barriers keeping players
from developing the market
further
Demand
• Lack of business knowledge and
orientation
• Protection of the social mission
Market infrastructure
• Hype around the sector
• Lack of data
• Lack of impact assessment
• Lack of networks
• Government mainly not involved
Supply
• Venture Capitalists do not get
involved (no motivation, little
knowledge)
• Very risk avers
November 5th 2015 Laura Kromminga 19
2

20. Adaptability
November 5th 2015 Laura Kromminga 20
Market
Infrastructure
Country-specific economic, political and cultural context
Impact Leadership
Demand
3
Policy Framework
Social Value
Act
Futurebuilders
Source: own illustration based on http://globalpolicy.iipcollaborative.org/wp-content/uploads/sites/5/2014/12/Market-design.pdf
Social Impact
Bonds
Supply

21. Conclusion
• Profound differences in the
markets
• Legal constraints in Germany
major holdback
• Benefits of impact investing
not assessed
• Case studies and impact
measurement
• Reducing barriers &
Incentivising
• Government as builder and
buyer
• Social Intrapreneurship
• Education of demand side
November 5th 2015 Laura Kromminga 21
 Micro-level
innovations
 National solutions
!

22. Why do we need it?
November 5th 2015 Laura Kromminga 22
Social problem
One
option for
solution
Social
Enterprise
One option
for finance
Impact
Investing
Source: own illustration

23. What can you do?!
• Be aware of who you are (on the spectrum)
• Where does your revenue come from?
• A social enterprise might not be the best
solution for the social problem
• Assess your impact (or at least the outcome)
• Connect to others
November 5th 2015 Laura Kromminga 23

24. November 3rd 2015 Laura Kromminga 24
Thank you
for
Your Attention

25. Contact
Presentation for the Impact Hub Berlin, based on
Laura Kromminga
Gaps in the Impact Investment Ecosystem
Comparing the markets of Germany and the UK
Full text available at Amazon