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    Impact Investing: A Theory of Financing Social Entrepreneurship
    09 Mar 2020Working Paper Summaries

    Impact Investing: A Theory of Financing Social Entrepreneurship

    by Benjamin N. Roth
    The author provides a formal definition of organizational sustainability and characterizes the situations in which a social enterprise should be sustainable. The analysis then delineates when an investment in a social enterprise delivers superior impact to a grant.
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    Author 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.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: February 2020
    • HBS Working Paper Number: HBS Working Paper #20-078
    • Faculty Unit(s): Entrepreneurial Management
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    Benjamin N. Roth
    Benjamin N. Roth
    Assistant Professor of Business Administration
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