The founder of the $2 billion The Rise Fund dismisses the idea that businesses have to compromise on returns to generate impact
Bill McGlashan, founder and managing partner, TPG Growth and founder and CEO of The Rise Fund
Image: Mexy Xavier
As a $2 billion (around ₹13,000 crore) impact investment fund, managed by the US-based private equity firm TPG Growth, The Rise Fund is one of the most ambitious of its kind. Launched in December 2016 by Bill McGlashan, 54, founder and managing partner of TPG Growth, U2 lead singer Bono and Jeff Skoll, the billionaire former president of online marketplace eBay, the fund aims to deliver “complete returns” by generating financial benefits alongside social and environmental impact.
The Rise Fund will target investments in education, energy, food and agriculture, financial services, health care, information and communication technology, as well as growth infrastructure across the world.
Its investments include US-based EverFi, a provider of subscription-based digital learning, and California-based Brava Home, makers of ovens that use about 90 percent less energy than conventional ovens.
Forbes India met McGlashan, who serves as the CEO of the fund, to understand how he intends to make real the promise. Edited excerpts:
Q. With The Rise Fund, TPG is one of a number of mainstream entrants—including BlackRock, Bain Capital and Bank of America Merrill Lynch—in impact investment. Is this sector reaching a new high within the capital markets or is it still early days?
Globally, there’s about $20 billion of private capital in impact investment today, compared with the $2.5 trillion in private equity. Hence, it’s a very small space.
The good news is that there is more institutional interest in this space and what we’ve done with The Rise Fund ought to accelerate that, if we do our job right. Our mission is to develop a credible way to measure impact, in a way that is auditable and reportable. That discipline will be made available for others to use.
That’s a commitment we’ve made to our limited partners and the founders’ board.
Interestingly, a substantial majority of the capital in The Rise Fund is from institutions that have never invested in impact and have no particular mandate to invest in impact. We need to educate these investors and demonstrate co-linearity between great returns and impact. Historically, many impact funds have operated with the notion that you have to compromise on returns in order to generate impact. We don’t believe that to be the case. In fact, all of our [TPG’s] investments in the impact space have been successful ones, with as good returns as any other investment.
Q. Measuring an investment’s success is a challenge in this space. How do you create a credible way to measure impact?
This has indeed been one of the key challenges, but the good news is that both in the world of philanthropy and in the impact world, including government efforts, a lot of work has gone into figuring this out.
So we started by leveraging what is already some great work and then spent several years working with The Bridgespan Group, a US-based consulting firm in the space of social impact that was spun out of Bain & Company. In fact [the Bridgespan Group] founder Tom Tierney led our effort, working on a method to underwrite impact and ultimately measure it.
We then pressure-tested our approach with 80 organisations all over the world to see if they felt we had figured it out.
For us to credibly underwrite future impact, we have to know there’s a correlation between business output and social/environmental outcome. So we back-tested it against 100 deals to see if it worked. Once we ensured the veracity of the relationship between a business output and its outcome, we [created] key performance indicators and operating metrics to track it.
Finally, we got KPMG involved to provide the assurance around the credibility of our approach to investors.
Most of the capital is from institutions that have never invested in impact.
(This story appears in the 22 December, 2017 issue of Forbes India. To visit our Archives, click here.)