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1. To share what we learned about investor behavior and demand for impact investing, and to answer questions about our findings
2. To offer some tactical recommendation for how organizations offering impact investments could adopt these findings today
3. To discuss ideas for how we can unlock this market and help it reach its full potential
For further information after todays discussion, please contact: Hope Neighbor, Founder, Hope Consulting: hope@hopeconsulting.us 503.789.4808 Greg Ulrich, Project Lead, Money for Good: greg@hopeconsulting.us 415.505.2964
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Methodology
WHO WE TARGETED
Individuals with household incomes of over $80K. These individuals represent the wealthiest 30% of US HHs, and make 75% of all individual charitable donations We oversampled people with household incomes over $300K, due to these individuals disproportionate share of charitable contributions and investments
HOW WE RESEARCHED
Used 3 sources of information: External research, to understand markets and previous research in the field Qualitative research, consisting of focus groups and interviews with >30 individuals, to test survey language and inform hypotheses Quantitative research, consisting of an online survey of 4,000 individuals, which was the focus of the research
1. Used income, not assets given high correlation. Refer to High Income as High Net Worth throughout report M AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L
Agenda
1. The interest and demand for impact investing The interest and demand for impact investing
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1 . I N T E R E S T A N D D E M A N D F O R I M PA C T I N V E S T I N G
~50% are interested 87% have not closed out the idea Even though only 12% have invested before
1 . I N T E R E S T A N D D E M A N D F O R I M PA C T I N V E S T I N G
Most investors are interested in small investments, even among the wealthy
85% of respondents would invest less than $10,000; 95% less than $25,000
0% 10% 6% 34% 43% 10% 3% 1% 0.4% 0.3% 20% 30% 40% 50%
Wealthier respondents more willing to invest larger amounts, but majority still prefer $10,000 or less
0% 20% 40% 60% 80% 100%
Less than $100 $100-$999 $1,000-$9,999 $10,000-$24,999 $25,000-$49,999 $50,000-$99,999 $100,000-$249,999 $250,000+
$80-$100k Respondent Income $100-$200k $200-$300k $300-$500k $500-$750K $750k-$1MM $1MM+ Expected Investment <$10,000 $10k-$100k >$100,000
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1 . I N T E R E S T A N D D E M A N D F O R I M PA C T I N V E S T I N G
This leads to a $120 billion opportunity, half of which is for investments less than $25,000
Amount Willing to Invest <$1,000 $1,000 - $10,000 $10,000 - $25,000 $25,000 - $100,000 >$100,000 TOTAL
1. For US population with over $80k in HH income. The market opportunity represents how much individuals are willing to invest today. This is not an annual number
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1 . I N T E R E S T A N D D E M A N D F O R I M PA C T I N V E S T I N G
The opportunity is even greater when people are not first anchored in charitable giving
Respondents who were very interested in impact investing
14% 12% 10% 8% 6% 4% 2% 0%
12% 8%
$16
$9
Further, the risk of cannibalizing charitable donations is low. Only 10% said they would use charitable dollars to make investments
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Agenda
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2 . I N V E S T O R B E H AV I O R S A N D P R E F E R E N C E S
H O P E C O N S U LT I N G C O N F I D E N T I A L
2 . I N V E S T O R B E H AV I O R S A N D P R E F E R E N C E S
Overall, investors care most about downside risk and addressing a cause they care about
Drivers of Investor Behavior (Relative Importance)
Guarantees my principal back Addresses a cause I care about Has a track record of success Has a business model I believe in Offered by a well-known company Easy to pull my money out Is low risk Defines social impact as I do Serves a region/location I care about Offers a high projected rate of return Is recommended by someone I trust Offers the investment vehicle I want Is broadly available I have personal connection with org
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Downside risk 5x upside potential Liquidity and return less important because 95% are small investments (return matters for investments >$50k)
2 . I N V E S T O R B E H AV I O R S A N D P R E F E R E N C E S
However, we found six discrete segments of impact investors that have different primary motivations
Safety First
I want to know Ill get my money back and maybe some upside. Any social benefits are secondary
Socially Focused
This is a great way to support the causes that are important to me
Quality Organization
Show me a strong business model and a good track record and Ill invest
Hassle Free
If I dont have to look too hard and its a pretty liquid investment, Im willing to try
Personally Recommended
A business school classmate is a social entrepreneur. Im happy to invest in his venture
Skeptic
I keep my charitable giving and financial investments separate. Im not at all interested
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2 . I N V E S T O R B E H AV I O R S A N D P R E F E R E N C E S
Looking at the top five attributes across the top three segments shows the differences in their primary drivers
Importance of attribute to Key Attributes (Top 5)
Guarantees Principal Back Safety First 56% Socially Focused 3% Quality Organization 6%
3%
50%
7%
6%
6%
32%
3%
10%
23%
3%
3%
14%
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2 . I N V E S T O R B E H AV I O R S A N D P R E F E R E N C E S
The top three segments control >80% of the current and future market
% POPULATION
% CURRENT INVESTMENTS
% MARKET OPPORTUNITY
Safety First Socially Focused Quality Organization Hassle Free Personally Rec. Skeptic
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2 . I N V E S T O R B E H AV I O R S A N D P R E F E R E N C E S
The top barriers all relate to the immaturity of the market, and are consistent across segments
Type of Barrier: Related to this being a new market
60% 50% 40% 30% 20% 10% 0% New Market Investment Considerations Social Good Considerations
55%
52%
50%
49%
47%
40%
39%
38%
37%
37%
33%
30%
24%
19%
14%
Too risky
%s refer to the % of respondents that rated each barrier as a 5 or 6 on a 1-6 scale Each segment (other than skeptics) prioritized the same five barriers as being the five most important M AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L NOT FOR DISTRIBUTION 16
Agenda
3. Ideas for how to unlock the potential of this market unlock the potential of this market 3.
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To unlock the mainstream opportunity from an investor perspective, the market needs to:
Develop products with small initial investments (<$25,000) Tailor by segment, to appeal to different motivations Make opportunities accessible to investors, as many are private Position these as investments, not as alternatives to charity Address newness barriers, to provide confidence to investors Build awareness of these opportunities for investors and their advisors
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Rationale
Each segment has same 5 barriers
$1,000 minimum
95% want <$25,000 Move mainstream Different priorities Cant be all things to all people Safety First = 1/3 of total opportunity Vehicles exist More interest Higher investments Dont risk charity
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FDIC insured
CONCLUSION
Work with organizations that offer or plan to offer impact investments to help them best meet the needs of investors Continue to push forward the research in this field
Understand the vehicles preferred by different segments, particularly due to tradeoffs in transparency and liquidity Test products and the relationship between key factors such as interest rates, downside protection, liquidity, and investment amount
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APPENDIX
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APPENDIX
It is our nature to see the world based on our own context, experiences, and points of view. People in all walks of life struggle with this bias every day. How can a new product fail when you and your cohort believed that it was a great idea? The need to understand the world as it is not as we wish it were has caused primary market research to become a multi-billion dollar industry. The motivation behind the Money for Good project was to seek the voice of the customer for charitable giving and impact investing. This perspective has been lacking in these sectors to date. As the Hewlett Foundation and McKinsey & Company noted in their recent report The Nonprofit Marketplace, there is a need to invest in research that clarifies donors motivations, needs, and decision-making criteria.1 The same holds for investors and impact investing. We have attempted to address that need, and to build a thorough understanding of the behaviors and motivations of Americans with respect to charitable giving and impact investing.
1. The Nonprofit Marketplace: Bridging the Information Gap in Philanthropy, The Hewlett Foundation and McKinsey & Company, 2008 M AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L NOT FOR DISTRIBUTION 23
APPENDIX
Other Findings from the Project: Increasing Charitable Donations From Individuals
Recommendations To Improve Fundraising at Nonprofits
A. Segment on behaviors, not demographics B. Tag and track your donors by segment B. Donors are generally satisfied with nonprofits, but site being solicited too often as their key area of frustration Few donors do research before they give, but those that do look to the nonprofit itself to provide simple information about efficiency and effectiveness Behaviors matter: there are six discrete segments of donors with different primary reasons for giving Demographics dont matter: HNW donors behave similarly to others C. Determine what segments are best for your organization, given your strengths D. Develop a consistent outbound marketing approach that appeals to target segments E. Prioritize your investments based on what your donors care about F. Capture donors early
Key Findings
A. There is $45B of market opportunity, limited in part by high levels of loyalty in charitable giving
C.
D.
E.
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APPENDIX
Other Findings from the Project: Increasing Donations to the Highest Performing Nonprofits
Key Findings
A. While donors say they care about nonprofit performance, they dont actively donate to the highest performing nonprofits There are two primary opportunities to close the gap between people who say they value performance, and those who act on it: 1. 2. The Care vs. Act gap The Good vs. Best gap
B. B.
C.
D.
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APPENDIX
Other Findings from the Project: Supporting Organizations Operating Outside the US
Key Findings
A. A third of respondents either donated or invested in the developing world B. The top drivers for these donations/investments are not international in nature (they are responses to disasters or driven by other motivations) C. International donors and investors are similar to other respondents on most dimensions D. but they are more engaged E. and are more willing to give or invest more funds than they do today F. and this is accentuated for those that give to/ invest in international entrepreneurship A. B. C. D. E.
G. The barriers to increasing international giving are hard to overcome H. The barriers to increasing international impact investing are focused on risk
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APPENDIX
Project Team
Money for Good has been generously funded by the Metanoia Fund, the Aspen Institute of Development Entrepreneurs (ANDE), the Rockefeller Foundation, and the William and Flora Hewlett Foundation Money for Good ran from Dec 2009 April 2010. The project was led by Hope Consulting (www.hopeconsulting.us), with additional advice and services provided by Clavis Partners, Engage123, CompassX Strategy, and e-rewards For more information on these results, please contact:
Hope Neighbor Founder, Hope Consulting hope@hopeconsulting.us Greg Ulrich Project Lead, Money for Good greg@hopeconsulting.us Julian Millikan Consultant, Money for Good julian@hopeconsulting.us
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APPENDIX
WHAT WE DO Were a general strategy consulting firm that identifies big social sector issues, and develops and executes strategies to address them
WHO WE ARE We are experienced consultants from elite strategy firms, including Marakon Associates and the Boston Consulting Group We engage investment bankers, market researchers, and other specialists to provide targeted expertise on an as-needed basis
HOW WE ARE UNIQUE Deep customer research capabilities to understand what donors, investors, or beneficiaries need to change their behavior Customized staffing model building the best team for your needs Experience working in social sector organizations as well as for them allowing us to develop programs and strategies that work in the sector
NOT FOR DISTRIBUTION
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APPENDIX
HOPE NEIGHBOR,
FOUNDER
GREG ULRICH,
PROJECT MANAGER
Hope is a strategy consultant with extensive experience helping public and private sector orgs increase their impact. Hope has advised a Fortune 50 medical products company on becoming the US market leader in infection prevention, and structured national development programs in Africa. Prior to Hope Consulting, Hope was a strategy consultant with Marakon Associates, a boutique strategy firm serving Fortune 500 clients. At Marakon, Hope worked with senior leadership of publicly traded healthcare, hospitality, and retail companies to define and deliver on their growth strategies. Previously, Hope was a consultant with the World Bank, where she designed and supervised a $270M loan and grant portfolio. Hope was also a field coordinator for the International Rescue Committee in Burundi, and a Peace Corps volunteer in Cameroon. Hope holds a MPA from the Woodrow Wilson School at Princeton University and a BA in Public Policy Analysis from Pomona College, where she graduated with departmental distinction.
Greg brings deep strategy consulting expertise to the Money for Good initiative. As a principal with Marakon Associates, Greg managed the firms West Coast office and led multimillion dollar consulting engagements. Gregs industry experience spans financial services, nonprofits, healthcare, energy, and industrial manufacturing. He has customer research experience, including surveying thousands of customers to understand opportunities for improving a leading healthcare companys products and services. Greg also has deep interest in the social sector. He is the chairman of a Bay Area international foundation, founded a nonprofit foundation focused on children's education, and initiated a social impact consulting practice while at Marakon. Greg holds an MBA with a concentration in Finance from the Wharton School, University of Pennsylvania, where he was a Palmer Scholar, and graduated summa cum laude with a BS in Economics from Duke.
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APPENDIX
Segmentation Methodology
A core element of our research and analysis was developing behavioral segments of donors and investors These segments were developed using gold-standard methodology that is widely used in corporate America. Respondents were first provided with questions that forced them to trade-off different reasons for making donations or investing in impact investments. Engage123, a firm that specializes in this work and has created behavioral segments for numerous Fortune 500 corporations, then ran cluster analyses on these responses to derive the segments We tested many permutations of the segments until we arrived at the smallest number of groupings were donors were similar within a segment, but different across segments
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