This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on April 25 - May 1, 2016.

Impact investing, which combines the best of traditional investing and philanthropy, has been around for more than a decade but investors are still not familiar with it. Asia Community Ventures CEO and co-founder P Ming Wong hopes to change the situation.

Wong’s investments are mostly in start-ups because the established and proven businesses would have already garnered a lot of investor interest.

He says a business with a social cause is no different, especially in terms of risks. “Whether they succeed or fail, you will know within two years. This is where the family offices have a lot more flexibility in terms of investing because if it doesn’t work out, the money ends up working like a grant.”

Besides investing in these start-ups, ACV connects them to large charities and non-governmental movements that serve targeted communities. It also helps entrepreneurs improve their designs in collaboration with institutions like the Hong Kong Polytechnic University.

“We work with them in terms of helping the founders tweak their products so that their user interface becomes friendlier. We also connect them to manufacturers in China who are trustworthy and we have a good relationship with.

“So, we have business people in Hong Kong who have historically always been manufacturing goods in China. We have people who are very familiar with the manufacturing process and we have lawyers and accounting firms that advise on the technicalities of setting up companies in Hong Kong, to build in China and to export globally. It’s difficult but we try to help them succeed as much as possible.

“But it is still too early to talk about success as they are all in various stages of growing their business,” remarks Wong.

His plan for ACV is for the platform to become large enough to run a fund. “If things go well and if there are enough companies to invest in, ACV will have to run some sort of fund or be an adviser to a fund, but the universe of investable opportunities is not that large yet.

“Until then, the investments are made by me personally through my family’s funds. Or I also serve as an adviser to large family offices and they are the ones who make the impact investments.”

Wong also encourages family offices and charity foundations to consider impact investing to supplement their grant mandates. “We think this could help redefine the landscape.”

“So, instead of writing a cheque for a hundred thousand dollars to a charity, you might invest that in a start-up. Historically, if you have just been giving out grants, you know you are not going to see the money again but you hope it is well spent and helps the people you are trying to help.

“But if you make a US$100,000 investment in a start-up and despite the high risk and chance of losing everything, if it succeeds, you may double, triple or quadruple your investment.

“So, impact investing is somewhere in between. My goal is to work with high net worth families [in Hong Kong or elsewhere] — and ACV does this too — that are interested in exploring impact investing; not to replace grants but to supplement them.”

Wong is aware that it is important to retain things like grants because not all social causes can be turned into business ventures. “Say, we trying to prevent or minimise teenage suicides, how are you going to make money out of that?

He refers start-ups that he is unable to assist — either due to lack of expertise to scrutinise the business or a much larger investment is needed — to large family trusts or foundations where he serves as an adviser. “Right now, I’m working primarily with high net worth families and family offices.”

One of the major changes that ACV wants to make is to convince large foundations to also begin impact investing. “Typically, large foundations donate money and in exchange, they get a building named after them or a nice plaque on the wall. We want family foundations to start thinking that it is okay to also invest money in start-ups,” Wong remarks.

Charities and foundations, he says, gladly sign cheques, for example, to train teachers to work with children with special needs but they hesitate to invest in a start-up that creates games that address such children’s needs.

“They dispute that it doesn’t fit their mandate as they can only issue grants and not make investments. This is what I call an artificial distinction between different types of entities that have a common goal. So, we argue that as long as an organisation succeeds in addressing a social issue, it doesn’t matter what legal form it takes — whether it is fully a charity or if it is for profit or if it is a social enterprise. The form is not important, it is the results that matter.”

Wong says his experience has been an “incredibly fulfilling” journey. “All these smart people who believe that they can change the world, make a difference, make an impact and they do it in a way that makes money as well.”

“Some of the founders of the companies I have invested in are seasoned professionals while some of them are still in their twenties. But they share a common trait — they believe businesses are the right vehicles to use to solve social issues.

“We don’t know yet whether these businesses will succeed but from my perspective, I would love to see them succeed and do whatever I can to help them succeed, both by putting my own funds in them and convincing as many people as possible to try it. If they succeed, they might even pay you dividends. Wouldn’t that be a wonderful thing?”

Wong acknowledges that impact investing can be complicated as it falls under the do-no-harm mantra of SRI (which refers to any action or decision that causes no harm to society or the environment) but he also believes that it can transform capitalism itself by using the market to resolve social problems. He stresses that impact investing is for everyone.

“You don’t need to be a millionaire because it is all about changing your system of values. From one in which you just wish to maximise financial returns to one in which you seek to maximise total value, which is sometimes referred to as ‘blended value’ or ‘shared value’.

“People need to see that this approach to investing is not new. Businesses were originally set up to address specific societal needs, such as food, shelter and transport. Money made trade easier and we don’t have to barter for goods and services. But somewhere along the line, businesses, especially multinationals, sought to maximise profits with scant regard for the needs of the communities they were supposed to serve.

“So, impact investing is one way for us to correct this imbalance.”

For novice impact investors, Wong suggests allocating a small amount to such investments, depending on their risk appetite.

“I have allocated 10% of my investments to my impact portfolio but I hope to increase this over time because I have chosen to do it and the scope is wide.”

He cautions, though, that investing in startups, social or otherwise, is risky. “This is why I’m picky about choosing the start-ups. I want that value add.

“We would love to see some percentage of the young and talented people in this world use their smarts to solve social issues. We don’t expect all of them to do it; that is unrealistic. But even if 10% gets involved, that’s a good start.

“Impact investing creates a whole new challenge. Finding out about social issues and designing the right metrics to address them while working with the founders to build a sustainable company. It’s fun. It’s exhilarating and I totally recommend it to any retired banker or businessman seeking a new challenge.

Three lessons Wong has learnt 

Making an impact (Pt 1)

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