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Harvard MBAs Pilot First Student-Run Impact Investing Fund

Boston, Massachusetts, USA – October 2018: Harvard Business school building in Cambridge Massachusetts USA.

Full-time MBA students piloted the first-ever student-run impact investing fund at Harvard Business School last year. The fund, which has raised $200,000 since launching, will invest in BIPOC (Black, Indigenous, and People of Color)-led businesses in Massachusetts.

HBS students running the fund conducted due diligence on eight businesses, and are in the process of making the first investment.

“To address growing inequality, the fund aims to invest patient and flexible growth capital with the intent of scaling BIPOC-led and owned small businesses,” members of the fund wrote in a recent blog post. “The team believes that HBS students are uniquely positioned to support these kinds of investments, which typically have smaller ticket sizes, because they can bring down the high transaction costs that typically deter other funds. At the same time, students get a valuable learning experience which prepares them for careers in impact investing.”

IMPACT INVESTING MAINTAINS POPULARITY AMONG INVESTORS

The idea was originally formed last spring (2020). Senior Lecturers Brian Trelstad and George Riedel worked with a team of students — Sara Eskola, Jessica Hart, and Nga Nguy — to build out the idea last summer and got the pilot approved for this past school year. The team set out to solve three issues — support businesses struggling to survive the pandemic, give MBA students direct experience in the impact investing field, and to invest a growing amount of capital in the Donor Advised Funds at HBS aiming to make an impact.

Impact investing continues to surge in popularity among investors. The first student-run fund was launched in 2009 by a group of MBAs at the University of Michigan’s Ross School of Business.  The school’s Social Venture Fund (SvF) invests in and supports innovative companies that place social impact at the heart of their business model. Several other business schools followed, including UC-Berkeley’s Haas School of Business and Dartmouth College’s Tuck School of Business, where the student-run fund makes debt and equity investments of $25 to $50k in early-stage for-profit social enterprises.

It’s now estimated that about a quarter of flows into U.S. funds are focused on impact. In 2020, some 71 sustainable-focused funds were launched in the U.S. And in 2020 alone, $51.1 billion flowed into impact funds — more than double the amount in 2019. What’s more, sustainable funds outperformed conventional funds and indexes, on average, in 2020.

At the same time, historical racial injustice has created many wealth disparities between white populations and people of color — especially for Black businesses and families.

“Small businesses are a major growth lever for wealth creation and employment in the United States,” the authors of the original blog post point out. “Yet, many BIPOC-led and owned businesses currently face systemic barriers to raising capital, including difficulty accessing loans, and lack of access to friends and family equity given the history of racial disparities in the U.S.”

FIRST INVESTMENT IS IN LATINA IMMIGRANT-OWNED BODEGA 

Black, Latinx, and female entrepreneurs are still largely overlooked by most major venture capital firms.

“To address growing inequality, the fund aims to invest patient and flexible growth capital with the intent of scaling BIPOC-led and owned small businesses,” the HBS blog post states. “The team believes that HBS students are uniquely positioned to support these kinds of investments, which typically have smaller ticket sizes, because they can bring down the high transaction costs that typically deter other funds. At the same time, students get a valuable learning experience which prepares them for careers in impact investing.”

The HBS fund’s first investment directly addresses those issues. Students and advisors invested in Casabe, a Latina and immigrant-owned bodega in Lawrence, Massachusetts.

“Casabe’s impact potential spans three areas: first, increasing income and wealth creation for the BIPOC community; second, supporting the revitalization of downtown Lawrence which has been downtrodden and lacking investment; and third, increasing access to fresh and healthy food for residents of Lawrence, 80% of whom live in a food desert,” the students say of the investment.

Current student members are hoping to continue to expand the club and offer interested alumni the opportunity to get involved by working alongside current MBA students. The HBS Impact Fund is also expected to continue to be a Field Course this coming fall.

DON’T MISS: NEW ‘AMMUNITION’ FOR IMPACT INVESTING or THE IMPACT INVESTING BOOM ON BUSINESS SCHOOL CAMPUSES