Patient capital is another name for long term capital. With patient capital, the investor is willing to make a financial investment in a business with no expectation of turning a quick profit. Instead, the investor is willing to forgo an immediate return in anticipation of more substantial returns down the road. Prominent examples of patient capital includes pensions, sovereign wealth funds, and university endowments.[1] Governments with access to patient capital may have greater maneuverability in formulating domestic economic policies.[2]
Although patient capital can be considered a traditional investment instrument, it has gained new life with the rise in environmentally and socially responsible enterprises. In these cases, it may take the form of equity, debt, loan guarantees or other financial instruments, and is characterized by:
Willingness to forgo maximum financial returns for social impact, and an unwillingness to sacrifice the interests of the end customer for the sake of shareholders
Greater tolerance for risk than traditional investment capital
Intensive support of management as they grow their enterprise
Patient capital
The source of capital may be philanthropy, investment capital, or some combination of the two. Patient capital is not a grant, it is an investment intended to return its principal plus (often below market-rate) interest. It does not seek to maximize financial returns to investors; it seeks to maximize social impact and to catalyze the creation of markets to combat poverty. On the spectrum of capital available to both non-profits and for-profits, patient capital sits between traditional venture capital and traditional philanthropy, between development aid and foreign direct investment.
Thomas Friedman of the New York Times describes patient capital as having "all the discipline of venture capital – demanding a return, and therefore rigor in how it is deployed – but expecting a return that is more in the 5 to 10 percent range, rather than the 35 percent that venture capitalists look for."[3]Jacqueline Novogratz of Acumen adds: patient capital "takes the best of the markets as well as philanthropy and aid. Patient capital is money invested in entrepreneurs building companies and organizations that solve tough problems like healthcare, water, housing, alternative energy."[4]
The success of the platform company business model is in large part due to patient capital, as investors are prepared to accept long periods without profit in the hopes that the platform company obtains a dominant market position.[5]
Investment is traditionally defined as the "commitment of resources to achieve later benefits". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broader viewpoint, an investment can be defined as "to tailor the pattern of expenditure and receipt of resources to optimise the desirable patterns of these flows". When expenditure and receipts are defined in terms of money, then the net monetary receipt in a time period is termed as cash flow, while money received in a series of several time periods is termed as cash flow stream. Investment science is the application of scientific tools for investments.
In the field of finance, the term private equity (PE) refers to investment funds, usually limited partnerships, which invest in and restructure private companies. A private-equity fund is both a type of ownership of assets and is a class of assets, which function as modes of financial management for operating private companies that are not publicly traded in a stock exchange.
Venture capital is a form of private equity financing that is provided by venture capital firms or funds to startups, early-stage, and emerging companies that have been deemed to have high growth potential or which have demonstrated high growth. Venture capital firms or funds invest in these early-stage companies in exchange for equity, or an ownership stake. Venture capitalists take on the risk of financing risky start-ups in the hopes that some of the companies they support will become successful. Because startups face high uncertainty, VC investments have high rates of failure. The start-ups are usually based on an innovative technology or business model and they are usually from high technology industries, such as information technology (IT), clean technology or biotechnology.
An investor is a person who allocates financial capital with the expectation of a future return (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some species of property. Types of investments include equity, debt, securities, real estate, infrastructure, currency, commodity, token, derivatives such as put and call options, futures, forwards, etc. This definition makes no distinction between the investors in the primary and secondary markets. That is, someone who provides a business with capital and someone who buys a stock are both investors. An investor who owns stock is a shareholder.
Shareholder value is a business term, sometimes phrased as shareholder value maximization. It became prominent during the 1980s and 1990s along with the management principle value-based management or "managing for value".
Social venture capital is a form of investment funding that is usually funded by a group of social venture capitalists or an impact investor to provide seed-funding investment, usually in a for-profit social enterprise, in return to achieve an outsized gain in financial return while delivering social impact to the world. There are various organizations, such as Venture Philanthropy (VP) companies and nonprofit organizations, that deploy a simple venture capital strategy model to fund nonprofit events, social enterprises, or activities that deliver a high social impact or a strong social causes for their existence. There are also regionally focused organizations that target a specific region of the world, to help build and support the local community in a social cause.
Jacqueline Novogratz is an American entrepreneur and author. She is the founder and CEO of Acumen, a nonprofit global venture capital fund whose goal is to use entrepreneurial approaches to address global poverty.
Acumen is a nonprofit impact investment fund focused on investing in social enterprises that serve low-income individuals in the United States. Acumen was founded in April 2001 by Jacqueline Novogratz. It aims to demonstrate that small amounts of philanthropic capital, combined with business acumen, can result in thriving enterprises that serve vast numbers of the poor. Over the years, Acumen has invested $115 million in 113 companies and has had a successful track record in sourcing and executing investment opportunities in the clean energy, health care and agriculture sectors.
Venture philanthropy is a type of impact investment that takes concepts and techniques from venture capital finance and business management and applies them to achieving philanthropic goals. The term was first used in 1969 by John D. Rockefeller III to describe an imaginative and risk-taking approach to philanthropy that may be undertaken by charitable organizations.
A Philanthropreneur, also known as a Philanthro-capitalist, is a Portmanteau of entrepreneur and Philanthropy. Internet entrepreneur Mark Desvauz claimed to coin this term in 2004. However, The Wall Street Journal used the term in a 1999 article, while a publication entitled The Philanthropreneur Newsletter existed as far back as 1997. Philanthropreneurship is often considered the start of a new era in Philanthropy, characterized by the development of the Philanthropist's role and the integration of business practices.
Social finance is a category of financial services which aims to leverage private capital to address challenges in areas of social and environmental need. Having gained popularity in the aftermath of the 2008 Global Financial Crisis, it is notable for its public benefit focus. Mechanisms of creating shared social value are not new, however, social finance is conceptually unique as an approach to solving social problems while simultaneously creating economic value. Unlike philanthropy, which has a similar mission-motive, social finance secures its own sustainability by being profitable for investors. Capital providers lend to social enterprises who in turn, by investing borrowed funds in socially beneficial initiatives, deliver investors measurable social returns in addition to traditional financial returns on their investment.
Return on investment (ROI) or return on costs (ROC) is a ratio between net income and investment. A high ROI means the investment's gains compare favourably to its cost. As a performance measure, ROI is used to evaluate the efficiency of an investment or to compare the efficiencies of several different investments. In economic terms, it is one way of relating profits to capital invested.
The Friedman doctrine, also called shareholder theory, is a normative theory of business ethics advanced by economist Milton Friedman which holds that the social responsibility of business is to increase its profits. This shareholder primacy approach views shareholders as the economic engine of the organization and the only group to which the firm is socially responsible. As such, the goal of the firm is to increase its profits and maximize returns to shareholders. Friedman argues that the shareholders can then decide for themselves what social initiatives to take part in, rather than have an executive whom the shareholders appointed explicitly for business purposes decide such matters for them.
Impact investing refers to investments "made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return". At its core, impact investing is about an alignment of an investor's beliefs and values with the allocation of capital to address social and/or environmental issues.
Social enterprise lending is a form of social finance which refers to the practice of offering loans and other financing vehicles below current market rates to social enterprises and other organisations pursuing social goals. This is often referred to as "patient lending," or financing with "soft" terms. Patient lending recognises that projects with social outcomes often reach profitability later than commercial projects. Softening the terms of a loan means that a social lender may offer provisions such as longer loan terms, lower interest rates and repayment "holidays" where capital and interest repayments are not due until the project is profitable. Social lenders might also offer small grants as part of an investment package.
Blended Value refers to an emerging conceptual framework in which non-profit organizations, businesses, and investments are evaluated based on their ability to generate a blend of financial, social, and environmental value. The term is usually attributed to Jed Emerson, and sometimes used interchangeably with triple bottom line. Blended value propositions are founded on the notion that value cannot be bifurcated, and is inherently made up of more than one measurement of performance. For example, under a blended value proposition, a for-profit business would consider their social and environmental impact on society alongside their financial performance measurement. Within the same context, non-profits would consider their financial efficiency and sustainability in tandem with their social and environmental performance. Blended value suggests the true measure of any organization is in its ability to holistically perform in all 3 areas.
Environmental, social, and corporate governance (ESG), also known as environmental, social, governance, is an approach to investing that recommends taking environmental issues, social issues and governance issues into account when deciding which companies to invest in.
Entrepreneurial finance is the study of value and resource allocation, applied to new ventures. It addresses key questions which challenge all entrepreneurs: how much money can and should be raised; when should it be raised and from whom; what is a reasonable valuation of the startup; and how should funding contracts and exit decisions be structured.
In business, a unicorn is a privately held startup company valued at over US$1 billion. The term was first published in 2013, coined by venture capitalist Aileen Lee, choosing the mythical animal to represent the statistical rarity of such successful ventures.
Durreen Shahnaz is a Bangladeshi American entrepreneur, professor, and speaker. She is the founder of Impact Investment Exchange (IIX). She has had a particularly pronounced role in the development of impact investing in Asia and the Pacific.
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