Investing Across

the Returns Continuum

Matt Bannick, former managing partner, and Robynn Steffen, director of impact investing, at Omidyar Network, outline the range of social and financial returns that impact investing can deliver.

Rejecting “Either/Or” Thinking

The burgeoning impact investment industry continues to grow rapidly – both in size and potential – with the chance to make significant, lasting changes to some of the world’s greatest challenges. According to the Global Impact Investing Network, it doubled in value between 2017 and 2018 and now comprises more than US$ 228bn. Indeed, the industry may see an increase of hundreds of billions, perhaps trillions, of investment dollars in the coming years.

Despite its label, impact investing is far from uniform in its methodology and often finds itself polarized by an unhelpful question: is there a necessary trade-off between financial return and social impact?

One camp says yes, that maximizing one always comes at the expense of the other. The opposing side believes the reverse: that there is a positive relationship between the two, and that smart impact investments should achieve fully commercial, market-rate returns. The debate rages on to the benefit of nobody, scaring off a great deal of critical capital in the process.

In truth, there is a broad range of investment profiles – from commercial investments to philanthropic grants – and the relationship between financial return and social impact is more nuanced than the current paradigm is often willing to acknowledge.

Extreme views leave little space to explore the important middle-ground. It is well past time the impact investment industry did just that: put the “trade-off” debate to bed, and embraced a variety of capital that exists along a continuum of financial returns.

It is well past time the impact investment industry put the “trade-off” debate to bed, and embraced a variety of capital that exists along a continuum of financial returns.
Matt Bannick

An Approach Informed by On-the-ground Results

This belief is neither ungrounded nor untested. Omidyar Network has been an active impact investor for more than a decade. In its early days, we believed that the only way to achieve large-scale impact was to build large commercial enterprises that could generate enough cash to support both organizational growth and market-level impact. But as we began investing more directly in early-stage companies targeting less advantaged populations in emerging markets, we began to notice a much more complex relationship between risk, return, and impact. Some of the hard-and-fast truths that guided our initial strategy were not leading to the kind of impact we sought, and we wanted to know why.

One thing, however, was clear: entrepreneurs in these communities faced tremendous, wide-ranging challenges, and they needed investors who would look beyond the financial bottom line. Critically, they needed both capital and patience, oftentimes in greater quantities than investors are normally comfortable providing.

What was becoming evident was that there was no one size fits all strategy: different types of impact required different financial returns expectations. In certain circumstances – pioneering a new business model, providing industry infrastructure, or influencing policy, for example – the market-level impact justified investments that may not yield a commercial rate of returns. While the majority of our portfolio remained dedicated to investments seeking risk-adjusted market-rate returns, this insight led to a diversified strategy that was based on a continuum of returns.

What Market-Level Impact Means

While it will always be important to invest in companies that provide direct value to their customers, it is critical that organizations demonstrating potential to affect market-level change – and these can often be higher-risk investments – are also funded. They often exhibit any of three features: they pioneer an entirely new model (that may, in turn, take longer to develop), they require a critical piece of enabling infrastructure, or they engage with governments and look to disrupt entrenched policies.

Knowing and identifying these three features allowed us to build a framework whereby we could sensibly consider sub-commercial investments alongside commercial investments.

Each investment had varying expectations – regarding financial returns and market-impact – and though there is a great deal more complexity to it, the short of it is straightforward: with each investment, the greater the financial concession, the more compelling the market impact needs to be.

What We Have Learned

Our framework, though clarifying in a number of ways, remains far from perfect. As with any approach, it will benefit from being tweaked and refined based on the challenges we encounter. For example, we learned that predicting social impact is much more difficult – and different – than predicting financial return. Impact, generally, is a challenging concept to quantify, and it often occurs in unexpected and hard-to-measure ways. Financial models live easily on spreadsheets; impact metrics do not.

Another lesson: actual returns often vary wildly from the expectations that preceded them. This is, of course, to be expected, but it does not diminish the importance of using a framework before making an initial investment. It is also suggestive of another truth: few real financial benchmarks exist for early-stage investments in the regions and sectors where we invest – a challenge for reliably predicting how companies are going to perform.

Most importantly, simply because we have opened the door to sub-commercial returns, that has not lessened the rigor with which we assess our investments up front – consistency here is critical. Only high expectations of market impact justify making these riskier investments, and it’s vital to take care to avoid accepting sub-commercial returns just because we have a framework that allows for them.

Asking Better Questions

Good investors ask the right questions. However, whether or not there is a trade-off between social impact and financial return is not one of them. Not only is it both one-dimensional and limiting, it prevents the consideration of outcomes that include varying levels of success on both fronts. It also alienates capital, discourages innovation, and leaves no space to consider the valuable exchange of below-market returns for opportunities to produce an outsized market impact.

This approach is neither flawless nor unchangeable; quite the opposite, it is a work in progress. But in a polarized world, it is a few steps towards the middle – a space where dialogue, cooperation, and experience link arms to maximize impact and returns.

Broadening the Conversation

When we first introduced this framework in 2017, we heard from many investors that it was helpful in moving beyond the trade-off debate. Some even used it to more clearly articulate their role in the market, while others saw it as uniquely applicable to Omidyar Network’s flexibility in deploying capital and willingness to accept risk. Universally, however, we learned that there was a desire for a more nuanced conversation around the relationship between social impact and financial returns.

As a result, we worked with leading impact investors across geographies, asset classes, type of impact sought, and expected levels of financial returns to present their approaches to investing in Beyond Trade-offs, a curated series of perspectives published on The Economist’s digital platform at Building on the insights of authors in this series, we hope to spur new learnings and collaboration to develop a more holistic framework that clearly distinguishes the different permutations of risk, return, and type of impact possible across capital markets.

Omidyar Network’s

Four Principles

In order to preserve rigor in our investment process, we highlighted four principles to help clarify the conditions under which we accept sub-commercial returns:

We learned that it is entirely possible for a company with limited financial success, to achieve significant impact by accelerating the development of a new high-impact market. This kind of market-level impact became the primary criterion for evaluating sub-commercial investments.

Sub-commercial investments function as subsidies. Because they have great potential to distort the market, they must be made with great care.

In certain circumstances, it is better to fund an enterprise that is striving for market-level change (even though the financial returns may be unexceptional) than it is to subsidize a grant-funded organization. The latter category perpetually needs additional funds to scale up.

Relaxing the return expectations does not in any way mean that investment evaluations should be performed any less thoroughly or rigorously.


A version of this content originally appeared in the Stanford Social Innovation Review in a piece entitled “Across the Returns Continuum,” which can be found in full on The follow-on series “Beyond Trade-offs” appeared on The Economist’s digital platform at

Matt Bannick

Matt Bannick is the former managing partner of Omidyar Network, where, from 2007-2018, he led the expansion of the firm from its Silicon Valley roots and brought a wide range of executive, international, and multi-sector experience to his role.

Bannick served in a number of senior executive positions at eBay, and also served as PayPal’s first president after the eBay acquisition and established PayPal as the global standard for online payments.

A recognized leader in the impact investing field, Bannick served as a member of the Global Social Impact Investment Steering Group, and he led the U.S. National Advisory Board on Impact Investing as its co-chair.

Bannick teaches a course on new business models in emerging markets at the Stanford Graduate School of Business, and he earned an MBA with distinction from Harvard Business School and a bachelor’s degree, Phi Beta Kappa, in international studies and economics from the University of Washington.

Robynn Steffen

Robynn Steffen leads Omidyar Network’s work to accelerate the global impact investing industry through investments, thought leadership, and strategic partnerships. She also serves on the board of Toniic and as a board observer to The ImPact and CapShift.

Prior to joining the firm, Steffen spent six years in the White House Office of Science and Technology Policy, where she led efforts to advance the Administration’s global development goals through emerging market impact investments. She led the launch of Beyond the Grid under President Obama’s Power Africa initiative, and also worked closely with USAID, OPIC, the US Treasury, and State Department to increase emerging market entrepreneurs’ access to early-stage risk capital, scale digital financial services, and accelerate the Administration’s use of incentive prizes.

Robynn received her J.D. from Yale Law School and holds a B.A. and an M.A. in political science from Yale University.