Local initiatives create new opportunities for international investors
Impact investing is a story about money and power — who has it, and how it’s shared. Unsurprisingly, this power is unevenly distributed across locations, gender, race, and sexual orientation. 8 in 10 employees at impact investment funds are white; more than half are white men. Founders that are women, people of color, and/or LGBTQ+ collectively receive less than 10% of VC funding. This leads to a measurable “like funds like” phenomenon – investors tend to favor investments that reflect their identities, demographics, outlooks, and worldviews.
Participatory funding is the process of shifting decision-making power over investing to the very communities most affected by them. It is a structural fix to the broken power dynamics in traditional funding — a way to change impact investing from closed, opaque, and expert-driven to open, transparent, and community-driven. It challenges long-held, implicit assumptions that professionals and insiders are most qualified to call the shots, and it lies directly in the face of the prevailing logic of market-based thinking that still has a strong grasp on the social sector.
Participatory funding is the process of shifting decision-making power over investing to the very communities most affected by them.
That means that advocates of participatory funding need to make a strong case; they need to build an intellectual framework, then advocate forcefully for that framework in front of people in positions of power. There are two big arguments that advocate use in those conversations — the inside argument and the outside argument.
The Inside Argument: Tapping into the Value of Lived Experience
The inside argument goes like this: Bringing in more perspectives, beyond those of “experts” and professionals will lead to more effective and responsive decisions. This argument is built on the premise that there are multiple types of expertise.
The social sector thinks about “expertise” in a limited way. Funders tend to place a high value on what we’ll call white-collar expertise, the kind that comes with a diploma and fancy title. Anyone who lives in think tank-heavy Washington, DC knows that it’s not uncommon to attend a panel about healthcare in sub-Saharan Africa and see a lineup of mostly white, mostly male researchers who have spent years studying the issue from afar.
We’re missing the critical voices — the ones that speak from experience in the world, not the classroom or office — that can add the most valuable perspective. Josh Lerner, participatory democracy expert, told us that “community members have invaluable expertise in their own lives and realities. When institutions combine their technical expertise with this lived community expertise, money is more likely to go to the greatest needs. Perhaps even more importantly, sharing real power over real money builds people’s long-term capacity to take action together and create lasting change.”
The Outside Argument: Decolonizing Wealth
If the inside argument focuses on efficacy, the outside argument focuses on equity.
It may be helpful to define equity in contrast to equality. Equality is about giving everyone the exact same resources, regardless of need, whereas equity is about distributing resources based on the needs of the recipients. So participatory funding isn’t about redistributing resources to ensure everyone is treated equally; rather, it’s about making sure ideas from everywhere have a fair shot at success.
It may be helpful to define equity in contrast to equality. Equality is about giving everyone the exact same resources, regardless of need, whereas equity is about distributing resources based on the needs of the recipients.
Bringing in outside voices improves equity in several ways. First, it drives funding to groups that wouldn’t normally get funded, leveling the playing field for small organizations by neutralizing the advantage of money and connection. Many of the participatory funds we spoke with tell us they often are the first to put money into the nonprofits or social entrepreneurs they fund.
Second, participatory funding democratizes access to the skills needed to raise money from funders, breaking down false barriers of language and culture. In a participatory process, the social entrepreneur gets to put themself in the shoes of a funder for a period of time, learning how funders talk and how they make decisions. Ultimately, this recenters impact investing toward the kinds of entrepreneurs who know more about how to talk to their neighbors than how to talk to investors, and it recenters social entrepreneurship away from Harvard Business School graduates and toward entrepreneurs who sit in investor blind spots.
Finally, participatory funding fundamentally changes power dynamics by changing the role of investors from givers and deciders to supporters and connectors. Reimagining their role is a big psychic leap for many funders, but the ones who have made it find the new equilibrium liberating and fulfilling.
Morgan Simon, a co-founder of Transform Finance, told us that “sharing power isn’t just a concept, it’s an action.” She has put this into practice at the Olamina Fund, a $40 million participatory vehicle that funnels money to locally-led community funds run by women and people of color. Investment decisions are made in partnership with a “community advisory board” made up of racial and economic justice activists, all of whom are people of color. “We have to actually work differently as investors if we want to build community wealth and power, and truly realize the transformative potential of impact investing,” Simon explains.
Participatory funding fundamentally changes power dynamics by changing the role of investors from givers and deciders to supporters and connectors. Reimagining their role is a big psychic leap for many funders, but the ones who have made it find the new equilibrium liberating and fulfilling.
There are plenty of books about how to go about investing for good. What we’re suggesting in Letting Go is something entirely different: that the best way to step up for social change is to step back — and that the best way for powerful people to make an impact is to simply let go.
Regina "Gina" Kline
Founder & Managing Partner, Enable Ventures
October 27 - 12:00 PM EST
Founder & CEO, Acumen
November 3 - 12:00 PM EST
News & Events
Subscribe to our newsletter.
Subscribe to our newsletter to receive updates about new Magazine content and upcoming webinars, deep dives, and events.
Access all of Impact Entrepreneur.
Become a Premium Member to access the full library of webinars and deep dives, exclusive membership portal, member directory, message board, and curated live chats.