Question 1

Because successful impact investing is based on moving beyond a false assumption that social entrepreneurs and investors must choose between social and environmental impact or financial return, both entrepreneurs and investors can benefit from which of the following?

Accepted Answer

The passage suggests that successful impact investing requires moving beyond the false assumption that social impact and financial return are mutually exclusive. Therefore, embracing new business models and adhering to recognized financial theory would enable entrepreneurs and investors to maximize both social and financial impact. Option A is incorrect because maintaining a limited scope and scale would not enable entrepreneurs or investors to maximize impact. Option B is incorrect because avoiding traditional investment management tools could limit the effectiveness of impact investing. Option D is incorrect because adhering closely to traditional business models could limit the potential for innovation and impact.

Question 2

Compared to more traditional capital seekers, social entrepreneurs face an ever expanding set of funding options and the same challenges faced by traditional capital seekers.

Accepted Answer

Social entrepreneurs often face unique challenges compared to traditional capital seekers, including limited access to capital markets, the need to balance social impact with financial returns, and sometimes a lack of understanding from investors about their business models. While there are expanding funding options, these unique challenges can make funding more complex.

Question 3

Social entrepreneurs have traditionally had two discrete investment sources: grants and fellowships from the public sector or philanthropists and commercial investments and lending from the private sector.

Accepted Answer

Social entrepreneurs have traditionally relied on two main sources of funding, grants from the public sector or philanthropists and commercial investments and lending from the private sector.

Question 4

Crowdfunding has become an alternative to tapping traditional fund-raising mechanisms for social entrepreneurial ventures.

Accepted Answer

This statement is true. Crowdfunding has become a popular way for social entrepreneurs to raise funds without relying on traditional methods such as bank loans or venture capital. Instead, they can pitch their idea to a large number of individuals and receive small contributions from each, allowing them to reach their funding goals.

Question 5

Crowdfunders can only be motivated to contribute financial resources to achieve a material reward.

Accepted Answer

Crowdfunders can be motivated by various factors including social causes, supporting innovation, or being a part of a community that shares similar interests or values. While some crowdfunding campaigns may offer material rewards, this is not the only factor that motivates contributors.

Question 6

Social enterprises tend to use transformative and disruptive forces to create impacts which may accrue to a segment of society or society at large rather than a discrete set of customers.

Accepted Answer

Social enterprises aim to create positive social impact, which goes beyond serving a particular set of customers. They use innovative, transformative and disruptive strategies to create long-term and systemic change that benefits a segment of society or society as a whole.

Question 7

Social entrepreneurs rely solely on market signals and pricing to indicate to potential investors how successful they have been in achieving mission-related impact.

Accepted Answer

Social entrepreneurs also measure success based on their ability to create positive social and environmental impact, not just profit or market signals. They may use other metrics such as number of lives impacted, reduction in pollution, or increased access to education.

Question 8

On the basis of the financial and impact drivers of a particular social enterprise, a social entrepreneur can determine which forms of investment are the best fits.

Accepted Answer

This statement is true. Social entrepreneurs need to consider the financial and impact drivers of their social enterprise in order to determine which forms of investment, such as grants or equity investments, are the best fit for their organization.

Question 9

Impact investing can be defined as investments intended solely to create significant, positive impact on financial return while philanthropy has traditionally focused on gifts made by individuals and organizations to benefit society and the environment.

Accepted Answer

Impact investing aims to generate social and environmental impact alongside a financial return, not solely to create a positive impact on financial return. Philanthropy focuses on making gifts to benefit society and the environment without expecting a financial return.

Question 10

Behavioral finance tells us that investors, social entrepreneurs and traditional finance all deal with the real-world complexity of financial markets by relying on heuristics and models in which people are self-interested and rational.

Accepted Answer

Behavioral finance challenges the assumption that individuals are always self-interested and rational. It recognizes that humans are subject to biases and emotions that can influence their decision-making in financial markets.

Question 11

Screening, the practice of buying and selling publicly traded securities based on the evaluation of impact criteria that reflect personal or institutional values, has as its ultimate goal creating a portfolio to reflect the investor's values and mission, mitigate risks, and use investment capital to encourage or discourage specific corporate behaviors.

Accepted Answer

This statement accurately describes screening as a practice for socially responsible investing.

Question 12

Public and private pension funds, along with insurance companies and other institutional investors, are increasingly seeking to attract capital to underserved urban markets and build assets in low income communities.

Accepted Answer

This statement is true. Many institutional investors are turning to urban areas with high economic need in order to generate returns and make a positive social impact. This trend is known as impact investing.

Question 13

Angel investors or venture capitalists (VCs) that have a social bent typically want market-rate returns in exchange for their financial support, they are partial to entrepreneurs with plans to do good in the world, but usually they are unwilling to wait a little longer than traditional angels or VCs to reap returns.

Accepted Answer

Angel investors or venture capitalists with a social bent, often referred to as impact investors, are indeed interested in supporting businesses that aim to do good in the world. However, they are generally more patient with their investments compared to traditional investors, understanding that achieving social impact may require a longer timeframe to see financial returns.

Question 14

Corporations support social entrepreneurs through grants from their corporate foundations or through their operating divisions, which may see a social enterprise as an opportunity to innovate or to reach a new market.

Accepted Answer

Corporations do support social entrepreneurs through grants from their corporate foundations or through their operating divisions, which may see a social enterprise as an opportunity to innovate or to reach a new market.

Question 15

Equity or equity-like capital forms that are long term and risk-tolerant are examples of new investment forms needed for social enterprises.

Accepted Answer

Social enterprises often require patient and long-term capital that can tolerate some degree of risk. Traditional forms of investment may not be suitable for social enterprises, which is why equity or equity-like capital forms are needed to meet their specific financing needs.

Question 16

According to Overholser, the commingling of investments and revenues in standard nonprofit accounting makes it very easy to determine whether takeoff has been achieved and, as a consequence, investors are aware of the outcomes of their investments.

Accepted Answer

Overholser actually argues that the commingling of investments and revenues in standard nonprofit accounting makes it difficult to determine whether takeoff has been achieved and for investors to be aware of the outcomes of their investments.

Question 17

The due diligence process for impact investments must consider potential "impact risks" and their mitigation and the mission alignment of the management is crucial.

Accepted Answer

Due diligence for impact investments should consider the potential risks to achieving the desired impact and how they can be mitigated. Additionally, ensuring that the management is aligned with the mission is important for the success of impact investments.

Question 18

Successful impact investing is based on moving beyond a false assumption that social entrepreneurs and investors must choose between social and environmental impact and financial return.

Accepted Answer

Successful impact investing involves achieving both social/environmental impact and financial return, rather than sacrificing one for the other.

Question 19

What are the two types of capital that social entrepreneurs have traditionally used to fund their enterprises and how are these sources evolving?

Accepted Answer

The answer of What are the two types of capital...

Question 20

Different types of crowdfunders exist that have fundamentally different intentions and expectations for different crowdfunding campaigns. Give examples.

Accepted Answer

The answer of Different types of crowdfunders exist that have...

Quiz 7: Funding Social Ventures