Save the Children is one of the first international NGOs to run its own social impact fund. Paul Ronalds, founder of Save the Children’s Global Ventures, talks about the “next level” in charity fundraising
Two years ago, Save the Children launched its first impact investment fund, based in Australia. The fund secured backing from insurance giant QBE, and from a range of existing supporters to raise $7.4m.
Paul Ronalds, former CEO of Save the Children Australia and founder of Save the Children’s Global Ventures, explains where the idea for launching an impact fund originated from. “Australian aid funding continues to decline and is now at an historical low”, he explains. “The proportion of Australians donating to charity is also falling. We will continue to rely on our traditional funding sources, but we have to supplement these by more innovative financing methods.”
The fund raises capital to invest in edtech, e-health and fintech innovations designed to improve the lives of disadvantaged children and families. It mainly invests in startups, in Australia and around the world, and uses its platform to help those businesses to scale. Designed to be an ‘impact first’ fund, it targets an internal rate of return (IRR) of at least 5-7% over 10 years.
“The hypothesis that we have been testing with this first fund”, says Ronalds, “was that if we invest in a way that is aligned with Save the Children’s strength in health, education and child protection, the three thematic areas where we have deep technical expertise as well as global networks, we can help those startups to have much greater social impact much faster, as well as making solid financial returns. It’s still early days, but the evidence so far is convincing.”
No impact washing
What Save the Children also experienced in the past two years was the highly variable quality of impact measurement. “As one of the largest donors in the world we have a reputation for deep evaluation, deep impact measurement. We’ve been surprised, looking at the rest of the impact investing sector, about how relatively immature this still is.”
It’s not amazing, says Ronalds, that two thirds of impact investors are concerned about ‘impact washing’. “Improved impact measurement is an area where the whole impact investing community needs to make significant progress.”
In the case of Save the Children’s impact funds the first question that is asked to potential investees is how they are measuring their impact, how rigorous the process is, and what’s the evidence base. “And it’s only after we are very confident that they are very impact-first oriented, we continue the conversation with them.”
A company that convincingly passed the tests was ThinkMD, a US-based startup working in low-income countries in Asia. It provides software that helps community healthcare workers make better diagnosis for children and maternal health issues.
Save the Children itself supports directly or indirectly some 600,000 community health workers around the world. Ronalds: “If we can increase their accuracy in terms of health diagnosis by two or even three times, that has a massive impact on the issues that our organisation cares about.”
This shows how new technologies can help Save the Children to significantly increase its impact. “As an organisation, we have underinvested in technology and tech know-how”, says Ronalds. “Like most other NGOs, we are still a long way behind from where we need to be. So our focus on digital data enterprises also helps Save the Children to adapt, and take advantage of the opportunities that these digital technologies provide.”
The positive experiences with the first impact investment led to the recent decision to create Save the Children’s Global Ventures, which will be based in Switzerland. Global Ventures will provide flexible finance, including loans and equity investment, from $100.000 to $1m to both not-for-profit and for-profit organisations, and enterprises that are improving the lives of vulnerable children and families.
Ronalds adds: ‘This is really next level in the field of charity fundraising. Over the next 12 months we hope to launch additional impact investment funds and, like any good startup, graduate from a minimum viable product to become a sustainable impact-first fund manager.”
A new $25m European fund is currently being designed and Ronalds is confident about raising the capital needed.
“We are only seeking relatively modest amounts. And we are pretty certain that there will be enough investors like companies, family offices and institutional philanthropists who want to donate funds to be invested in the corporates that we have selected.”
“We are now more confident than ever that impact investing can be a significant source of funding for achieving the sustainable development goals. This is why at Save the Children we feel that we are just getting started on this journey.”