The Best Available Charitable Option
Acumen Fund
Acumen Fund Metrics Team
March 2007
Overview: This paper provides an overview to Acumen Fund’s approach to measuring social returns on investments. Rather than seek an absolute standard for social return across an extremely diverse portfolio, Acumen Fund looks to quantify an investment’s social impact and compare it to the universe of existing charitable options for that explicit social issue. This methodology, called the BACO ratio (for "best available charitable option"), is a useful starting point for assessing the social impact and cost-effectiveness of each of Acumen Fund’s investments.
Publication Preview: "Social venture investing, almost by definition, believes that there have to be more cost-effective ways of achieving social value than the traditional philanthropic approaches. Acumen Fund seeks to prove that small amounts of philanthropic capital combined with large doses of business acumen can build thriving enterprises that serve a vast number of the poor. Just as venture capital funds seek out opportunities for disproportionate financial returns by investing in disruptive new technologies or business models, social investors believe they can achieve higher “social returns” by backing talented entrepreneurs with innovative and scalable approaches to solving social problems. But unlike venture capital investments—where the measure of return is purely financial, comparable across industries and geographies—finding a standard metric to measure the success of a social investment has been a vexing challenge for this field.
Many people and institutions have dedicated years of work to develop tools, such as Jed Emerson’s “Blended Value Proposition” and the “social return on investment” (SROI) methodology, that would define an absolute standard with which to compare various social projects. TechnoServe is currently completing a comparative analysis of “double bottom-line”3 approaches to small and medium enterprises (SMEs) in low-income countries. A number of Acumen Fund’s peers have developed their own tools that drill towards the cost-effectiveness of their social impact, such as E&Co’s “Triple Bottom Line.” It seems there is a constant struggle to balance being practical, comprehensive and comparable across institutions and issue areas (i.e., comparing a clean water project to an HIV/AIDS treatment program), particularly in the face of a growing multitude and diversity of institutions seeking social returns…”