Conference Presentation, Panel, Fireside Chat
Theory to Practice: A New Generation Transforms Impact Investing
Milken InstituteDave Chen, Matt Gee, Tobias Schimmer, Kathleen Schindler, Claire Tramm, Paul Irving, Andrew Tyndale, Candace Klein
- The Milken Institute and the International Impact Investing Challenge (I3C), founded by Kellogg Professor Dave Chen three years ago, have expanded from 12 schools in 2011 to 32 schools in the current year, including 12 non-U.S. programs.
- Unlike traditional social enterprise competitions, I3C specifically tasks student teams with designing new financial instruments, investment strategies, and funds rather than just creating service-based businesses.
- Due to logistical constraints preventing the attendance of the 2012 winners, the panel featured two alumni teams from the 2011 competition: Upskill Capital (Kellogg) and Effortless Energy (University of Chicago).
- Upskill Capital targets India's skills gap, which the Reserve Bank of India estimates requires 500 million skilled workers by 2022, a need far exceeding the current capacity of 50 million.
- Upskill Capital's "Human Capital Contract" model provides tuition loans to students at vocational NGOs, deducting a declining percentage (starting at ~35%) of the graduates' salaries for the first six months to repay investors.
- Upskill Capital projects an Internal Rate of Return (IRR) of 18% to 22%, driven by a conservative 25% assumed default rate on student loans.
- Upskill Capital has raised $25,000 via Indiegogo for a pilot program and is currently seeking an additional $1.5 million to fund three years of operations for two full-time staff members.
- Effortless Energy aims to create a market for residential energy efficiency by financing upgrades (insulation, smart thermostats) that pay for themselves through guaranteed utility bill reductions.
- The company notes a market failure where homeowners face a ~40% discount rate on future savings, making traditional financing unattractive despite the potential for a net-positive financial outcome.
- Effortless Energy utilizes a "Home Energy Efficiency Services Agreement" where investors fund upfront costs and are repaid from the energy savings annuity, targeting a 12% IRR.
- Effortless Energy plans to raise a $1 million pilot fund covering roughly 200 homes, with a long-term goal of scaling to a $30 million to $50 million fund.
- Effortless Energy leverages three technological enablers: the DOE's Building Performance Database for risk quantification, Internet of Things data from smart meters for validation, and crowdfunding platforms like LendSquare.
- Upskill Capital identifies student default and employer retention as their primary risks, mitigating this by funding schools in batches based on performance metrics like placement and graduation rates.
- Upskill Capital is exploring an apprenticeship model where students work two days a week at the employer while attending school three days a week to reduce default risk and improve cultural adaptation.
- Effortless Energy addresses the "cold start" problem of new asset classes by using crowdfunding to attract individual investors before approaching institutional or PRI (Private Return Interest) capital.
- Corporate partners for Upskill Capital include Future Group, which faces difficulties retaining entry-level employees due to the skills gap, while Effortless Energy partners with utility contractors like DNR Construction and SmartSealed.
- Effortless Energy sells the value proposition primarily through "home comfort" and "home control" rather than abstract energy savings, often offering homeowners an upfront sign-up bonus.
- Effortless Energy notes that energy efficiency upgrades can increase home resale value by up to 14% if certified with an Energy Star rating.
- The Indian government is introducing a new policy to provide 10,000 rupees to students who complete certified vocational training, a factor Upskill Capital intends to leverage.
- Panelists highlighted that utilities are interested partners due to energy efficiency portfolio standards and demand response incentives, particularly for smart thermostats.
- Professor Dave Chen emphasized that these student-led ventures represent a shift in business education, training a new generation of investors to treat impact and finance as integrated disciplines.
- The session concluded with an invitation for audience members to contact the teams directly to discuss investment opportunities or mentorship.