Private sector companies have historically focused on a single bottom line – maximizing shareholder wealth. Solutions to social issues have long been considered the domain of nonprofit and public sectors, funded primarily by traditional philanthropy and government grants. Increasingly however, important social innovations are occurring in all three sectors, private, nonprofit, and government, and often in collaboration across sectors. Innovative products and services are being delivered to underserved communities through new organizational forms, often backed by innovations in financial models and practices. In this course, we focus on these new methods of financing social innovation, commonly referred to as impact investing.
Before we can study recent trends, we need to understand the fundamental concepts of finance that are essential for building and managing solvent, sustainable organizations. The first half of the course will cover topics such as time value of money, net present value, the risk-return relationship, valuation of stocks and bonds, and capital budgeting principles. The second half of the course will explore how these basic concepts are modified and extended in order to finance social innovation. Some of the topics we will cover include venture philanthropy, catalytic philanthropy, social venture capital, patient capital, social impact bonds, PRIs, microfinance, and social impact measurement. We will conclude the course with an introduction to valuation of social ventures, which involves a combination of conventional business valuation techniques and alternative approaches to social impact measurement. Students will complete a team project on valuation and impact investment that they will present in class.
Class Materials
Required Textbook: Corporate Finance: Core Principles & Applications, by Ross, Westerfield, Jordan, and Jaffe, 3rd edition, McGraw-Hill Irwin
Recommended readings: The Power of Impact Investing: Putting Markets to Work for Profit and Global Good, by Judith Rodin and Margot Brandenberg; and The Solution Revolution: How Business, Government, and Social Enterprises are teaming up to solve society’s toughest problems, Wlliam Eggers and Paul Macmillan
Readings posted on Canvas
Course Packet available at UTCoop (East)
Financial Calculator: You will need a financial calculator for this class. One that has the following functions will suffice: PV, FV, n, I, IRR, PMT, CF. Texas Instruments BA II Plus is a good basic calculator and is simple to use. Please bring your calculator to every class.
Evaluation and Grades
Students’ grades will be based on the following:
Attendance and Class participation: 15%
Quizzes and Assignments: 20%
Midterm: 25%
Team projects and presentations: 40%
Attendance: You are expected to attend every class during the semester, or you will lose points in your attendance and class participation grade. If you have an emergency that prevents you from attending class, please notify me as soon as possible.
Class participation: I look for quality, not quantity. Please be respectful towards your classmates and your professor when you participate. Remember: Hard on ideas, soft on people!
Quizzes: Quizzes will typically test material that was studied in previous classes. I will allow you to make up at most one quiz if you miss the class in which it was given, provided you notify me prior to the start of that class of the reason for your absence. Any subsequent absences during a quiz will cause you to forfeit that quiz grade.