Deciding Together: Flipping the Power Dynamics in Impact Investing

Three models for shifting decision-making to communities and entrepreneurs

Beeck Center
7 min readOct 28, 2020


Colorful Hands mural. Photo by Tim Mossholder on Unsplash

This is the third in a series. Read Part 1 and Part 2

By Ben Wrobel and Meg Massey

Getting to a 100% mission-aligned portfolio is the holy grail for most impact investors. The Heron Foundation set that ambitious goal in 1996, and spent twenty years getting there. But when the foundation reached that magical number in 2016 with their nearly-$300 million endowment, then-vice president Dana Bezerra couldn’t help but think of it as anti-climactic.

“It felt like a boom-splat,” she told Impact Alpha. “That felt like such a low bar.”

This spring Bezerra — now Heron’s president — announced another game-changing commitment: over the next decade the foundation will transition decision-making power over their impact investing portfolio to several locally-led “investment committees” in the cities where they operate. These local leaders will have full control over where they want to direct investment in their neighborhoods — fully independent of Heron’s leadership.

Bezerra is only one of the impact investors who has recently made the case for shifting decision-making powers to local leaders, saying “Instead of learning what communities know so we can deploy, I think what we need to do is hand over money and power to communities.”

Dana Bezerra, Heron Foundation President

In our last post we looked deeper at participatory grantmaking — a practice that shifts decision making power away from traditional grantmakers, and puts it in the hands of people who will be affected by the grants themselves. That same approach is just beginning to emerge in the field of impact investing.

Impact investors often talk about what they’re investing in — social entrepreneurs, community loan funds, affordable housing projects — but they rarely talk about how those investments are made. The truth is, most impact funds are modeled on the same financial vehicles used by Wall Street investment firms. They way they make decisions is top-down, insular and driven by impact investors who still tend to be white, male, and from backgrounds of privilege.

The bottom line: while impact investors focus on serving a broad set of stakeholders, they rarely include those stakeholders in investment decisions.

Impact investing needs to chart its own course away from traditional finance. That will mean a radical rethinking of who decides what’s investment-worthy, and what success looks like. As Common Future CEO Rodney Foxworth has put it, “If we truly want to live in an equitable society, those of us with power must give some of it up.”

Fortunately, forward-thinking investors like the Heron Foundation are modeling what community-driven investing can look like. They’re showing that investment decisions can benefit from the perspective of lived experience as much as a Harvard MBA, and they are broadening what it means to be an “investor” to include working-class Bostonians, community organizers in Brazil, or social entrepreneurs in Kenya.

Here are three emerging models for flipping the power dynamics in impact investing.

Model 1: Community-Led Loan Funds

We’ll start with community-driven investment funds, which shift power over investment decisions — typically regarding local economic development — to community members. These models often have the dual impact of building wealth for their investors, many of whom are from marginalized communities.

The Boston Ujima Fund, the first-ever “democratic investment fund” in the United States, gives residents of Boston’s working class communities of color total control over the direction of economic development in their neighborhood. The fund has 400 investors divided into two categories: “Voting Members” and “Solidarity Members.” Voting members live in the neighborhood, or identify as having been displaced from their homes by rising rents. They can invest in the fund for as little as fifty dollars, and they each get a vote on where the fund loans its money. Solidarity members — who include Harvard students, foundations, wealthy individuals, and churches, mosques, and synagogues across the greater Boston region — do not get a vote, even if their investment is $50,000..

The Ujima Fund is part of Seed Commons, a network of more than 25 non-extractive place-based loan funds across the United States with the shared goal of ceding more power to communities. Many invite local residents to weigh in on investment decisions and work to build more democratic ownership. For instance, the Southern Reparations Loan Fund backs Black-led small businesses and is led by the Black and immigrant communities it serves.

Around the same time that the Boston Ujima Project was raising its first fund, the Buen Vivir Fund was hatching its own model several hundred miles away. As highlighted in the first post in our series, Buen Vivir lends to local banks led by indigenous communities in the Global South. Like Ujima’s voting members, Buen Vivir convenes a “Members Assembly” made up of ten grassroots leaders from Asia, Africa, and Latin America, as well as eight institutional investors, to collectively select loan recipients and decide the terms under which capital is lent.

Model 2: Peer-Selected Investment

Venture capital is a critical tool for scaling the next world-changing idea: VC funds have backed everything from mobile money apps that have given tens of millions of people access to bank accounts, to solar and wind technology. But right now, only a handful of VC investors in cities like New York and San Francisco are deciding which entrepreneurs get a chance to succeed. As a result, less than 15% of unicorns are directly addressing issues like health care, education, food security or climate change.

In 2009, Village Capital set out to flip the power dynamics of traditional venture investing. Their accelerator program for early-stage entrepreneurs uses a “peer selection” model that takes decision-making power out of the hands of investors, and gives it to groups of impact-driven entrepreneurs.

Here’s how it works: cohorts are built around a challenge and geography, such as financial health in South Asia. Over the course of the accelerator, the entrepreneurs share countless hours engaging with each other — debating business models and acquisition strategies, offering each other frank advice, and learning how their fellow founders respond to constructive criticism. On the final day, the entrepreneurs put on their “investor hat” and rank each of their peers according to several criteria. The two companies with the highest ranking receive offers of seed capital.

Photo Credit: Victor Murithi

Village Capital has recently started expanding its impact by licensing its peer-selected investment platform and curriculum to incubators and accelerators across the world. MetaBronx, a diversity-focused accelerator in New York City, used a Village Capital-inspired model to select its latest cohort. Anza, a business accelerator in Tanzania, has also used the model to select investments for its accelerator.

The peer selection model is also scaling beyond VilCap’s extended network. SheEO, which started in Canada in 2015, pools capital from women who are mostly non-accredited investors to provide zero-interest loans to women and non-binary social entrepreneurs. The minimum investment is $1100 a year and can be made in monthly installments, making it more accessible than traditional funds.

SheEO’s investors vote on a finalist slate of entrepreneurs, who then engage in a peer selection process of their own to decide how to divvy up the capital. The loans they take must be repaid within five years so that it can be reinvested into future enterprises, with the goal of building a $1 billion revolving fund. So far, it’s working: SheEO currently has a 100% payback rate.

Model 3: DAFs for Good

Donor-advised funds (DAFs) are a controversial topic in many philanthropic circles: while they’re the fastest-growing type of vehicle for charitable giving, critics point out that they can be used to hoard capital and evade taxes. There are models and advisors emerging, however, who are working to embed more participatory approaches, and utilize DAFs as a tool to help individual donors relinquish control over decision-making in their impact investing. The $40 million first round for the Olamina Fund, launched last year by Candide Group’s Morgan Simon, came from the donor-advised funds of two of Simon’s clients. Olamina lends to CDFIs and other financial institutions serving Black, indigenous, and low-income communities. More than 80% of their loans have gone to organizations and businesses led by women and people of color.

Olamina’s model for participation is instructive for other funds: as part of their vetting and voting process for making investments, they created a Community Advisory Board made up of individuals from the rural, native and southern communities that they plan to target. The Board makes recommendations on specific investments and overall strategy to the fund’s investment committee, where two of the Advisory Board members also serve — and hold veto power.

What’s Next?

The examples we’ve shared here are just the beginning. Transform Finance, which pioneered the concept of non-extractive capital when it was founded in 2013 by Simon and Andreaa Armeni, is currently developing a taxonomy for the field of “community-engaged” participatory investing to capture the full spectrum of participatory models and the type of capital they deploy. This will also include action steps for grassroots groups, philanthropies, and financial intermediaries to keep it growing. Stay tuned for the launch of this report later this fall.

The field of participatory investing is poised for growth in the long term. Over the next several years, Baby Boomers are expected to transfer over $68 trillion in wealth to Millennials and Gen-Zers. Both generations will be looking to invest in ways that align with their more progressive values: not just what they invest in, but how they invest.

The pace of progress on these new approaches will depend on the willingness of funders to truly shift power — and not just capital — to the communities whom they serve. The models are there. The funds are there. The community expertise is there. All that is needed is the desire to continue iterating, investing, and transforming.


This series on participatory funding models is a project of the Fair Finance team at the Beeck Center for Impact + Innovation at Georgetown (Andrea McGrath, Saumya Shruti and Shaily Acharya), which is exploring ways that funders can shift power to communities, and Ben Wrobel and Meg Massey, authors of the forthcoming book “Participate”, scheduled for release in December 2020.