Impact Investing: A Theory of Financing Social Enterprises

38 Pages Posted: 12 Feb 2020 Last revised: 25 Jun 2021

See all articles by Benjamin Roth

Benjamin Roth

Harvard University - Business School (HBS)

Date Written: March 16, 2021


I present a model of financing social enterprises to delineate the role of impact investors relative to “pure” philanthropists. I characterize the optimal scale and structure of a social enterprise when financed by grants, and when financed by investments. The analysis yields two heuristics to guide impact investors. First, investments allow a financier to discipline inefficient spending. Second, investments may enable a social enterprise to exploit new opportunities for profit, and may increase the enterprise’s scale relative to when grant financed. I operationalize these heuristics for the case of Husk Power, a social enterprise that has received impact investment.

Suggested Citation

Roth, Benjamin, Impact Investing: A Theory of Financing Social Enterprises (March 16, 2021). Harvard Business School Entrepreneurial Management Working Paper No. 20-078, Available at SSRN: or

Benjamin Roth (Contact Author)

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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