Risks and Rewards

Grace Mathis ’19 didn’t know what she was looking for until she found it.

She was approaching her senior year at Haverford, majoring in political science with a minor in environmental studies, and struggling with the pessimistic tone of conversations about climate change. She knew it was a dire issue, but she wanted to find a way to make a difference, rather than lamenting the status quo. An environmental studies professor recommended she look into a class that might at first blush seem to have little to do with her goals: ECON298. When she walked into Shannon Mudd’s classroom that fall, though, everything fell into place.

Mudd, an assistant professor of economics and director of Haverford’s Microfinance and Impact Investing Initiative (MI3), describes impact investing as “investing not only to generate an expected financial return, but also a positive social or environmental benefit.” Its practitioners are as concerned about doing good as they are about doing well. For Mathis, this meant a way to address the ongoing climate crisis by finding and backing the environmental solutions that offer a way forward.

“It gave me a sense of purpose and hopefulness I didn’t always have when discussing these issues, and made me feel empowered to actually do something about it,” Mathis says. After years fumbling around in the dark for a more optimistic way to approach the environmental crisis, “it was like a light switch,” she says.

Over the course of that fall semester, Mathis and 15 classmates studied the theory of impact investing and the tools of the trade, then put it all into practice in an unusually hands-on demonstration of everything they had learned. They performed due diligence on real companies and decided as a group which one they should invest in—with real money provided by a sponsor.

Five years later, Mathis is part of the climate team at investment firm Hitachi Ventures and a member of the impact investing class’s alumni advisory board, which helps vet the current class’s investment opportunities.

Many students enter Mudd’s classroom unaware that some investors are concerned with more than just financial returns. For 10 years now, he’s been helping them realize that the field of investing includes opportunities to make the world a better place.

In ECON298, he teaches students methods to gauge anticipated return on investment and how the SWOT analysis (an acronym that stands for strengths, weaknesses, opportunities, and threats) can help investors scope out a company’s place in the market. His students also learn how to measure a company’s expected impact, which is often more challenging than financial forecasting.

But it’s the practice component that opens students up to impact investing’s potential. The final third of the semester is devoted to performing due diligence on four investment opportunities and putting as much as $25,000 from the course’s sponsor, Overseas Resources Foundation Limited (ORFL), into the best one. That money will be monitored by Haverford students long
after the class ends and, if all goes well, reinvested in more early-stage enterprises to compound its impact.

“The market is a human invention. It’s been evolving and will continue to evolve, but we can be a part of bringing some intention into how it’s going to evolve going forward,” Mudd says. “Part of that can be the expectations shareholders have for the companies in which they invest.”

High Risk, High Reward
More than a decade ago, Mudd was a visiting assistant professor in business and economics when he heard that a Haverford alumnus wanted to support students learning about microfinance, an economic practice that gained popularity in the 1980s before criticisms of its efficacy arose in the early 2000s. The premise was that small loans of a few hundred dollars or less could help entrepreneurs in developing countries, where a little investment goes a long way. The practice was intended to lift people out of poverty and pave the path to self-sufficiency by backing marginalized groups that are often excluded from traditional financial assistance.

After suggesting a series of experts the College could bring in for the project, Mudd decided to put in a proposal of his own. To his surprise, it was accepted, with one small change: the addition of a few words that urged the program to get students involved in “socially responsible investing,” he says.

Mudd offered a non-credit six-week seminar on impact investing to gauge student interest. When 30 students showed up, he knew he’d struck a chord. From that seed grew a series of courses: one on the theory, practice, and challenges of microfinance; a research seminar focused on access to finance; and the hands-on impact investing class.

Actual investing wasn’t originally part of the curriculum, but when Mudd learned that ORFL, the socially driven Hong Kong-based foundation that supports his position and programming, would provide seed money for his students to invest, he knew it would be a one-of-a- kind learning experience for students.

“I discovered an opportunity to collaborate with a local group of impact investors from Investors Circle, but it was pretty scary for me,” he says. “The kind of early-stage angel investing they were doing was much higher risk than I ever would’ve considered. But to bring students into these meetings, for them to be in the room where it happens, to hear the pitches, the kinds of questions investors were asking, what they think is most important—the educational opportunity was just phenomenal.”

Students who have taken the class agree. Seth Maerowitz ’79, who worked on Wall Street and started his own software business, returned as a member of MI3’s Investment Advisory Council, which is composed entirely of Haverford alumni. “I went to business school and I don’t think I had a class at MIT that was as relevant to my work as that class is for students interested in impact investing,” he says.

In the latter part of the semester, Mudd presents the class with a long list of investment opportunities, generally companies with a broad range of social and environmental goals and an even broader range of ideas for how to achieve them. Students apply new tools, processes, and methodologies for evaluating these potential investments to whittle the list down to four finalists, then split into four-person teams to perform due diligence on each. They analyze the competition, estimate impact, and assess each company’s future prospects, often speaking with founders, industry experts, and other investors along the way to have all their most pressing questions answered.

The class culminates in presentations to the advisory council members, who poke and prod the possibilities with an investor’s eye, followed by a long discussion over dinner to determine which company represents the best opportunity. It’s like a scene from Shark Tank, if doing good was the primary motivation. The class is open to students in any major, so long as they have taken introductory economics, ensuring the room is full of a variety of perspectives.

Real Business Doing Real Good
When psychology major Allison Cubell ’24 took the impact investing course in her junior year, the class invested in Both&, which makes clothing for the queer and nonbinary communities. She plans to work in the fashion industry after graduation and calls the class “the most realworld thing I’ve experienced in college.” She appreciates the chance to develop financial literacy while playing an actual role in the investment process — not just reading about it. The class’s lessons are amplified by the weight of guiding real money toward real businesses that want to make a meaningful difference in the world, she says.

The education doesn’t stop when the semester ends. Cubell is one of many past students. Who returned as volunteers tasked with monitoring the class’s portfolio and preparing reports for ORFL.

“The skills I’ve gained following up and monitoring these companies, I don’t know where else I’d ever be able to get those skills in college,” Cubell says.

For economics major Kyle Huey ’25, who took the class last fall, it was something of a revelation. He wasn’t familiar with impact investing and had never heard of microfinance, either. The whole concept of using money to promote social good felt a little foreign to him, but by the end of the semester, he had experienced something he’d never encountered in another class. “It was almost as if we were doing the work of a real investor,” he says, which was precisely Mudd’s intention when he designed the class.

Like Cubell, Huey is working with Mudd to monitor the portfolio to continue what he calls the “fulfilling work” of impact investing. He plans to work in finance after he graduates, but now he’s thinking about how he can use what he’s learned to promote social good.

Committed to Consensus
Agreeing on what final business to invest in is often the most difficult part of the class. Mudd requires students to reach a consensus, in keeping with the Quaker way. It can be challenging to remain impartial and accept that the business they’ve spent weeks studying
may not be the best option. 

“I went to business school and did a similar exercise, and I saw a lot of students, becoming defensive about the companies they were pitching and having a hard time being objective,” Mathis says. “It’s quite difficult.”

Last fall, when two businesses looked like clear candidates, the class ended up splitting their investment between both: FRSH, which offers financial technologies to the formerly incarcerated, and Afterlife, which turns food waste from New York City restaurants into substrate for mushrooms that are then sold back to restaurants. (Mudd asked one of the businesses to lower its minimum investment to make both investments
feasible.)

Mathis says that the presentations and debate over the final project closely mimic the experience of being on a real investor committee. She also credits Mudd’s class as “instrumental” in her path toward professional impact investing with a climate focus.

“The optimism with which we approached the class set the stage for me to understand that the best way for me to make an impact was to find the exciting solutions for this really difficult — frankly, frightening — issue,” Mathis says.

Impact investing is a long game. It typically takes about eight years to get a return, Mudd says. The dozen or so firms his students have invested in help illustrate the uncertainty. One returned double the investment in two years (CodeMonkey, which uses gamification to teach kids coding), while two others closed up shop. 

In the decade he has taught the class, Mudd says his proudest moment came four years ago when his students scoured their options and ultimately determined they weren’t confident enough to invest in any of them.

“To have money on the table and walk away from making an investment shows you how seriously the students take this,” Mudd says.

In the quest to turn financial might into social good, there are no easy answers, but his students are committed to finding the right ones.

— Ben Seal