Best Available Charitable Option (BACO)

22Jan10

I find this an interesting perspective on another way of “capturing value” from examination of a social enterprise business model. How can an investor compare “returns” from its donations? Perhaps BACO can help an charitable investor to decide which programs to invest in to have the highest impact… perhaps Impact value > financial value?

I am posting a summary of a BACO example (with full credit and reference to Acumen Fund Knowledge Centre article):

Objective: to quantify an investment’s social impact and compare it to the universe of existing charitable options for that explicit social issue. BACO is driven by financial leverage, enterprise efficiencies and technology leverage.

Question: for each dollar invested, how much social output will this generate over the life of the investment relative to the best available charitable option?

Example:

1) Donation to charity to distribute bednets. $325,000 + cost of administration $65,000 = total society cost $390,000

2) Investment in firm that produces anti-malarial bednets. $325,000 + cost of administration $130,000 – return (6% annually 5 years) $422,500 = cost to society $32,500

This analysis can be further extended to social impact projections and derive at a BACO ratio. I will stop here for the moment to consider that even at the most basic level (without addition of positive externalities of local job creation on the ground if malaria nets are made instead of being distributed), society as a whole is better off with a lower investment to protect the same number of people.

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