By Mark Hand and Nikhil Dandavati

Earlier this month, thirty-five men and women gathered in Santa Barbara to discuss how to give away a major slice of their $140 billion of personal wealth. Many had already signed on to the Giving Pledge, a pact pushed by software tycoon Bill Gates and value investor Warren Buffett. Having convinced their peers to give away at least 50% of their wealth to charity, Buffet and Gates turned the supergroup’s attention to how to do it well.

According to the Economist, one topic dominated the conversation: impact investing, the lesser-known and perhaps estranged cousin of socially-responsible investing. Impact investors–like our employers First Light and Gray Ghost Ventures–make investments in companies they believe can provide financial return while concurrently tackling some social or environmental ill (so-called “social enterprises”). Major players in the field range from the Omidyar Network, investor in media company Digg, to Acumen Fund, our coinvestor in a rural, for-profit water purification startup called Spring Health. The industry promises a path by which Giving Pledgers can deploy dollars to drive social change in a format they already understand. The best of both the financial and philanthropic world, it would seem.

So far so good; but large, individual investors have at least three reasons to approach the phenomenon of impact investing with caution. First, impact investing is a painfully young field. Acumen, the industry’s cheerleader, only just celebrated its tenth birthday. Impact investing professionals are young, too: a typical investment associate is in her late 20s, still learning the ropes on the investor’s dime. Many funds are founder-driven, as well, having yet to develop into the process-driven partnerships of their more commercial counterparts that can maintain and train bright young staff. The industry’s youth has also translated into an obsession with the sexiest of funding mechanisms: early-stage venture capital, a Procrustean bed for most companies.

The second reason for caution is that practitioners of impact investing and social enterprise have yet to agree on a transparent set of definitions, parameters, or goals. An internet search for “social enterprise” is as likely to lead to a non-profit urban garden in London as it is to an African mobile payments scheme, and little consensus exists on how investors and companies should balance social impact and financial return. In some firms, this creates a healthy, guiding tension; in others, it amounts to little more than institutionalized schizophrenia. That lack of clarity and transparency–few impact investing firms have profiles on websites such as Wikipedia, CrunchBase, or AngelList–means that entrepreneurs with non-profit backgrounds see “equity” as a fancy new word for “grant,” and newcomers to the sector require months to get up to speed on the layers of meaning behind industry jargon.

Finally, the most important reason for Giving Pledge members to approach impact investing with care is that impact investing has yet to deliver on its promise of combing financial return and social impact. Financially, impact investing has seen little capital returned to investors. Socially, little evidence exists that impact investing is a better way to spend a charitable dollar than old-fashioned charity; at least one family foundation in the US that had invested in over a half-dozen social enterprises in Africa has now pulled out, and now gives grants exclusively to nonprofits.

Given the above, perhaps Mr. Buffett’s personal skepticism is warranted. Skepticism need not give way to cynicism, however. LGT Venture Philanthropy has a crack team in India that makes equity investments and gives grants, and rigorously models its social impact; and Pierre Omidyar’s group has demonstrated commercial-level discipline in its investments in media startups. There is much good work being done and much good work left to do. As outside investors peer in, they should be ready to roll up their shirtsleeves and help build a field still very much under construction.

Based in Mumbai, India, Mark Hand is an investment associate at First Light Ventures, a seed fund affiliated with Gray Ghost Ventures. Prior to First Light, Mark worked for four years in community development organizations in the US and developing countries, including serving as the founding Director of a community development site in Ecuador for Manna Project International. He will attend Said Business School at Oxford this fall as a Skoll Scholar and Rotary Scholar.

Nikhil Dandavati, an investment associate at First Light Ventures, previously co-founded the Unreasonable Institute, an incubator for high-impact entrepreneurs. He gained his initial exposure to venture capital in Hyderabad, India, through his work with the NASSCOM-ICICI Innovation Fund and began to pursue his entrepreneurial aspirations by setting the groundwork for a medical device company in Boulder. He continues this pursuit with a company that helps make higher education more affordable for students in the Rocky Mountain region.

Editor’s note: In the original version of this post, the authors referred incorrectly to LGT Venture Philanthropy as “The government of Lichtenstein’s venture philanthropy arm.” LGT Venture Philanthropy is not part of the government of Lichtenstein.