According to the Case Foundation, impact investments are investments into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return. It’s like social entrepreneurship, only this time, it’s from the investor’s perspective. A growing number of startups are looking at impact investments as a source of startup capital.
Through impact investments, funds invest either in emerging or developed markets just like microfinance. The difference is that the former tends to be almost exclusively focused on local social and environmental issues. In contrast, impact investments tend to have broader national or even global goals. Most of the startups that attract impact investments usually have philanthropic goals.
What Kind of Startups Attract Impact Investments?
The Case Foundation defines impact investments as, “using the power of business to solve social problems”.
According to The Global Impact Investing Network, impact investments have four core characteristics. Startups that embrace these characteristics may be good candidates for impact investments as a source of startup capital. The characteristics include:
- Positive social or societal impact. The purpose of the business should have positive environmental, social or societal impact.
- Investment with return expectations. The business should generate at minimum a return of capital.
- Range of return expectations and asset classes. Financial returns range from below market investments and up.
- Impact measurement. This is about transparency and how social and environmental performance in a business are measured.
Top Five Impact Investment Firms
The Economist notes that impact investments as a source of startup capital have gone from niche to mainstream. Many financial and asset management firms are now creating “impact” divisions in their companies. The reason is awareness to help other people and make the world an easier place to live in. It’s about being a responsible investor. For example, avoiding investments in businesses that harm the environment.
Here are five examples of impact investment firms that value social and environmental impact in businesses they invest in.
- Vital Capital Fund. This private equity fund with more than $300 million in assets invests mostly in sub-Saharan Africa. They aim to improve quality of life in the locations they invest in. Vital’s focus is on housing, health care, and renewable energy, among other things.
- Triodos Investment Management. This Netherlands based investment management subsidiary helps countries in South America, South East Asia, and India. They assist mostly in organic agriculture, renewable energy, and arts and culture.
- The Reinvestment Fund. A USA non-profit company based in Philadelphia, Pennsylvania. They focus on poor communities in the USA offering health care, education, and job programs.
- BlueOrchard Finance S.A. A Switzerland based company operating in 50 markets in Asia, Eastern Europe, and Africa. They provide services to fight starvation and poverty in these emerging markets.
- Community Reinvestment Fund, USA. From Minneapolis, Minnesota, this non-profit financial company invests in 47 states in the USA. They operate by providing loans to businesses, community development projects, and housing projects.
With impact investments as a source of startup capital growing, social entrepreneurship is also on the rise. In this day and age, it’s not always about profit-making anymore. It’s also about helping the poor and improving the state of the environment. Impact investments are a noble approach to business that will bear fruit in the future, making them increasingly a good source of startup capital.
Social and environmental issues are not just the domain of philanthropic endeavors. On the flip side, making a profit is no longer just solely for the sake of making profit.
Interested in learning more about impact investments and exploring whether they’re a good source of startup capital for your venture? Contact me today and we’ll talk.
