An insider’s perspective on impact investment

For an increasing number of founders, success is no longer measured in purely financial terms but also in terms of having a positive impact socially, or on the world around them.

What has evolved alongside the purposeful vision of those founders and startups is a different breed of investor, a support network of organisations, and even a certification, in the shape of B Corporation.

The term ‘impact investment’ has been around for a number of years (coined at a Rockefeller Foundation meeting of in 2007), and refers to those investors who want more than a financial return, they want their money to do something good in the world at the same time. With the sector expecting to surpass $300 billion globally by 2020, we can safely say it’s not just a buzzword anymore.

As values become a more important part of the investment strategy for startup founders and they look to align themselves with investors whose values match their own (a strategy that helped the founders of food-sharing app OLIO in their Series A funding round), demand for socially responsible investment is increasing. However, with the introduction and growth of new funds focusing on this sort of investment, and even startups that help educate on how to invest ethically, the scope for supporting an ever growing and sustainable ecosystem of ‘for good’ businesses is huge.

So how important has impact investment become? What role does it have to play in business and what does the future hold? We asked some of the leading players in the space for their thoughts.

Here’s what they had to say:

Elizabeth Corley CBE  – Former CEO, Allianz Global Investors and Chair of the Implementation Taskforce for Growing a Culture of Social Impact Investing

In December 2016, the government set up an independent Advisory Group chaired by Elizabeth Corley to look at how to grow a culture of social impact investment and savings in the UK. A taskforce is now in place to action the report’s recommendations.

“There can be no doubt that, for companies with purpose and a desire to have a positive effect on society, impact investing can play an important role. Working alongside other sources of capital, impact investing in startups can provide a patient source of funding – and a potentially interested investor for the longer term.

To attract impact investing, it is important for startups to have a clearly articulated ‘theory of change’; what is it that their enterprise or app is going to do to help address social problems and imbalances? Add to that a credible business plan and a good team and the appeal grows.

I mentioned other sources of capital because investors may not wish to be a sole founder. For social enterprises, philanthropy, foundation grants as well as impact investing have vital roles to play.”

Kirsty Ranger – CEO of IdeaSquares

“There is a growing number of investors who seek to align their financial decisions with their personal values. And as impact investment becomes more mainstream, it has also become apparent that social impact can go hand in hand with return on investment. For startups who want to make a positive impact on their environment and the community, this opens opportunities. Crowdfunding, which is a great way for startups to raise seed capital, is a really good fit for impact investment as it makes it easier for investors to choose companies and causes they feel strongly about.”

Douglas Sloan – Investment Manager at Big Society Capital

“When impact investors provide capital to startups, they are seeking both a financial and a social return on their investment.

This approach enables socially-motivated startups to focus on growing their social impact as well as growing their business. We see the value that mission-aligned investors can bring: from providing patient capital, to supporting impact management, to understanding the nuanced journey to scale for socially-motivated startups. In addition, there is growing evidence that purpose can be a competitive advantage and itself be a driver of profit in certain business models.

We see a range of organisations providing capital and support to socially-motivated startups in different ways. We see the role of impact investment in bringing people together at idea stage (Zinc), supporting ventures through accelerators (BGV, Wayra Fair by Design), facilitating angel investment (Clearly Social Angels), and providing capital to scale (Nesta, IVUK, Ananda, Mustard Seed).

It is a vibrant ecosystem, and it has come far in recent years. But there is more to do: filling gaps in capital provision, exploring different forms of support, and building the movement around social venture investing.”

Summary

‘Impact investment’ clearly takes different forms, with some investors more comfortable than others (or indeed eager) to favour ethical impact over a financial return. However, what also seems apparent, for startup founders who wish to align themselves with investors who share their values and really believe in their vision, the opportunities for finding support and investment are growing. And with more investment available for startups with purpose, if we see more and more of these businesses able to flourish, that’s only got to be a good thing, for the startup community but also society, and the planet.

Photo by Volkan Olmez on Unsplash