Impact Investing – How Impact Investors Work and Where to Find Them
Impact investors and impact investing are relatively new additions to the startup funding landscape. For most investors, the word “investment” typically leads to thoughts of financial returns. That’s natural. For the most part, investing in a startup comes with the expectation of gaining more money than what you parted with. This is known as return on investment or ROI.
But impact investors see things differently. For them, there’s a type of investment that not only aims to generate competitive financial returns but also aims to create a positive social impact. This is often referred to as Socially Responsible Investing (SRI).
And SRI has yet another branch called impact investing. In this area, investors focus on the impact of their investment on humanity, not just on their pockets.
What is Impact Investing?
Impact investing is the act of investing with the intention of creating environmental and social impacts as well as having financial gain. At the minimum, impact investors expect a return of capital. However, whereas typical startup investors often have the expectation of achieving a 10x, 20x or even 30x ROI, impact investors tend to place less emphasis on their financial returns.
Impact investors fund companies and organizations that address problems in sectors such as renewable energy, healthcare, conservation, sustainable agriculture, microfinance, and more.
Impact investing proves that solving environmental and social issues can be supplemented by investments and not just donations. It also demonstrates how investments can have other purposes other than making as many financial returns as possible. In the world of impact investing, this is often referred to as the ‘triple bottom line.’ The term triple bottom line refers to social, environmental and financial returns.
Today, there are many offers and opportunities for impact investors to generate triple bottom lines while helping organizations solve the world’s most pressing issues. Through impact investing, impact investors are still interested in ROI, but at levels that are typically much lower than what is common among venture capitalists or angel investors.
Around 66% of impact investors invest for risk-adjusted market-rate returns; 18% shoot for below-market-rate but still closer-to-market-rate-returns, while 16% only expect returns closer to capital preservation.
When looking at impact investing from a global perspective, most investments in emerging and developed markets exceeded expectations in both impact and returns. Only 2% of investors found that the impact generated by their impact investing portfolio was underperforming, and 9% deemed the financial returns to be below expectations.
How to Find Impact Investors
Impact investors can either be individuals or organizations. The types of organizations involved in impact investing includes financial institutions, banks, private foundations, NGOs (non-governmental organizations), religious institutions, and more. All of these institutions make impact investments with the goal of bettering the state of the world. You’ll also find that fund managers and individual investors who use their own money are into impact investing.
The David and Lucile Packard Foundation, is just one example of the types of organizations that make impact investments. For startups interested in connecting with impact investors, there are online platforms that connect impact investors and entrepreneurs. If you want to get access to a list of impact investors, check out these online databases.
Impact Investing Databases
If you need a to make a quick search of the impact investors you can contact, refer to the following impact investing databases:
Fledge: Fledge gives you easy access to impact investors by allowing you to search according to location, sector, funding stage, and more. The site is categorized as a startup accelerator that helps the growth of companies via mentorship and guidance.
ImpactBase: This is an online database that contains information about impact investment funds. This service has a global community, which you get access to when you publish a fund or product profile on their website. The Global Impact Investing Network (GIIN) operates ImpactBase.
ImpactSpace: This site provides stories and data about the impact investing market to entrepreneurs and impact investors. It also helps companies and people connect with impact investors.
These are just a few of the sites where startups can search for and connect with impact investors. It is important to note that just like venture capitalists and angel investors, impact investors review startups using the same criteria. The key differences are that impact investors are also looking for the triple bottom line and they are generally, not as focused on extraordinarily high ROIs.