GETTING INVESTMENT READY – Part I What is Social Impact Investing and how can you take advantage?
One of the five pillars for Trade+Impact is Invest+Impact – from the very beginning we have been focused on helping our members prepare themselves for potential investors, if and when they are ready to take this step.
It can be a big move for a social enterprise, as it grows, to consider bringing in outside investors to support its ongoing and future growth. Financing business growth is a critical strategic component for any organization – and there are a number of options that can be considered before bringing in an outside investor such as bank loans, credit, friends & family, and/or micro-financing. However, you may get the stage where you need to access external investors to secure financing for your planned expansion.
The good news is that as a social enterprise, there is a growing area of funding to potentially tap into: social impact investors who are increasingly making investments into companies and organizations with the intention to generate both social and environmental impact alongside a financial return.
Current estimates show that impact investing stands at US$230B globally. And this is only expected to grow as impact investors look for more from their investment – the focus is not just about increasing the dollars but also about having an impact on society and/or the environment.
Social impact investors are not donors or philanthropists. They do expect a return on their investment (ROI) from ongoing business growth in their investment, or at least a return of capital (ROC) on their original investment. However, they are willing to give up some of the potential financial upside return in the exchange for supporting the social impact initiatives of organizations, as their clients are increasingly looking for investments that also deliver and provide social impact.
Here are some types of social impact investors:
Banks, pension funds, financial advisors and wealth managers – providing clients with different investment opportunities outside of traditional markets
Institutional and family foundations – leveraging significantly greater assets to advance their core social & environmental goals, while maintaining or growing overall endowment
What are social impact investors looking for?
High quality investment opportunities with a track record (ie. proven performance)
Opportunities for scalability (ie. already exporting, under-financed to meet current market demand)
Working with social enterprises that provide transparency in terms of financial reporting and returns
Clarity around when and how they can exit their investments
When we held the first Trade+Impact Summit in Morocco in 2016, we asked participants what level of investment they were looking for: the average was US$120K. Frequently social impact investors are looking for investment opportunities that are US$250K-500K+ so its important to recognize when you are the right stage to approach potentially interested investors.
As a social enterprise, this is a financing avenue you are might be able to access – if you decide accessing outside investment is the right strategic path for the next stage of growth.
[Look for Part II of this blog post on how you might prepare for potential social impact investors.]