Getting Investment Ready: Part II - How to Prepare for Potential Social Impact Investors?
As the owner of a social enterprise, making the decision to bring in outside investors is not always easy. You have built your business from the bottom up and put in hours, sweat, equity, sleepless nights, love – basically committed your whole being to the success of your business.
So, there are a number of things to consider before you make the move: the infusion of extra capital can have positive implications for the growth of your business but there are some important things to keep in mind.
Here are a couple of key questions to ask yourself (and your business partners) before you even start the conversation with potential investors:
1. What is the amount of the investment you're looking for?
For example: the participants during the first Trade+Impact Summit in Morocco in 2016 were looking for an average of US$120K. Frequently social impact investors are looking for investment opportunities that are US$250K-500K+. Are you at the right stage to approach social impact investors?
2. How will that investment be used?
For example: to buy equipment that will increase capacity to meet existing demand
3. What will be the outcome of this additional investment?
For example: it will grow the business by X%, it will allow to us to reach X new markets...
4. What are you willing to offer for this investment?
For example: equity stake, return on capital, return on investment
5. What are you looking for / open to from an investor?
For example: business mentorship / guidance, help accessing new markets, silent partner, investor with influence on management / operational decision
Focusing on these questions may help form your strategy about what type of investment you’re looking for and the type of investor who might be worth approaching.
Our 2016 survey of participants showed that the top priorities for new investment were:
Increase production and employment opportunities
Invest in the community
Marketing and business development
Improve working conditions for producers
If you’ve decided to approach potential social impact investors, its important to consider both sides of the equation: Investment Return + Social Impact.
Investment Return (ROI)
Impact investors do expect a return on their investment and they will conduct their due diligence before making a decision to invest in an organization. It is important to have your financials records and reports (past/current/projected) organized to help convince potential investors that their investment in your organization will provide the expected ROI.
Investors need to feel confident on the following risks and that you have covered off ways to allay those fears:
1. Business model execution & management risk
2. Liquidity & exit risk
3. Country & currency risk
Unlike traditional investors, impact investors are willing to give up some ‘upside/return’ on their overall investment in order to support organizations that are making a social impact. In return, they want to know that you are measuring and reporting on your social impact initiatives, so you need to be prepared to do so.
This measurement and reporting can be challenging for many owners of social enterprises who are also trying to grow their business. Many know they are having a positive impact in their communities (such as health clinics or providing interest-free education loans for producers’ children) but investors will be looking for tangible social impact outcomes that they can share with their stakeholders to reinforce the value of the investment.
If you are looking at your own social enterprise, and wondering about what measurements are most relevant, unfortunately there is still not a standardized set of impact measures that social impact investors look at. However, the Global Impact Investing Network (GIIN) is a great resource with 50+ possible metrics to consider.
I know that as you go through this list, you will be able to check many of the boxes with your impact initiatives. The next step is to figure out which ones are measurable and how you can easily start to do this for reporting to your impact investor.
This may feel overwhelming as you ponder the decision on whether to seek outside investment into your social enterprise, but know that there are social impact investors out there looking for the right investment opportunity. It is just a matter of being fully prepared to start the conversation.