Fundraising. It can be challenging enough at the best of times, but what about when there’s the added element of impact? Impact investors are looking not just for financial returns but also measurable positive social or environmental outcomes.
So how do these investors assess investment opportunities and make funding decisions? While there are variations across funds and individuals, there are also a lot of similarities.
Here we try to make those insights available to any founder looking to work with VCs or angels focussed on impact. Find out what some leading investors in the space look for, and read through our suggested fundraising checklist below.
Investor voices: VCs
Melanie Hayes, Managing Partner at Bethnal Green Ventures says:
A lot of the metrics are standard commercial metrics, because we’re looking for businesses where the impact goes hand in hand with commercial success.
“When we’re looking at a potential investment, we’re asking: is this a big and important enough problem, with a strong enough solution, that in eight to ten years’ time, this team could have built a business worth over £100 million and positively impacted the lives of millions of people.
So we define success both in terms of the financial value of the business, but also the amount of impact they will have. Thereafter, a lot of the metrics are standard commercial metrics, because we’re looking for businesses where the impact goes hand in hand with commercial success.”
We ask ourselves if selling more of a particular solution is what the industry needs?
“Any business that we invest in needs to have impact baked into their business model. What this means is that the more you sell, the more impact you will have. This consideration is always the starting point.
When doing due diligence, we ask ourselves if selling more of a particular solution is what the industry needs? Are we inadvertently encouraging greater consumerism or selling to the wrong group of people? It helps when companies have that clarity on the problem they are solving, but in the absence of masses of historical data, we will look at a company’s theory of change and its ability to demonstrate a clear path to making an impact on their end beneficiaries.”
Investor voices: angels
Charly Kleissner, pioneer of impact investing and tech for good angel
We look at the entrepreneur and ask is she really an impactful person?
“We look at whether a business has innate impact or not. We don’t like businesses with add ons, such as the one-for-one model where you sell a pair of shoes and give a pair away – that’s not impact for deep impact investors. We also look at the entrepreneur and ask is she really an impactful person? If she’s only trying to maximise returns for her and her team then we would not invest.
So the first screen is: are you an impactful person? The second is, is your business impact? Then we go into the financial model, and then the impact model, in that order. However we don’t expect a whole lot of detail on the impact model in the beginning for seed stage, because we help the entrepreneur actually develop their impact strategy.”
One of the things that I like about investing in impact-driven entrepreneurs is that they have a consistency in their view and a consistency in their approach.
“I’ve always tried to be very careful when investing to understand what the entrepreneur is looking for, and to make sure it aligns with what I’m looking for. The last thing you want as an investor is to find that you’re with an entrepreneur who wants to take the business in a completely different direction than what you understood.
One of the things that I like about investing in impact-driven entrepreneurs is that they have a consistency in their view and a consistency in their approach. That means you often have a good sense of where they’re going and what’s driving them. Whether or not you agree with it is a different story, but you do understand what’s behind that passion. I think it’s important for founders to communicate that well to investors and make sure that they have investors that are along for the ride and are there to support the mission of what they’re trying to achieve.”
While all investors take their own approach, as we’ve seen from these insights, there are a number of things in common that most impact investors look for. Here we’ve put together a fundraising checklist that might come in handy when pitching for investment.
1) An understanding of your users and the outcomes they are currently experiencing. This demonstrates your understanding of the problem you are trying to solve and offers evidence for the need of your proposed solution in the market.
2) A theory of change. If you do not have lots of historical data, you need to have a strong hypothesis about how you will generate impact.
3) An understanding of why you are the best person or team to build your business and create a positive impact. In the earliest stages when data might be limited, you can demonstrate your expertise or deep understanding of your theory of change by talking about your team.
4) A plan demonstrating how impact considerations are/will be integrated into the business. Impact investors want to know that your impact is integrated into the core of your business model. It should not appear as an add-on to your main activities.
5) Documented consideration of your company ethics, unintended consequences and/or impact risks. You can aim for a positive impact but if your company is built on the wrong foundations, you might generate more harm than good. Have evidence showing that you have considered how you can grow your business responsibly.
Last week the Global Impact Investing Network (GIIN) published its annual study sizing the market for impact investments across the globe. The GIIN estimates the size of the impact investing market to be $1.164 trillion in assets under management (AUM), a significant increase from the last time the study was conducted.
Fundraising. It can be challenging enough at the best of times, but what about when there’s the added element of impact? Find out what impact investors look for when making funding decisions, and take a look at our founder fundraising checklist.