Adding ‘Impact’ to Investor
The world of social or impact investment is different in many aspects from the world of commercial investment. And those who want to begin their journey into the world of impact investment should understand these differences so that they know what it means to add the prefix ‘impact’ to their investor profile.
As part of my work, I have been investing in social enterprises for a while. And I also recently started investing on my own.
As a social investor, there are a few core principles that have guided me and I believe these are critical factors all social investors should prioritize when exploring impact investment opportunities.
Let’s go through these principles:
The Entrepreneur- Invest in the ‘right’ person
This is THE most critical aspect. Social entrepreneurship is challenging and very few people have the passion, commitment, and determination it takes to succeed. Only a few have the drive to make their social mission their life’s purpose and adhere to it even in times of adversity.
Recently I invested in a social enterprise where I had known the founder since the time he had launched the venture. I had advised him over a few years and had seen first hand his passion, dedication as well as his business acumen and I knew this would set him up well to succeed.
The Problem- Invest to ‘Solve’ a problem
When evaluating an investment opportunity, assess if the founder is able to articulate the problem clearly. Is there a deep enough understanding of the problem and its root cause? Because if the understanding is missing, the solution will either be ineffective or too shallow to create impact.
I made my first investment in healthcare in India, a country where more than 700mn people lack access to affordable healthcare. It's a massive problem both in terms of size and severity and it needs to be addressed.
The founder had a deep understanding of the problem having seen it from close proximity right from his childhood. And while having that depth of understanding, he had zeroed in on where the breakdown was happening and had built a solution that was effectively tackling it. Needless to say, his solution fit like a glove because it specifically addressed the bottleneck. And that is what you want to see as an investor.
The Idea- Invest in a ‘Unique’ idea
The solution is a by-product of the idea. If the idea is great, the solution has the potential to be great.
As an investor, assess how unique the idea is. What was the insight behind it? Is there a ‘secret sauce’ that makes the venture unique and stand out from the rest of the players in the market?
What puts them in the market of one?
The Impact- Invest to create ‘Change’
When looking to invest, you have to assess the venture’s impact goals. What has been their impact track record? What is the projected or the potential impact? Are they able to provide social proof or in other words what impact is their work having on their beneficiaries?
As a social investor, you need to see how your money is being put to the best use possible to create change. You need to see how the venture you are looking to invest in is planning to use your funds to enable more impact.
In the case of the healthcare investment I made, the venture had already impacted more than a million people, were growing their centres in villages across a number of states in India and had clear visibility on the impact that they were looking to generate and how the investment they were looking to raise lined up with that objective. As an investor it helped to see a clear path to the kind of impact the venture could potentially deliver.
So, these are the 4 factors I prioritize when looking at impact investment opportunities. And you should too, if you truly want to invest to create change.
Yes, there are other obvious considerations as well such as the venture’s business model, financials, growth plan etc. but all investors are well-equipped to assess them. But it is these 4 principles that uniquely differentiate a social investment from a commercial investment and therefore should be on the top of the mind of anyone who wishes to embark or is already on a journey to use their capital to catalyze impact and create change.
