The Impact Investor Survey & Brighter Impact

The Impact Investor Survey & Brighter Impact

Brighter Impact is the name of our entrepreneurship venture a few of us started at IE Business School. The project focuses on bringing impact investment opportunities in the EM (Emerging Markets) to retail investors in the DM (Developed Markets) wrapped in a private equity model. Impact Investing is investing with a dual purpose. It’s a non-bifurcated method of investment that hopes to generate both social/environmental and financial returns. While charity and financial investments are binary, impact investment brings together as one the goals achieved by charities and financial investments. While still an emerging asset class, I believe it’s on an upward trajectory and the recent report by GIIN and J.P Morgan confirms that.

The “Perspectives on Progress” report highlights that money committed to impact investment is slated to rise by 1 billion USD in 2013 to 9 billion USD. While this shows a lot of potential, I can’t help but wonder the potential increase in investments if opportunities were available to retail investors via easier channels than fund managers, development banks/institutions or products via diversified banks. However, the report discloses a few metrics that proves that the impact investing space holds a lot of promise. If industry participants co-operate and adopt easily decipherable reporting metrics (IRIS), impact investing can gain a lot of traction via standardization and network effects.

Target_Fin_Returns_ImpactSurveyJPMI have been asked multiple times the floor investors were looking for when investing in a social opportunity via Brighter Impact. My answer always was – market rate of return. The report confirms that 77% of DM investors were interested in generating market returns and the remaining 23% were expecting “close to market rate” returns, essentially the expectations were firmly above the rates for capital preservation. The market rates were based on bench marks from various indices including LIBOR, MSCI Emerging Markets Index and others. Obviously, if investing in venture stage companies or growth stage companies instead of mature companies, you’re bound to witness greater results – quite simply because of convergence hypothesis. Although GDP growth across a few countries in the EM might have slowed, the tonic is to invest in venture/growth stage companies with big impact radii.

Private equity still remained the most popular method used to invest. This gives social enterprises access to patient capital. We at Brighter Impact surveyed a few companies from India and all companies mentioned the need for patient capital. Acquiring an equity stake in a company and structuring a deal that aligns the goals of investors and the social enterprise / SME is paramount for successful exits in the future. Still, risk remains at large. Due diligence is a huge cost especially for EM investments. The survey confirms “business model execution / management risk”, “country & currency risks” & “macro risks” as the top 3 risk contributors. I however believe “business model execution & management risk” can be mitigated greatly. By investing in GIIRS rated companies and transferring responsibility & burden of proof to the entrepreneurs of the social enterprises, business model & management risk can be reduced. It’s also important to have key partners i.e. on the ground troops to interview management and reaffirm congruence of interests.

Technology can help bring impact investing to the main arena. Marketability of the social cause should be the driver behind impact investments. Marketability via online platforms and social networks and a deep association between the social cause and channels that offer investment opportunities is bound to attract more patient capital. While still in its infancy, Impact Investing shows great capacity for growth and I will be monitoring this space closely and with keen interest.

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  • Neil

    Your post, Impact Investing – Entrepreneurship, is really well written and insightful. Glad I found your website, warm regards from Neil!

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