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Access to impact investment
This module defines what impact investing is, why it is important to achieve social inclusion, and what type of organization is suitable for such an investment. It also provides a case study that details the relationship between a social entrepreneur and impact investor and the complexities this relationship entails.
Introduction to impact investing and why is it important
When we are talking about impact investing with a focus on developing regions, we are talking about how investors can drive economic and non-economic resources to organizations that are driving social change and aid in the generation of social inclusion through their business models. Impact investing goes beyond just providing financial resources for social entrepreneurs to scale; it is about helping find new and more sustainable solutions to old but urgent social, economic, and environmental challenges. Impact investors usually think in terms of financial and impact return. Financial-first investors are those that are more interested in market returns whilst impact-first are those investors that give a priority to social and environmental indicators. Furthermore, many impact investors are trying to not give up market returns in exchange for an increase in impact. In this sense, many of them are searching for competitive opportunities in terms of market return and impact return simultaneously. Developing regions are the main contexts where impact investment directs its resources. Therefore, successful processes of impact investment require a knowledge of and experience in developing regions in order to adapt to the complex contexts in developing countries marked by weak institutions and government corruption. Ultimately, the strategy of an impact investor is to negotiate resources for positive social and/or environmental impact and financial return.
Video 1: Four types of investors (7:58 min)
This video introduces the main types of investors in the market and the benefits and challenges each one presents to the impact scaling efforts of an organization. It helps the organization reflect on the type of investors it needs to reach its social and/or environmental objectives.
Video 2: Which organization is suitable for impact investment? (3:20 min)
This video presents the views and recommendations of what impact investors look for in a potential impact investment opportunity.
Speakers:
Video 3: What do investors want to hear? (12:29 min)
This video presents the views and recommendations of what impact investors expect to hear and see when an entrepreneur pitches for an investment.
Speakers:
For those of you that wish to delve deeper into a specific topic, we have added links to further reading you may study individually or discuss in group forums.
“What You Need to Know About Impact Investing” by the Global Impact Investing Network (GIIN) / https://thegiin.org/impact-investing/need-to-know/#s5
“Impact Investing Isn’t A Hype - It’s An Evolving Toolbox of Opportunities” by Ashoka / on Forbes http://www.forbes.com/sites/ashoka/2016/10/14/impact-investing-isnt-a-hype-its-an-evolving-toolbox-of-opportunities/?platform=hootsuite#370946cb460c
“The Art of the Pitch: How Startup Social Enterprises Pitch Impact Investors” by Naki B. Mendoza / on Devex https://www.devex.com/news/the-art-of-the-pitch-how-startup-social-enterprises-pitch-impact-investors-88266
This case study presents the (social) entrepreneurial journey of Ciudad Saludable Group (CSG), an organization focused on achieving the inclusion of poor recyclers in the recycling value chain in Peru. CSG’s journey from a non-profit model to a hybrid model allowed it to gain access to diverse funding options including philanthropy and impact investment. This case study will help you reflect on your own organization’s structure and what steps you can take to gain access to capital and scale your social and/or environmental impact and the complexities of maintaining relationships with impact investors.
Questions 1: What defines an impact investor? (single choice)
a. Low impact, high return
b. Low impact, low return
c. High impact, high return
d. High impact, low return
(answer: c)
Questions 2: What do impact investors expect a potential investee to deliver? (multiple choice)
a. A clear business model validated by customers
b. Impact must be the center of the theory of change by showing how the business model will improve the client’s/beneficiary’s quality of life.
c. A unique idea that has no competitors.
d. A solid team that is solely focused on the running the organization
e. Clear and measurable outcomes
(answer: b and d)
Questions 3: What is the revolution of impact investing? (single choice)
a. Focusing solely on social impact
b. Focusing on high social impact and low to moderate financial return (impact-first)
c. Focusing on risk, return, and impact
d. Focusing on low to moderate social impact and high financial return (finance-first)
(answer: c)
Based on you answer to worksheet What is Social Entrepreneurship, identify which type of investor best suits the direction you planned for your organization.