Finding the real meaning
As the effect of Silicon Valley ripples through each country, sector and entrepreneur, I’ve witnessed both the positive and negative changes.
An abundance of money is being pumped into startups all over the world, whether or not they actually have a working prototype or in some cases, a feasible idea. Fine, it’s your money (well kinda), you can invest it where you want.
Then you had the philanthropists, who were looking to donate large amounts of money to green or social projects. Excellent, with both government funding and donations decreasing, there’s a funding gap to be filled.
More recently, social entrepreneurship has found its footing and is starting to become prevalent in some countries. Legal structures have been formed, governments have set up policies and strategies, and universities have started teaching it. Now we have impact investment, and funds for impact companies.
What is impact investment?
In a nutshell, impact investment follows the usual rules of any investment. The investors are looking for a return over a number of years and will also have equity in the company.
However with impact investment the return isn’t just financial, but can be linked to a number of social or environmental indicators. These indicators tie in nicely with what the organisation sets out to do generally, or through a specific project.
For example, if an impact fund invests in a company selling affordable water filters, the fund will look for two things:
A financial return — the product itself has to make a profit in order for the company to be able to offer a return on investment at a certain percentage
A social or environmental return — the product has to have a positive impact on the buyers life that can be measured and thus relayed back to the fund.
What’s happening now?
As more and more funds have opened across Europe and the world, we have started to see a large change in the way they classify impact and social return.
You have the ‘purists’ who focus on specific problems such as hunger, housing or education, but then there are other funds that leave it open to interpretation.
Is xyz, a tea company really having a positive social impact on their drinkers so much so that they receive these funds? Perhaps if they are employing a certain community, developing educational opportunities there and paying them a living wage, most of which wouldn’t be possible otherwise.
Is abc, a new taxi app really changing the way we commute in a way that returns something valuable to all? Perhaps if the fleet is only made up of electric cars, or there are subsidised services for certain customers.
Have a think yourself at recently awarded funds. Would you class them all as impact-focused companies?
Impact is impact, no matter large or small though.
That’s the argument put to me when I ask. As long as you can come up with an appropriate reason for getting the funds, then it seems that any impact flies.
I think we have to really ask ourselves a few questions:
Are there not enough social entrepreneurs out there generally?
Or not enough applying for these funds that impact gets diluted?
Or do the funds want to prioritise the financial return that ‘purists’ may simply not be able to offer?
Whatever the reason, and whatever your point of view, it’s great to see that there are funds now for the causes, projects and organisations that are committed to producing real, positive, social and environmental impact. If you’re one of them, make sure you access the finance made for you, and stop abc and xyz to it!