1. Any investment can be an impact investment, by adding environmental, social and governance (ESG) objectives in addition to financial return targets.
2. “Impact Investment” as a formal discipline only emerged in 2007. While some of us have done social investing for decades under different names, most teams and managers (as well as social entrepreneurs) are relatively new/young. Experience is critical to success, but relevant track records and benchmarks are scarce.
3. “Market Rate Returns” don’t exist – at least not in the form of 25% IRRs. Some years investors (VC, PE or mutual fund) do well, some years they do very poorly. What you should look for as an investor, or aim for as an entrepreneur, is a commercial rate of return.
4. Capital isn’t the primary roadblock, multiple bottom line investment management capacity is the weak link. In the US, at the end of 2009, there were almost 7000 hedge funds and almost 800 VC firms – but only two microfinance asset managers with more than US$100 million under management. In order to massively increase funding to ventures with social impact, we need new business models for social impact investment management that reduce risk, cost and time to market.
5. Achieving impact means understanding your core values. Defining a mission isn’t enough. What specific objectives do you have for your impact investments — and can your investment advisor or fund manager deliver performance metrics around those objectives? Are you aware that you can create impact at three different levels?