Impact Investment: An Angel’s Perspective
Yesterday, Cooper-Fay Harris CEO, Kate Cooper-Fay, spoke at the ESG Future Growth Forum, along with our legal partner Asserson, sharing her thoughts on impact investment.
If you missed the event, Kate has shared some thoughts below
From an angel investor's perspective, impact investing is about balancing the desire to achieve financial returns with the intention of generating positive social, environmental, or cultural outcomes. Impact investing has gained considerable traction in recent years, as investors increasingly seek to contribute to solving global challenges—such as climate change, poverty, or healthcare access—while also building profitable businesses.
Here's an overview of the key elements that an angel investor might consider when exploring impact investments:
1. Financial Return vs. Social Impact
- Trade-off Consideration: Traditional angel investing is often focused on high financial returns, but impact investing sometimes requires a trade-off between profit and purpose. While some impact investments can deliver competitive financial returns, others may prioritize social or environmental outcomes over maximizing profits.
- Blended Value: Many angel investors are looking for investments that create a "blended value"—a balance between financial returns and measurable impact. This means finding startups or ventures that not only perform well financially but also contribute to solving significant social or environmental problems.
2. Identifying Impactful Opportunities
- Sectors: Angel investors may focus on specific sectors that align with their values, such as renewable energy, sustainable agriculture, education, healthcare, or financial inclusion. These areas are often ripe for innovation and present opportunities for startups to scale while addressing pressing global issues.
- Scalability & Sustainability: Angel investors are looking for companies that have the potential to scale rapidly, which is especially critical in impact investing. A startup that can grow while having a positive effect on society or the environment offers the potential for significant long-term impact.
- Measurability of Impact: One of the biggest challenges in impact investing is measuring the impact. Angel investors may want to work with startups that have clear, actionable metrics for evaluating their social or environmental impact. This could include metrics like reductions in carbon emissions, improved access to education, or healthcare outcomes.
3. Due Diligence with a Focus on Mission Alignment
- Mission & Values: For an angel investor, understanding the founding team’s commitment to the mission is key. It's important to assess whether the company is truly dedicated to its impact goals or whether impact is a secondary consideration to financial profit. A strong, mission-driven team is often a critical factor in the long-term success of impact ventures.
- Impact Frameworks: Some investors use frameworks like the Global Impact Investing Rating System (GIIRS) or B Impact Assessment to assess how well a company aligns with impact goals. These frameworks help assess the effectiveness and sustainability of a startup's impact strategy.
4. Market Opportunity and Risk
- Risk-Adjusted Returns: Impact investing can be perceived as higher risk, especially in early-stage ventures. Angel investors in this space often need to accept that not all impact-focused startups will achieve financial success. Some may take longer to reach profitability, or they may prioritize social outcomes over financial growth.
- Long-Term Focus: The time horizon for impact investing may be longer than traditional angel investments. Angel investors might need to be more patient, as many impact-driven startups require time to scale and prove their business models.
- Market Validation: Angel investors often look for signs that the market is ready for a solution that has both impact and commercial potential. This could be demonstrated through early customer feedback, traction in a specific market, or existing partnerships with larger organisations that validate the company's business model.
5. Blended Financing & Exit Strategies
- Blended Capital: Impact investing often involves a mix of different financing sources, including grants, patient capital, and philanthropic funding. As an angel investor, you might collaborate with other investors—such as impact funds, foundations, or development finance institutions—who are willing to take on different levels of risk in pursuit of long-term, positive outcomes.
- Exit Strategy: While traditional angel investors may focus on a clear exit strategy like an IPO or acquisition, impact investors might also consider exits that prioritise long-term sustainability over immediate financial returns. Some impact investors are content with less conventional exits, such as partnerships with larger organizations that continue the impact mission.
6. Engagement and Value-Add
- Active Involvement: Angel investors in the impact space are often more hands-on than traditional investors. Beyond providing capital, they may want to actively support the business in its social mission—helping with strategy, connecting the startup to relevant networks, or providing guidance on impact measurement.
Impact Amplification: Angel investors might look for ways to amplify the company’s impact through their networks and resources, such as connecting the startup with potential customers, partners, or larger institutional investors who share similar values.
7. Ethical Considerations and Personal Alignment
- Values-Driven Investing: Many angel investors are motivated by personal values and a desire to leave a positive legacy. For them, impact investing is not just a financial decision but an ethical one. This means that personal interests, beliefs and passions often play a significant role in their investment choices.
- Changing the Narrative: Impact investors see their role as part of a broader movement to change the traditional investment narrative—where profits alone were the primary driver—to one where societal benefits and returns are integrated. This aligns with the broader trend of the rise of ESG (Environmental, Social, Governance) and the search for investments that make a difference.
As an angel investor in the impact space, the key is to strike a balance between achieving financial returns and contributing to social or environmental goals. While the financial risks may be higher, the rewards—both financial and personal—can be significant. The key to success lies in due diligence, finding the right alignment with the startup's mission and a commitment to fostering long-term, sustainable growth that creates both value and impact
If you would like any advice as an Angel Investor or if you are seeking an Angel Investor, please do not hesitate to get in touch
