Delivering sustainable solutions in a more competitive world
Fostering Entrepreneurship: Impact Investing
Delivering sustainable solutions in a more competitive world
What is Impact Investing and Impact Capital?
• Impact investments aim to solve social or environmental challenges while
generating financial returns
• Different from: Commercial investors who avoid doing harm; grant
agencies don’t invest in businesses
• Capital is invested on sub-commercial terms, but designed to at minimum,
return money and optimally, generate profits
• Over 10 years $10.6 USD Bn impact $ has been invested by:
• Impact funds – such as Acumen, Bamboo Finance
• High Net Worths and Investor Circles
• Foundations and NGOs like Rockefeller and CARE
• Development aid agencies like DFID, Norad, USAID
• Traditional commercial investors like Blackrock, AXA
Delivering sustainable solutions in a more competitive world
Delivering sustainable solutions in a more competitive world
Characteristics of the SMEs impact funds support
• They are private businesses – not NGOs, not government, but
usually owner-entrepreneur led
• They suffer first mover disadvantages and need subsidised
capital – anywhere from $50,000-$1,000,000 USD+ - to scale
• They are often innovative and too high risk for commercial capital
• The goods or services they sell offer healthy, affordable
appropriate options for overlooked, lower income consumers.
Delivering sustainable solutions in a more competitive world
Low Carbon Enterprise Fund (LCEF)
• Is an impact fund under the ERM Foundation. ERM – global
consultancy with 4000 staff, 120 offices, almost $1bn turnover
• The LCEF invests in SMEs worldwide whose products or services
offer reduced carbon emissions to conventional products
• Provides early stage financing ($50-250,000 USD) and pro bono
support from ERM consultants to investee companies.
Delivering sustainable solutions in a more competitive world
Portfolio of global investments
Delivering sustainable solutions in a more competitive world
Delivering sustainable solutions in a more competitive world
Why Might Entrepreneurs Want Impact Finance? Alternatives:
• Bank financing – audited 3 year financials, professional
business plans, collateral – sometimes100% match financing
required - high interest rates
• SACCOs – lower interest rates, but provide only micro financing
– more for consumers than enterprise level lending
• Multilateral banks, development finance or aid institutions–
large scale – market wide – not enterprise focused
• NGOs – can be uncomfortable with investing in for-profit ventures
• Traditional private equity – businesses usually too small scale
Delivering sustainable solutions in a more competitive world
How impact investors can help entrepreneurs
• Flexible, often patient funding
• Diversified investment structures
• Sub-commercial financing terms
• Prepared to take higher risks
• Bring in financing partners
• Increase investee’s marketability and
brand
Delivering sustainable solutions in a more competitive world
When investment partnerships are challenged
• Market and products evolve – can entrepreneurs keep up?
Product may be king but distribution is God
• Entrepreneur preparedness – can the fund provide support?
• Entrepreneur focus and investor stretch – inconsistent
communication can take deal astray
• Misaligned expectations – of funds, boards, fund investors
• Unsupportive regulatory environment
• Inadequate technological know-how
Delivering sustainable solutions in a more competitive world
Limitations to Impact Funds’ support
• Market approach… where market doesn’t exist
• Want a return…. but also impact
• Commercial focus… but not too commercial
• Invest in small businesses… but seek scale
• Sector investing… without sector expertise
• Know businesses need support… but have no time or money to
give it
• Want to change the world … with limited capital and bandwidth
• Seek impact.. with reduced risk appetites while prioritizing returns
Delivering sustainable solutions in a more competitive world
Impact capital can help energy entrepreneurs… but not in isolation