20 Checklist Items Impact Investors Mark For Before Investing in Your Startup

Learning what makes your startup appeal to impact investors and understanding its payoff.

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An Idea (by Ingenious Piece)

10 min readAug 25, 2021

Have you ever felt the desire of bringing about some radical changes in your society— a change that would help add value in the life of social beings?

I have been there. As a child, I always dreamt of helping people around me in a way that would bring a smile to their faces. I learned the acts of kindness and by the Grace of God, I’m happy about accomplishing my dreams so far.

It's natural to develop desires regarding their society's development for people who are passionate about their surroundings and hold special compassion for their fellow beings. And if you are someone anywhere into this, you know that to have a passion for it and to work for it, are two different things, that require different resources.

Passion alone isn’t always enough to get to what you want, specifically, in the present-day monetary world, where everything is driven by money fuel. Similarly, money alone is also not always enough, as there are things that it can’t buy. However, for the most part, it’s a crucial resource to get to anything.

The duo of money and passion can, however, prove worthy in accomplishing your dreams. That being said, impact investing is a strategy in place just to get there, given the measurability of your passion for positive social change. And if you want that radical change in society to take effect ‘effectively’, impact investing is exactly what you need.

What is Impact Investing and its phenomena?

Impact investing is a kind of investing strategy in which you make investments that are aimed at bettering your society, improving the environment, and at the same time providing a return on your investment. In simple words, it’s a strategy that returns an investor a positive social outcome alongside financial gains.

Strategically, you’ll be investing in your capital for a positive social impact on your surrounding environment. As an impact investor, you’ll consider and abide by the company’s commitment — the one you’ll invest your capital in — of serving the society for a positive radical environmental change.

As of the pandemic creating global challenges, people are in it for investing more into firms that are involved in socially responsible investing, investing that promises environmental sustainability, and promises promotion of ethical social reforms in compliance with the CSR (Corporate Social Responsibility).

Also, the pandemic has somewhat created a sense of change in millennial’s minds, both for the environment and for social positive reform.

Impact investing is a phenomenon with a diverse field that covers various functioning sectors of both society and the economy.

From the agriculture department, housing and health care fields, renewable energy sector, and all the way to microfinance impact investing has its roots located everywhere there’s a necessity for a human race.

You can invest in a field of your interest according to your passion and capital.

What’s its Impact and Scope: The Pay Off

When it comes to the measurability of impact investments, the metrics are quite complicated.

As mentioned, impact investing covers the vast majority of fields, of which, most are already been worked at by well-known companies. However, there’s a considerable debate on how well impact investing performs.

The real reason for this debate is that even when the strategy appears to be straightforward, its success is more of a complicated issue. And for the most part, what makes it a complicated issue is that most of the companies that entail impact investing aren’t performing to a level that excels them in their work compared to their competitor’s level or simply because of their commitment to social, economic responsibility is limited to a wordy commitment, with no devisable action plan whatsoever.

What’s more to it is that oftentimes the companies lack the tangible process and devisable strategies. This fails in bringing the processes of a company at par with social, economical, and environmental policies (CSR).

However, if the company’s performance level, its motives behind it are good, plus it has the right strategies and tangible processes in place, the probability of its impact rate and return on investment becomes fruitful.

But, it’s not always the ‘un-established companies that affect the overall impact of impact investing. It’s also a matter of the amount of investment been made.

For instance, consider a scenario where you come across an impact investing company in the agriculture department which isn’t well established and it lacks the resources needed to regulate its pipeline. For environmental benefits and health regulation, you invest into the company’s stocks, and this money that a firm receives, it utilizes to regulate its pipelines and as a result, it starts to outperform its rivals. And of course, it will prove impactful for all. See that by investing in a mediocre company, your investment can turn it into a dominant one in its industry. And once it gains dominance, its impact and return on investment will become obvious.

So, it’s not always the mediocrity of companies that determines the impact of the strategy it employs. It also depends upon the scope of the industry the firm operates in and the demand of its in the marketplace.

According to the investmentnews, the conventional wisdom of smaller funds underperforming their bigger counterparts is underrated. That’s because,

For private equity, real assets, and venture capital, the smaller funds have proven to perform at least as better as their bigger counterparts.

The Take?

Just like its impact, the gain of impact investing is a question of interest that remains dangling in the air for most. Even with the strategy gaining quite a momentum as of today, most of the investor’s capital remains stranded on the sidelines. That’s the very reason why the topic on the gain of impact investing and its ability to generate financial gains is a question of interest for many investors out there.

According to the 2017 report of Global Impact Investing Network, impact investing organizations that target market-rate returns are quite feasible. However, in the three most used asset classes of impact investing namely, private equity, real assets, and venture capitals, private equity is the one most commonly used by investors, with over 75% of impact investors deploying their strategies and capital into this asset class.

The 2017 census report of the GIIN highlights the increase in the transparency of the financial performance of impact investing with increased credibility in the market. According to this report, ever since their inception, almost 71 of the market rate seeking private equity impact funds targeting organizations generated 5.8% aggregate net IRR(Internal Rate of Return) and 4.6% aggregate median IRR.

The 2017 report also highlighted in their findings that the fund-level IRR varied substantially. For instance, the top 5% of the funds achieved a gross annual rate of returns around 22.1% or higher and the bottom 5% achieved IRR around 15.4% or lower. This difference shows that selecting an appropriate funds manager is a key to the better performance of impact investing.

As for the AUM(Assets Under Management) funds, those having $100 million or lesser, generated an annual return of around 8.9% whereas those having AUM funds higher than $100 million generated a pooled annual return of around 5%.

Similarly, the funds that were allocated to emerging market fields generated an IRR of 6.7% whereas the funds allocated to developed and focused markets generated a return of 4.8% according to the 2017 report of the GIIN.

Coming to the 2019-2020 census survey report of the GIIN, the impact investing market has grown and continues to grow further steadily. According to this report, impact investment has evolved both in-depth (about 42% — this includes market activity, trends, performance, and practices of impact investing) and in sophistication (from 32-39% — this includes impact measurement and management practices) in a time span of a decade.

Best Impact Investing Firms Out There

According to J.B Maverick, an expert in the financial industry, the top 5 socially responsible investing firms according to the 2020 census are as under:

The top 5 positions of these firms are governed based on their AUM (Assets Under Management). Here is ‘at a glance’ view of what type of firms these are and the total market value investments these entities manage on the client’s behalf.

Note: These firms are referenced only for example purposes to make readers realize the potential of Impact Investing. That is to say, these are neither a recommendation from the author to the reader nor a promotion of any sort, whatsoever.

What Makes Your Startup Appealing to Impact Investors?

The first and foremost thing that interests the impact investors about startups is the positive social impact they promise to impart on the environment.

According to business facilitator Vivienne O’Keeffe, CEO of V Vortex Holdings Ltd,

The ultimate hallmark of impact investor is the right implementation of its mission and vision — Vivienne O’Keeffe

That’s right! Nothing turns out to be more important for impact investors than a startup's mission and vision, based on which they decide whether to invest in their capitals or not. This means that investors look out for startups run by passionate entrepreneurs, who are willing to continue with their passion even when faced with multiple ‘No’s’ as a hurdle to their startup.

Other than the passionate founder entrepreneurs, impact investors also look for the self-investing potential of entrepreneurs, that is to say, the founders should have skin in the game. And that’s crucial because,

Relying 100% on financing for your business won’t get it anywhere, abd as a consequence it would rather just remain an idea.

In fact, it wouldn’t even become a business at all if you don’t have a skin for the game. So, a business’s initial capital is important and something the founders themselves need to provide for; to first introduce it to the market and then work for the credibility of their product or service in the marketplace.

It gives investors the sense of your belief in the credibility of your product or service when you demonstrate your williness to invest in it yourself.

The proof of concept of your startup, to show investors the traction of your product or service in the marketplace is yet another thing that can make your startup an appealing opportunity for impact investors.

For the sake of keeping this article short, I’ll provide you with the checklist of things that impact investors seek out in startups before they invest in them. For a detailed understanding of the items this checklist entails, you can refer to this wonderful article here.

Should You Dip Your Toes In Impact Investing?

As is the case with every investment strategy out there, impact investing too comes with pros and cons which leaves the question, Is it worth it to dip my toes in it, dangling in the air for most people.

From the perspective of morality, sociality, and environment, the concept of impact investment seems too good of an idea as the intuition behind it is not merely limited to money alone. The portfolios of impact investors hold significance in the sense that for them, money isn’t everything, but also, at the same time, the impact of money on the society, environment, and economy holds almost the same significance as does the money.

Additionally, as far as the perspective of an investee is concerned, if organizations are in it for developing the ability to attract and then retain impact investors— which they usually are normally — it shows that the business employing the strategy of impact investing does hold credibility that ultimately accounts for social growth potential.

According to the director of Standard Life Investments, Stephen Acheson,

Access to funding is one of the biggest hurdles faced by entrepreneurs and other small business owners around the globe — Stephen Acheson

That being said, impact investment can help mitigate this barrier for entrepreneurs and small business owners if they succeed at making their startup look appealing to impact investors. For that of course they’ll need to succeed at providing a method that proves their business’ impact status as positive and worthy.

Given the scope and impact of the strategy, it’s your homework to decide through research and analysis and ponder on how to not only dip your toes in it but also learn about how to succeed at it.

Here is the list of pros and cons that can help you in making your final decision about impact investing.

So what do you think? Can Impact Investing be your thing or not?

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