Welcome to Fundie Ventures’ second article of its “Basics of” blog series! In these articles, we will be providing helpful insights into the world of impact investment and social entrepreneurship. We will also be covering basic concepts that are fundamental to navigating this space if you are a newcomer.
Today, we are looking to help you make your first steps in becoming an impact investor.
Impact investments have been around since the 15th century, at the same time that banking came in to effect. So, why is it only now gaining the traction that it deserves? Impact investing may not be considered the traditional way to manage your finances but it is vital for the overall improvement of the planet and its citizens.
What if we also told you that impact investing could be more profitable for you than conventional investments? Cambridge Associates and the GIIN estimate that smaller impact investments (under $100 million) outperformed similar funds in the comparative market. This means that the distinction between making a meaningful social and environmental impact in contrast to generating profit in business not necessary: you can do both!
Here are 7 important guidelines to keep in mind before investing in a better future for both yourself and the world as a whole:
1) Firstly, find a cause that speaks to you as a human being
Is there a problem in the world that you are passionate about finding the solution to? Is there a problem that makes you personally feel sad/angry/upset? If so, you have taken the first step to making an impact investment!
If not, do not fret! There are many issues that need to be tackled in the world and it may feel overwhelming at first. A good place to start is the ‘United Nations Social Development Goals’ as they present well-rounded, global targets that aim to solve the main issues of the world today. This will give you a good idea of what problems you are interested in helping provide a solution for.
2) Find a business that can address that problem
Now that you have decided which specific problem you want to aid in tackling, it’s time to find a business that will help you. There exists a large pool of social enterprises that you can invest in today but it may not be as easy as you had hoped to find exactly the right fit for you. As such, why not ask Fundie to help? We specialise in linking investors with the right social enterprises to make sure that you are both tackling the issue that you hold near to your heart as well as making profitable returns on your investments.
3) Understand how the business plans to address the problem.
Does the business donate to an NGO? Does its products or services directly alleviate the problem at hand? Maybe it plays an indirect role in solving the issue? Whatever it is, to enable you to be fully satisfied with your investments, you must make sure that the way that the business goes about solving the problem is in line with your own thoughts. This is another reason why it is particularly appealing to have an intermediary business like Fundie involved with the process to make sure that everything is smooth sailing.
4) Speak to the founders of the business that you want to invest in.
Directly contacting the founders will allow you to properly understand their vision and motivation for tackling the same issue that you want to resolve. For example, Fundie’s analysts, among other things, look into understanding the business team’s qualifications and what their potential for success is to make sure that any investments in the company will have both a high profitability as well as social or environmental impact. The questions that you can start asking are: Are they experts in their field? Are they serial entrepreneurs? Does their team have key founders to address their business?
5) Consider your options to fund the business.
There are many options to fund the business at hand. Are you looking to fund the business through debt, convertible debt, equity, or safe agreements for equity? Whatever you may choose, it is important that you look carefully into the pros and cons of each to find the best that works for you.
6) Find a lawyer (and/or an advisor)
If you a looking to fund the business through debt it is best to have a lawyer and/or an advisor to help structure the term sheet and payment schedule. If you are funding the business through equity, they can look over the valuation and percent of equity ownership for the investment.
7) Finally, disburse the funds.
Congratulations, you’re an impact investor!
Follow along with our “Basics Of” series as we dive deeper into the world of impact investment. If there are specific topics you want us to cover, drop us a note at info@fundie.ventures.
If you are interested in learning more about how you can become an impact investor, visit us at Fundie!
