What Do Impact Investors Look For In A Project?

In the world of impact investment, leadership teams often ask me what investors (such as angels, VCs, and family offices) typically look for when selecting impact projects to invest in. While the specific requirements vary depending on the industry and investors’ preferences, the following are the 10 most important things that all investors expect ventures to have solved before they can secure funding:

1. Deep Impact Opportunity: Investors want to see a deeply impactful and compelling market opportunity with clear growth potential and a large enough addressable market to support an exciting growth plan that will deliver strong benefits for people and/or the planet. Founders also need to prove beyond a doubt that there is serious active demand for their product or service.
2. Business Model: Founders should have a well-defined and sustainable business model that outlines who they intend to serve, what value they intend to deliver, what channels they intend to use, the resources and strategic partners they require, and how they plan to generate revenue and achieve profitability. Inevitably, this must include details of the pricing strategy, the go-to-market strategy (e.g. sales, marketing communications/customer acquisition and retention), and a breakdown of the intended revenue streams.
3. Competitive Advantage: Founders need to have developed a unique value proposition, competitive advantage, or unique selling point that sets them apart from their competitors. This could be in the form of cost leadership, defensive strategies (e.g. intellectual property such as proprietary technology), a strongly differentiated product or service offering, and/or powerful strategic alliances.
4. Traction or Proof of Concept: Not surprisingly, investors often look for ventures that have already gained traction in the market, whether that is through customer acquisition, revenue generation, or successful pilot programs. Founders must be able to demonstrate that they have a working prototype or have achieved some level of validation for their product or service. This means that the venture’s offering was not developed purely based on assumptions but on fully validated evidence that the founders obtained through recognized data-gathering best practices.
5. Strong Team: In my early days as a corporate financier, I was taught the three most important aspects of an investment-grade venture are “team, team & team”. Since companies are largely composed of people, investors understandably place a very high emphasis on the quality and expertise of the management team. Ventures should have a capable and experienced team with relevant skills and domain expertise to execute their business plan successfully. Not surprisingly, investors will think twice about funding a software company whose veteran sales director has 35 years’ experience selling cars and only 6 months’ experience selling software.
6. Scalability: Ventures should have a clear plan for scaling their business to achieve significant growth. This could include strategies for expanding into new markets, acquiring customers at scale, or leveraging technology for efficiency. For scalability, founders need to consider every aspect of the business and ask, when we move from servicing 30 customers to servicing 3,000, where will the bottlenecks materialize, and how do we remove them? This is particularly important for founders with social/environmental missions since solutions that can scale become exponentially more critical the closer we get to 2030.
7. Financial Model: Investable ventures must have a professional 3-year financial model that outlines: (a) clearly defined underlying assumptions, such as your rates of taxation, internal reinvestment, and dividends; (b) your start-up and ongoing running costs, including team costs (with all figures derived from careful research — not guesswork with rounded numbers); (c) your realistic revenue projections; (d) your resulting cash flow on a month-by-month basis. Altogether, this data will tell both you and the investor what your actual anticipated capital requirements are. Investors use this to determine if you are trying to raise too much or if you are raising too little and face the risk of running out of money unexpectedly, which is often fatal for a company. Above all, investors want to see that founders: (i) have a full and clear understanding of how the financial mechanics of their business work and why the venture has been structured that way; (ii) have fully thought through their funding needs; (iii) have developed the best possible financial strategy for success.
8. Risk Management: Ventures should be aware of the risks and challenges associated with their business and have a plan in place to mitigate those risks. This could include strategies for managing competition, regulatory compliance, and intellectual property protection. Remember that there are many types of risks, all of which require due consideration, including legal risk, financial risk, operational risk, counterparty risk, compliance risk, and many others. Being able to outline to investors the full spectrum of risks inherent in the investment will help investors recognize that you are taking those risks seriously.
9. Exit Strategy: Investors expect ventures to have a well-defined exit strategy, which outlines how and when they plan to provide a return on investment (ROI) for the investors. This could include plans for an initial public offering (IPO), acquisition, or other exit options. Remember that investors are primarily concerned with two main considerations: (a) WHEN will they get their money back and (b) HOW exactly do you intend to deliver on that? If you do not have a full and proper strategy on that, it is very hard to convince an investor that they should give you money.
10. Clear Communications: Founders need to be able to clearly articulate their value proposition, the market opportunity, and the underlying business plan (and corresponding economic arguments) in a clear, concise, and compelling pitch. There are a variety of scenarios with slightly different demands on the founder. These include the 10-minute pitch with a slide presentation delivered on stage or via video conference, as well as situations where no visual presentation is possible, for instance, in phone conversations or at a dinner party. In any situation, founders require strong communication skills that demonstrate integrity, excellence, confidence, transparency, and authenticity. With any investor, it is usually the case that you only get one shot to make the right impression.

Are you an impact investor or impactful founder with an authentic social/environmental mission? Do you need a financial model or support to reach true investment readiness? Are you interested in learning more about what an ‘investment grade’ impact project actually looks like? Visit: www.impactangel.org.