Tips: Three Pillars of Impact Investing
Impact investing, referring to investments made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return, has been a cornerstone of the business at Spencer Trask & Co. since its founding.
Inspired by the legacy of Mr. Spencer Trask, who provided the financing to bring Thomas Edison’s light bulb to market, the company, along with its affiliates and Chairman, have founded or first funded ventures that have revolutionized global communications and transformed the healthcare space with companies such as Millicom and Myriad Genetics, both of which subsequently achieved multi-billion dollar valuations.
The Global Impact Investing Network (GIIN), a group dedicated to increasing impact investing, states there is now at least $114 billion worth of impact investing assets under management. This is an increase of more than 50% since 2010 per GINN, when investor awareness in the category was much lower and there were fewer funds available.
Over the next 30 years, Deloitte reports $40 trillion in wealth will be transferred to women and millennials in the United States. Both of these groups have expressed strong interest in investments aligned with their values, with millennials demonstrating they are deliberate about the social impact of their retirement funds.
So where does a company like Spencer Trask start?
Spencer Trask facilitates three qualifying Pillars of Opportunity for determining which companies to fund and how to nurture those relationships; Spencer Trask focuses on critical components of idea evolution: Discovery, Development and De-risking.
Discover
Seek ideas and/or companies that have the potential to disrupt large markets and provide a handsome financial return while delivering a consequential impact. Choose to partner with companies that you believe in. Typically, these companies should be able to demonstrate the ability to save lives or improve the quality of human life in some way. A good place to start is to look for extraordinarily dedicated entrepreneurs who are experienced in generating and executing on bold visions.
Develop
The best way to achieve your development goals is through a process of active engagement with companies from the onset; this is critical for successful onboarding and to set expectations about the tools and resources you will provide in order to help prop up the company. The intensity and duration of your development activities depends upon the maturity of the company. Early stage companies require an immense investment of time and effort, whereas later stage companies more often require periodic monitoring, but the initial process is the same.
- Assist leaders in building and executing business plans that will move their vision forward.
- Set achievable objectives and/or clearly defined value creating milestones.
- Develop a mutually agreeable set of strategies, tactics, and financial forecasts and then plan to achieve those objectives via collaborative execution.
Talent management is by far one of the most critical aspects of impact investing. Continually assess the company’s current leadership team, board of directors, business advisors, partners, suppliers, etc. When appropriate, guide the hiring of directors and/or advisors with deep domain experience in the vertical and who are uniquely qualified to address a variety of challenges as they arise. These experts will share their professional networks to make introductions to opportunities or an additional universe of human capital.
De-risk
De-risking, like development, is achieved through continuous communication with your investment company. Leveraging your own in-house expertise, networks, and general due diligence, help to reset and develop milestones, verify technology developments or reposition the product strategy. You can also refine or rebuild business plans, make changes to the management team, build out or put in place a board of directors or advisors, or help secure patents for a specific technology to stabilize and further de-risk companies.
Whether you are an investor, an entrepreneur, or thinking about starting your own small business, having a thorough understanding of these three components is essential.
About Spencer Trask & Co.
Spencer Trask & Co. is a privately held advanced technology development firm dedicated to helping entrepreneurs and startup companies grow high impact ventures that change the world. The company, which is the namesake of American philanthropist and venture capitalist Mr. Spencer Trask, has helped pioneer significant technological advancements in the fields of global communications (Millicom), healthcare (Myriad Genetics), Internet infrastructure (Ciena), and more.
