Impact Investors Are Looking for These Five Things in Your Startup

“Give me five!” by Martin Fisch (Source: Flickr)

Investors pursue impact investing for various reasons. Wealthy individuals and foundations usually want to make important social change in a more sophisticated, sustainable, and substantial way than traditional philanthropy. Large investment institutions and financial advisers need to meet client demand for more nuanced financial products. Governments want to motivate commerce and stimulate growth in underprivileged areas and populations.

When deciding on which businesses to fund, they look for five key characteristics:

  1. A strong business model that will lead to a strong financial return on investment (ROI), whether the ROI be market value or not, reports the Stanford Social Innovation Review
  2. Clear social impact objectives that align with the investor’s portfolio, goals and overall mission
  3. Well-defined impact metrics, and a well-thought-out strategy to achieve those metrics
  4. A business savvy, mission-driven founder with a deep understanding of their product or service
  5. A smart team that’s financially literate and has discernable experience in the field

Additionally, we’ve identified several traits that startups who have received impact investment share:

  • Location — A 2015 J.P. Morgan and GIIN survey found that 52% of their investments went to developed (as opposed to emerging) markets, a 73% increase from the previous year. The same survey conducted in 2016 found similar results.
  • Industry — The 2016 J.P. Morgan and GIIN survey ranked impact investing industries by total assets under management: housing was first, followed by micro-finance, energy and other financial services and financial services. The largest number of respondents plans to increase allocations to food & agriculture during 2016.
  • Accelerators Matter — With investors expecting an ROI, accelerators have filled the gap to provide early-stage startups a chance to refine and maximize business and social impact. With over 40 social enterprise accelerators launched within the last ten years, there are plenty of options!
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