What’s New with Impact Investing and Startups — Q1 2019
StartingUpGood continues to explore the sweet spots for startups and impact investing — and, lucky for us, there has been a lot to explore in 2019.
Impact investing is growing and becoming more mainstream — no surprise here. But the rate of growth in not only the size of assets under management but also the interest of all investors — from institutional to retail — may take some by surprise.
In April, The Global Impact Investing Network (the GIIN) released a new report Seizing the Impact Investing Market that estimates the current size of the global impact investing market to be $502 billion — that’s over 50 times bigger than its 2013 estimate of $9 billion.
“Representing the most comprehensive study to date, the Sizing the Impact Investing Market report is the most rigorous analysis and estimate of the size of the impact investing market. Based on the collation of AUM data on more than 1,300 impact investors around the world, this research also underscores the diversity of the market, capturing data from many types of investors. These include asset managers, foundations, banks, development finance institutions, family offices, pension funds, insurance companies, and others.
The market-sizing research not only establishes a fundamental understanding of the market’s current scale, indicating that a significant amount of capital is at work to address the world’s social and environmental challenges, but also serves as a first step in a GIIN initiative to ensure the impact investing market continues to scale with integrity.”
A few days later, the GIIN updated what it considers to be the Core Characteristics of Impact Investing to better “define the baseline expectations of what it means to practice impact investing.”
These characteristics build on the GIIN’s commitment to not just grow the impact market, but to scale it with integrity.
“For impact investments to contribute effectively to positive social and environmental impacts and for the approach to remain credible, the financial markets need clarity on expected practice and the terms of participation in the impact investing market. As such, the GIIN has developed the Core Characteristics of Impact Investing, refined in partnership with leading impact investors, to define what constitutes credible impact investing. These Core Characteristics will help investors understand the essential elements of impact investing, define the credibility of their practices, and consider the quality of the practices of potential investment partners.”
The four characteristics include:
- Intentionality
- Use Evidence and Impact Data in Investment Design
- Manage Impact Performance
- Contribute to the Growth of the Industry
You can read more about what each of these characteristics entails in the brief two-page document:
So what does mean for startups?
Well, for starters, the impact investing ecosystem is getting too big for any company — regardless of its size or how long it’s been in business — to ignore . Investors are looking for opportunities to invest in companies that generate financial returns through the creation of environmental and social value.
The data on impact investments and the types of companies and deals that impact investors most seek is still in the early stages of being consolidated. But, while far from perfect, it can still shed some light on what startups might do to better position themselves to be attractive to impact investors.
For example, ImpactSpace, an open data platform includes information on 6,688 impact companies, 3,326 investors and 4,911 deals.
The Beta version of the Impact Investor Network Map — a partnership between ImpactSpace, CrunchBase and The Case Foundation — further illustrates these findings.
Its recently released “Insights” also highlights areas where the data is incomplete, especially because of a lack of information-sharing around investment and performance data. Only 36.3% of investments reported have disclosed the investment round, and 41.6% of investments shared have included the dollar amount invested. Seed investments represent the majority of those deals reported.
Efforts to define the impact investing market and what’s included (and not) means that startups aren’t going to be able to “fake it” when it comes to demonstrating social and environmental impact.
Intentionality — defined by the GIIN as an intentional desire to contribute to measurable social or environmental benefit — is what differentiates impact investing from other investment approaches.
Startups have the advantage of being intentional with their social and environmental impact from the beginning.
More and more, investors are incorporating Sustainable Development Goals (aka Global Goals) reporting into their investment decisions. Many companies who have received impact investments now are required to use the SDGs as a framework for guiding and reporting on their impact.
Five years ago when we started our exploration of the space, the Venn overlap diagram for startups and impact investing was small. Today, in the first quarter of 2019, the overlap is much greater.
The sweet spot is expanding.
This means that more funding resources are available for more startups that clearly commit to having a positive impact on the world. This is a good trend, both for your business and for the world.
