Together with Ashoka, EVPA, Green Rocket and avesco, FASE recently hosted the first “Impact Fire Talks”, gathering over 150 impact investors across Europe to discuss the lessons learnt, trends and future of impact investing in small interactive conversations. Here are some key insights we took away!
Picture: FASE
1. The secret sauce for impact ventures to successfully scale cross-border: build trust, avoid assumptions and adjust your USP to the local market
Plenty of research, outreach, internal preparation and investments are required for scaling a venture internationally. Yet it can all be destined to fail if an impact venture forgets to engage the local stakeholders and to re-design the solution to fit the local market. So before you decide to go abroad, ask yourself: How much of my local market’s needs have I been able to cover? Is this the right moment to scale, or are there good reasons to postpone?
As an investor, the best trick is to reflect on how you are supporting your portfolio companies best to prepare for and scale cross-border. Also, what can you offer on top of that? For example, Impact Partners assigns “Chief Impact Officers” to every investee to do just that! Other important questions to ask: What measures are you taking to protect the impact mission of your investee in such a growth process? Are there other local partners who can co-invest with you?
2. Daring leadership is key to unleash new capital for impact
How many foundations do you know that invest to achieve positive impact (not only give grants and donations)? And among these, how many use their endowments for such investments? A discussion about more capital for impact is incomplete unless we put the finger on the use of endowment funds. Ford Foundation has set an example when it allocated US$1bn out of its US$14bn endowment fund for mission investments. If you’re asking yourself what smaller foundations can do, the answer is: Think holistically and bring the entire team together! Investing and donating do not necessarily need to be opposites. Yet to arrive at this point, a top-down mindset change is necessary. While foundations need to continue their stewarding roles, they also need to reflect on how they can best achieve their impact missions, challenge the status quo and leverage opportunities. In the midst of the pandemic, Ford Foundation capitalized on the historically low interest rates and issued the first ever social bond by a non-profit foundation in the US taxable corporate bond market. The proceeds of this US$1bn bond issue are supporting those non-profit organizations that have been strongly hit by the pandemic and need a financial boost to continue their invaluable work for the benefit of vulnerable communities.
Another promising avenue to attract more capital for impact investing is to make the market more liquid. Until a proper secondary market has emerged, guarantee products are a great tool to ensure that investors can quickly exit once needed. This is a new project that the team at Innpact is working on and that we’re following with keen interest!
Last but not least, fund guarantees present another great solution to mobilize impact investors. For example, by embedding the EU’s EaSI guarantee, the European Social Innovation and Impact Fund (ESIIF) provides its investors with a partial protection against losses in the portfolio. This makes the fund more attractive for investors and provides a more patient and less aggressive source of capital for the social enterprises in the fund’s portolio.
“We believe that the ESIIF and its guarantee and value proposition are unique and that the fund helps to foster the impact ecosystem” – Dr. Martina Mettgenberg, GLS Bank
Since the ESIIF matches the investments of direct investors, it essentially doubles the amount and impact that a single investor can achieve with its commitment. Dr. Martina Mettgenberg of GLS Bank, an experienced direct and fund investor, stressed that the ESIIF can be a great opportunity, particulary for newcomers in the impact space, since it allows them to diversify and build experience in a derisked vehicle.
3. Has the pandemic sped up the transition towards impact 3.0?
FASE’s recent barometer offers interesting data on investors‘ behavior during the crisis, revealing that most kept or even increased their investment levels. While we could worry about the laggish capital inflows towards the intermediaries, we are nevertheless moving towards “impact 3.0”, as Cliff Prior of GSG phrased it. In specific, the impact investing field – which was once defined by specialist investors, intentionality and trust -, opened up to comprise mainstream asset managers who need more rigorous impact assessments. In its third evolution, a new way of thinking is now spreading in the entire investment and business scenes. Impact 3.0 is defined less by intentionality and more by the analysis of both positive and negative impact of each investment, corporation and organization. Thus, the pandemic has put more pressure on corporates and asset managers to prove their social, environmental and ethical responsibilities, which brings us one step closer to a new normal, where impact sits firmly alongside profits.
Key takeaways of the barometer
4. How you can happily marry investors with the crowd?
Many investors are rather reticent when it comes to the crowd. Some have had negative experiences (such as damaging the reputation of their investees), others just don’t know too much about it. Nevertheless, the crowd cannot be overlooked as its investment power is increasing rapidly. So what does it take to build a happy marriage? First of all, preparation is key: With the right story and the right time in your pocket (not too early, you should make sure that you have a proven track record!), having the crowd on one’s side is a wonderful marketing test for any impact venture’s solution. On top of that, you’ll get a powerful investment partner. Helioz, an Austrian impact venture engaged in C02 neutral water purification systems, has just closed a financing round, raising nearly EUR 500k from the crowd with the support of Green Rocket and FASE. The enterprise’s investors were also happy that they could avoid diluting their shares.
Which brings us to the second tip: Never fund your venture just with the crowd. Investors want to see other direct investors taking the risk, so if you’re an impact venture, don’t gamble on your future. Third tip: Take advantage of the crowd’s geographic spread – if you’re thinking of scaling to another country, crowdinvesting could give you the wings to fly faster. And tip no. four: Choose your partners carefully. This is particularly important if you want professionals who can also advise and support you in preparing and managing the campaign, as well as maintain good relations with your crowd investors later. Best idea: See it as a recruitment process!