Key Takeaways from the Impact Fire Talks 2022

So many burning topics in our IMPACT FIRE TALKS this year: A big thank you to our more than 20 top speakers and around 200 pioneers, movers and shapers who joined us for lively, inspiring and hot discussions about how to push the boundaries in impact investing. Whether it was about providing “better terms for better impact”, ensuring mission alignment with investees (beyond exit), using innovative and flexible instruments (other than plain vanilla equity and debt), or avoiding costly investment biases, there was a true impact fire and energy. Here come the main takeaways plus some resources for those who would love to dive deeper.

Photo: © FASE / Impact Design Kft.

Session 1: Incentivising ventures to achieve more …..impact

We kicked off with a highly insightful discussion  among 40+ impact investors and our experts Kanini Mutooni from DRK Foundation, Lucas Tschan from iGravity, and Markus Freiburg from FASE. The big credo of this session, co-hosted by Martijn Blom (EVPA) and Laura Catana (FASE), was “trust, alignment and real co-creation”. Here are the top takeaways:

(1) Before being able to effectively use impact incentives in deal structures, investors need to get their own impact thesis right. They should also firmly align on the end game with their future investees up-front.

(2) Embedding impact incentives into financial instruments of any kind can be a powerful mechanism to preserve mission alignment (e.g. reaching low-income customers) and achieve additionality. Social Impact Incentives and Impact-Linked Loans are examples in this pioneering field.

(3) Building strong coalitions between investors FOR impact and investors WITH impact in hybrid finance transactions is another powerful approach, once all agree on outcome targets. Many impact-specific terms such as impact ratchets, steward ownership, or buybacks in case of mission drift are important ways to keep positive impact high on the agenda.

Session 2: A match made in heaven: blockchain and social impact

More than 50 impact investors and our experts Fleur Heyns (Proof of Impact), Wolfgang Spieß-Knafl (European Center for Social Finance) and co-hosts Edward Vali (Accelerate Venture Partners) and Alexandra Nitzlader (FASE) had a deeply insightful debate on the opportunities – and challenges – of “blockchain4impact”.

(1) Blockchain has the strong potential to advise and drive all market actors towards optimizing for IMPACT (rather than only for financial KPIs) by combining “impact investing 2.0” with “web 2.0” and using a bottom-up approach to data.

(2) Big benefits of blockchain for impact – as compared to incumbent solutions – are transparency, integrity and quality of impact data as well as efficient and instantaneous payments for results/outcomes through smart contracts. For companies falling “through the cracks” in their search of VC or similar capital, it can open up much better and equal access to finance.

(3) The biggest bottleneck, though, is the availability of quality impact data, which requires impact ventures, companies, investors and intermediaries to have meaningful impact measurement and management (IMM) systems in place. There is an increasing awareness and activity, though, from development agencies, DFIs, impact funds and even publicly listed companies to use such blockchain-based solutions for optimizing impact and ensuring a transparent and reliable impact and ESG reporting.

Session 3: Exit scenarios in impact investing: How to make sure that the zebras don’t lose their stripes

Another hot debate: Our top experts Zoe Peden (Ananda Impact Ventures), Tamer El-Raghy (Acumen Resilient Agriculture Fund), Achim Hensen (Purpose Ventures) as well as co-hosts Kristen Siegel (TONIIC) and Christoph Rohde (FASE) challenged each others’ approaches to mission alignment and how to preserve it beyond exit. Credo: “Mission drift doesn’t happen overnight – you need to have ongoing conversations with your investees.”

(1) There are many innovative and flexible financing instruments besides equity or debt that impact investors can use to ensure mission alignment with investees. Some favourites mentioned in our session are revenue share agreements, recoverable grants or subordinated loans with capped returns.

(2) Steward ownership is a great approach to preserve the investee’s voting power and self-determination as well as lock its purpose and mission.

(3) Investors can use an impact term sheet with embedded mission statements, investor exit clauses in case of mission drift, founder health clauses and other governance to support and ensure impact alignment.

(4) The best practice, though, is having the impact firmly integrated into the business model of an investee so that an exit will not be able to pull it out. Still, to be highly mindful as an investor to whom exactly you are selling your stake was another hotly debated topic (as well as how big the financial multiple should be that an impact investor expects to achieve….)

More resources around this hot topic:

Session 4: Behavioural biases and their impact: Peeling back the layers that shape costly investment strategies

Another great session yesterday, thanks to our wonderful participants and speakers Zoé Constantin (IMPACT Partners), Allie Burns (Village Capital), Fabian Scholda (Sinnbildungsstiftung) and co-hosts Johannes P. Weber (Bundesinitiative Impact Investing) and our Dr. Adrian Fuchs.

The credo was: “As an investor, you have to use a systematic, ex-ante impactassessment to avoid costly biases and benefit from diversity.”  The key insights were:

(1) Empirical research reveals that the lack of a formal, systematic impact assessment creates extremely costly cognitive biases for investors. These biases are everywhere and have a heavy influence on decision making.

(2) Building awareness of diversity, equity & inclusion (DEI) criteria and other types of behavioural biases can help investors to select the right ventures. An example is gender bias since female founders are often asked different questions than their male counterparts. Also, individuals tend to be biased by a specific problem or solution due to their personal experiences.

(3) Frameworks, tools and checklists give investors guidance and help to align asset selection with the impact investing strategy and to build more diverse portfolios. Research shows that diverse teams make better decisions and diverse-led companies are delivering better outcomes.