Thursday
July 7
2011

Erik Wallsten and Santiago Alvarez

8 Lessons for Creating an Impact Investing Fund

This month we’re exploring the debate on the impact of impact investing as a sustainable funding force for social enterprises. Check out other posts as part of the series in The BIG Idea Page for July.

The beginning of this year saw the official launch of Adobe Capital and the formal start of the process of obtaining investors. After several months of submitting our proposal to the United States, Europe, and Latin America, we can now share some of the lessons from our process.

We hope that our journey will help other funds interested in this segment. As long as more people work in this field, we will support each other and demonstrate the impact and profitability of impact investing, the sector will grow and maximize its potential, and our work will become easier.

1. Start early: It is essential to start contacting investors as soon as possible since the process of identifying potential investors, establishing initial contact, presenting the proposal, and completing a process of due diligence takes more than six months on average.

2. Generate a practical and concrete executive summary: Most conversations are generated after submitting a two-page executive summary briefly describing the characteristics of the fund, the conditions of investment, and the factors that distinguish your value proposition.

3. Differentiate: The world of impact investment is still very new so available resources are very limited. However, interest in the industry and the supply of funds has grown significantly and therefore the investors who want to enter this segment want to see what your value proposition is and what makes you unique. Being able to communicate these characteristics quickly and attractively is essential for the success of the fund.

4. Create a story: The most successful meetings with investors have been those that have been conducted in informal and casual manners, unlike traditional presentations using Powerpoint. In informal types of environments, you are better able to convey the philosophy behind impact investing and the fund in particular. Moreover, it’s in these types of conversations that we have received the best advice and feedback on the good things and points where we can consider other alternatives.

5. Have specific examples: Not all investors are familiar with impact investing so the best way to explain it is with specific examples of successful companies that have important social and environmental impacts while growing fast and profitable at the same time. In this sense, it is crucial to work early in the pipeline and have interesting investment opportunities identified from the beginning.

6. Be proactive: Most investors who are open to exploring this new asset class have set aside a very small part of their portfolios for impact investing. This does not create a lot of available time or resources to analyze this type of investment; therefore proactive and persistent management is crucial to get someone to look at your proposal. In our experience you cold-call them if they work, provided that you have a clear proposal and don’t waste their time.

7. Try to balance institutional and philanthropic investors: There is currently disequilibrium in the available capital to be invested in impact investment funds. On one side are the development banks that are only interested in funds with capital exceeding $30 million, and on the other side are the philanthropic foundations that can’t invest in a single fund more than $1 million. The funds that manage to balance this equation and develop a strategy to attract these two sources of capital will prove to be the most successful.

8. Be flexible: Impact investment is a new concept that is still developing and therefore has limited available resources. For this reason and those mentioned above, it is essential to have an open mind when discussing the terms of the fund with potential investors.

Editor’s Note: Adobe Capital is a impact investing fund designed to invest in Mexican SMEs with triple bottom line returns. New Ventures Mexico is a strategic partner providing Adobe Capital with a pipeline of environmentally-focused enterprises. New Ventures Mexico is one of six local enterprise acceleration centers in emerging economies – including Brazil, China, Colombia, India, Indonesia, and a global hub housed at the World Resources Institute in Washington D.C. WRI is a co-managing partner in NextBillion.

Categories
Entrepreneurship
Tags
impact investing, investment fund, social enterprise