NB Financial Health

Tuesday
August 5
2014

Clare Jones

What Motivates an Impact Angel?: Clearly Social Angels, the UK’s first impact-focused angel investing group, discusses what these investors are looking for

Why does someone become an impact angel investor – and is this a source of capital that your company might tap? Though impact angel investing is still relatively new, there are some pioneers who have been doing it for a while, and their experience can provide a better idea of what these investors are looking for.

At ClearlySo, we work with entrepreneurs raising investment for businesses that create sustainable social or environmental change. We also run Clearly Social Angels, the UK’s first impact-focused angel investing group, which has brought us into contact with many of the “early adopters” of this form of investing. Their range of motivations for getting involved in social impact investing is huge – but, then, so is the demand for capital.

Some of the investments we facilitate are clearly commercial – such as a £200k equity investment into Breezie, which offers software for tablets helping get the digitally excluded online. Traditionally, angel investors invest in start-ups and early-stage companies that they believe show great potential for growth and profit – offering healthy returns for those individuals taking on great risk at this early point in the life of the business. This is still true for impact angels, with the additional fact that they are searching for businesses with strong social missions and the potential to create real, scalable environmental or social change. That’s why other investments we facilitate are eminently social, like debt investment into Fair Finance (providing microfinance to the financially excluded), or more than £300k into Playmob (offering in-app purchases through games to support charities like Global Angels, which works for safe drinking water in India).

So, what are the motivations of our angels? Why are they determined to use their capital for good, as the impact investing market begins to move toward the mainstream? The following examples can help answer those questions.

Philanthropy

Many of the angels – particularly those who were early starters in this space – are driven by philanthropic aims. One of the investors in our network, for example, runs a charitable foundation that focuses on education, and she uses her personal wealth (and the expertise she has gained from her charitable work) to support similar aims when she invests, including the reduction of youth unemployment and the promotion of education.

Sometimes investors will also be involved with philanthropic organizations like Ashoka; they might bring us a deal where the charity is exploring a social enterprise model. They may have already made donations or grants to this charity to bring it to the stage where it is ready for investment. Because these investors are individuals who want to see social change, many of them are willing to engage in traditional philanthropy alongside their investing. There is certainly an attraction, however, to the idea that impact investing allows a return on their capital. If an investment is successful, the angel will see the company’s social impact grow, know that they have contributed to change – and then receive a return on their capital, so they have the opportunity to create further change, again and again.

Supporting entrepreneurs

Many of the investors with whom we work are themselves entrepreneurs; they may have sold their businesses, or they may still be running them. As in traditional angel investing, there is an opportunity here for them to support other entrepreneurs – with their expertise, their contacts and their capital.

At one of our pitch events recently, one of the investors explained that his business had been successful with the support of a community; this was his chance to use the capital they had helped him earn to create social change for that very group. For impact angels, supporting an entrepreneur is a key part of why they are doing this – that entrepreneurial vision may lead to the next innovation that can alleviate poverty, promote gender equality or preserve the natural environment. Impact angels are in the privileged position of being able to help create that change.

Some of the entrepreneurs who pitch to our investor network will not receive funding. In order to make successful investments, angels have to choose the deals that are right for them. They have to conduct due diligence, consider investments as part of their portfolio and really commit to the vision of the entrepreneur. This rigorous process means some entrepreneurs will not find funding from the group – but they receive feedback, advice and very often contacts that will help them raise funds elsewhere. It might be that an angel makes an introduction to a venture capitalist, or to a charitable foundation. Because creating social change is at the heart of the angel network, they want to see these companies or charities succeed, even if they are personally unable to invest.

Portfolio diversification

This is not to say that all our investors are focused purely on impact; for many of them, this just makes great business sense. Many of the products are fulfilling a real need (that happens to be socially impactful) and offer clear opportunities in growing markets. Time for Medicine, for example, raised £1 million to support patients by offering better access to treatment through the booming health care technology space.

Others see impact investing as a forward-thinking way to manage risk in their portfolio. Investing in companies that combat climate change, or offer solutions that mitigate its effects (Extremis, for example, creates pop-up houses for those who have lost theirs through natural disasters), is increasingly advisable for long-term returns. In this way, impact investing is the sensible investment choice – it’s the kind of investing that makes sense in a world that needs to address sustainability, and soon.

Our investors have many different motivations for using their personal wealth to create change, just as entrepreneurs who focus on impact will have different reasons for doing so. Groups like Clearly Social Angels or Toniic give valuable insight into why these people have been leading the charge, and help us envision a future where responsible, sustainable and impact investing are the norm – not the exception.

Clare Jones works at ClearlySo, which raises capital for businesses and funds creating social and environmental impact.

Categories
Entrepreneurship
Tags
entrepreneurship, impact investing, investment fund, social capital, social enterprise, social entrepreneur