What is Impact Investing?
I had the opportunity recently to participate in a discussion about the newly emerging specialty of investing – called Impact Investing.
The idea is basically that you, as an investor, can decide to put your money where it will advance the causes that you’re most passionate about. It’s obviously an outgrowth of specialized investment funds which focused on avoiding fossil fuels, or promoting societal contribution, or whatever. That’s been going on for decades.
But Impact Investing is newer and more sophisticated. It’s especially interesting for mission-driven companies, because it addresses questions like:
- How do find the investors who align with my company’s values?
- Can I keep people from thinking I’m some kind of crazed wacko because I have more balanced priorities?
- How do I convince investors that this is as much a real business as anything else, and will give them a healthy return on their money?
There is a great McKinsey article, A Closer Look at Impact Investing, which addresses this last point. The fact is that mission-driven businesses have to be as well-managed as any others, and do indeed produce great returns.
Even more important, though, when you take investment money which is aligned with your company’s deeper values, it’s much easier to make tough decisions. You don’t tend to have equity partners fighting you every step of the way when they deeply support what you’re doing.
Honestly, I haven’t been a big fan of taking investment money from anybody, because you’re always giving up some degree of control. Whether it’s on paper or from your friend, it becomes harder to make decision.
But the truth is that you may indeed need to take on funding partners when you’re doing something that’s big and important. When you do, how great would it be to have people who believe in what you’re doing as strongly as you do?
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