An impact investor can be a great financial partner for sustainable startups that want to make the world a better place by incorporating solutions to environmental or social concerns into their business model. Impact investors like to invest in sustainable startups, because they want their investments to generate social and environmental impact as well as financial returns.
The field of impact investing is maturing and growing, attracting a broad range of both individual and institutional investors. According to a 2019 USAID survey, collectively, respondents manage USD $239 billion in impact investing assets. And while impact investors make investments across many industries, the most common sectors include clean energy, agriculture and forestry, food, education, healthcare, housing, access to clean water, and similar.
For founders of sustainable startups in need of outside investment the key point is “How to find impact investors.” Let’s take a look.
Determine Your Investment Terms
You may already know what kind of sustainable business you will pursue, and you may already have an idea how much funding you will need to launch and scale it. Now you have to determine what kind of investment you are looking for.
Money is money, yes. However, there are many ways to structure investments in a sustainable startup. Are you after only capital? Or are you looking for something like a mix of capital and grants? For how long will you need capital?
Along that line, are you ready to take capital alongside other forms of investment like technical knowledge, contacts, or advice?
To do this, it pays to study how impact investing works. You can also go online and find out how businesses similar to the one you want to build have been funded via impact investments.
Research Potential Impact Investors
There are actually different types of impact investors. For example, angel investors, venture capitalists, institutional investors, and non-traditional entities can all have an interest in sustainable startups. This is aside from financial corporations, charitable foundations, governments, and quasi-governmental agencies.
Not all of these make impact investments in the same way - some providing only capital, while others might offer a mix of capital and grants, or even capital, grants, and expertise.
Before approaching potential impact investors, it is vital that you do your homework first, and understanding as much as you can about your prospects to ensure a good fit.
You can begin your search for potential impact investors by visiting the Global Impact Investing Network (GIIN) website. GIIN offers a searchable database of impact investment funds. You can also find impact investors using tools such as Crunchbase and AngelList, or by following industry blogs like OpenForests.
Include Impact Performance Measurement In Your Pitch
Aside from considering the actual viability of your business, impact investors will also look at how your promised impact can actually be measured.
How do you know what metrics to include? How would you even measure metrics in the first place? The IRIS+ standardized system from GIIN can help those who are totally new to how impact metrics work. IRIS+ has become the generally-accepted system for measuring, managing, and optimizing impact that the majority of impact investors use to measure social, environmental, and financial success.
IRIS+ has a broad range of metrics that can be tailored to suit any business. Just be sure to choose the right ones for you.
Much like the process of securing investments of any type, it is important for founders of sustainable startups to cultivate relationships with potential impact investors before pitching them.
Founders in search of investment capital of any type should never underestimate the power of connections and relationships, all of which should be strategically managed. Before delivering a full-on pitch, founders should focus on establishing a rapport and building relationships with potential impact investors.
In doing your research, find out what sustainable investments they have been involved in, and if possible, learn about their expectations in terms of return on investment (ROI). And if you can, learn the names and backgrounds of their key personnel. Given the personal nature of impact investing, personal values do matter.
Remember that in cultivating relationships with potential impact investors, it is important to remember that the goal of each communication, conversation, or meeting is to get another meeting.
Once the relationship has been established, you can then start talking with them about delivering a pitch. When dealing with potential investors you should always be ready for a two-way dialogue. Be prepared to face strong views, even criticisms about your venture. Always be open to negotiation or compromise. And if they say no, don’t get upset and walk away. Instead, thank them for their time and ask if you can keep them updated about your progress.
While they may not be interested now, they may want to come on-board later on. In addition, they might be able to introduce you to other potential impact investors interested in sustainable startups more aligned to your own venture. Overall, strive to build and maintain good relationship with your targets, even those who don’t yet figure prominently in your plans.
If you are a founder with an idea for a sustainable startup that solves social and environmental problems while also generating financial returns you might consider joining a startup accelerator to jumpstart your growth. Startup accelerators offer a structured curriculum, expert guidance and feedback, technical assistance, and access to a variety of resources. They can also help founders begin to develop their pipeline of potential impact investor targets. Some startup accelerators are already developing specific verticals focused on sustainability or impactful startups.
Have a question about sustainable startups or impact investors? Contact me today and let’s talk!
This post was written by Ron Flavin (Growth and Funding Strategist, Angel Investor, Author and Speaker at Ron Flavin, Inc., and Co-Director of the San Francisco Founder Institute) and originally published on his blog.
Ron Flavin is a growth and funding strategist who helps entrepreneurs and organizations to develop innovative growth strategies, identify new revenue sources or secure the funds they need to grow and prosper. Using his own unique methodology, he work with his clients to develop a step-by-step growth and funding action plan that builds a bridge between vision and financial goals. Using this model, he has obtained more than $200 million in funding for his clients, and been part of decision-making teams that have allocated more than $1 billion in funding. As a result, Ron knows first-hand what those who hold the purse strings look for when determining which proposals get funded and which ones get tossed aside.