impact investing

A working paper by a team of Harvard-affiliated researchers presents challenging findings for growth equity impact investors. Given the potential alignment between this sector of the market and publicly funded capital access programs (including many venture development organizations and the State Small Business Credit Initiative), this research may find its way into public policy debates. The paper, which has not yet been published in an academic journal, also contains several shortcomings in its approach that should caution any stakeholders from acting on its findings alone.

In reviewing data regarding the hundreds of TBED-related investment funds, SSTI found that 24 of them have invested in at least one dozen startups each over the past year.  The funds are characterized as economic development, university-centric, regionally focused, or impact oriented investment funds, incubators and accelerator programs located in the U.S. or Canada. Data the various funds provide to  Pitchbook is the source of the list below, ranked in order by activity level. Each organization may have used their public or university funding to support operations, due diligence or mentoring of portfolio companies and/or to support direct invest into startups.  University-centered activities in the list are denoted by an asterisk at the end of the entry.  Two of the most active 24 funds are nonprofit, impact accelerators supported in part by foundations and corporation philanthropy.

Findings suggest that – in certain market segments – investors might not need to expect lower returns as a tradeoff for impact, according to a new study from the Wharton School of the University of Pennsylvania – Great Expectations: Mission Preservation and Financial Performance in Impact Investments. In the study, researchers look at two of the most important aspects of impact investing: financial returns and long-term impact. The study explores the widespread assumption that impact investment private equity funds cannot achieve market-rate financial performance.

Last week, the Treasury Department released guidance recognizing foundations may make investments with a wider range of return and risk expectations so long as they are not jeopardizing or compromising their charitable missions.  Proponents for the change expect the guidance to open the doors to more mission-related investments (MRIs), impact investing and innovative finance approaches to dealing with the growing array of societal and environmental issues confronting the globe. This should also create opportunities for new partnerships with forward-thinking venture development organizations and tech-based economic development initiatives. 

Between 1998 and 2010, impact investment funds outperformed funds of the same size, according to the Wall Street Journal. Impact-focused funds of $100 million or less posted a 9.5 percent pooled net internal rate of return, outperforming the 4.5 percent delivered by funds of the same size that were not focused on impact investments. The industry, however, is still in its nascent stage and data remains somewhat scarce. In an article for Quartz, William Burckart contends that wealth management professionals are hesitant to propose impact investment funds to their clients for several reasons, including:

During a Clean Energy Investment Summit, the White House announced a $4 billion commitment by major foundations, institutional investors, and others to fund innovative solutions to help fight climate change, including technologies with breakthrough potential to reduce carbon pollution. The commitment of $4 billion doubled the initial $2 billion goal set at the launch of the administration’s Clean Energy Investment Initiative last February.

One hundred Twenty-five  impact investors worldwide reported plans to increase impact investing commitments by 19 percent in 2014, from 10.6 billion in 2013 to 12.7 billion in 2014, according to a J.P. Morgan-Global Impact Investing Network (GIIN) info brief – Impactbase Snapshot: An Analysis of 300+ Impact Investing Funds. The report provides an overview of over 300 funds operating across three key themes: geographic focus, asset class type, and target impact theme. The data for this study was collected from ImpactBase platform – an online database of over 300 social impact investment (SII) funds. Key statistics include: