Sep 16, 2015By Tom Kooy
Social Impact
Start-ups
Business

How can I Change the World & Profit at the Same Time?

"…[Impact Investing] funds represent a rich and diverse cross-section of Impact Investing and prove that concurrently delivering significant social impacts and financial returns that meet investor expectations is not only possible, but is being done at significant scale"

We live in an age where we all want to make a difference, where creating a movement that makes social impact can go viral in seconds and yet there is this old-drum of traditionalist thinking that says, economic value & social impact cannot go hand-in-hand. People either say there is some moral dilemma in such thinking or they flat-out believe that the profits are just not there...at least not to the level that the traditional profit based approach would have you believe.

The Huffington Post, in 2014 posted an article, which read:

"…[Impact Investing] funds represent a rich and diverse cross-section of Impact Investing and prove that concurrently delivering significant social impacts and financial returns that meet investor expectations is not only possible, but is being done at significant scale"

So as an entrepreneur, venture capitalist or investor, how can we marry profitability and social impact creating a unified market-approach?

1. CRAFT YOUR VISION

Develop a concise vision that provides the story and establishes the parameters of the impact. Given Impact Investing is such a vast area, setting a vision with a clear mandate will outline the type of investor you are targeting. For example, philanthropic investors may gravitate towards an investment that prioritises social impact over financial return, such as, education, community facilities and housing. Meanwhile, social-private equity may place a higher priority on the overall financial return where they are seeking commercial and/or larger-scale long term sustainability. Technology advancements such as Tesla or the development of Graphene comes to mind.

Best Practice:

Being clear with your vision, it's grandeur and ensuring the structure of the investment, the term sheets & investment agreements all re-iterate the vision set.

2. ALIGN YOUR PURPOSE

Whether you are conducting due diligence on an investment decision or en entrepreneur about to leap into am impact-based start-up, it begins with ensuring the mission is driven, aligned and embedded within the investors, the start-up itself and the investees. This will provide commitment to the investment from the get-go as avoiding disparities in priorities between capital providers ensures total transparency and long-term commitment of funds to the end-goal.

Best Practice:

Set clear deliverables - show what your planned work is, your intended outcome and then outline what your profitability & social impact outcome will be.

3. HAVE MEASURED ACCOUNTABILITY

Given impact investing is an evolving area, blending evaluation and reporting tools that show both social and profit-based impact on the venture provides clarity to all stakeholders. IRIS (Impact Reporting & Investing Standards) provides you with metrics specific to the impact and blends together economic value and other aspects to the venture that align to the social impact sought.

Best Practice:

Set expectation with how you will show and communicate your reporting. Consider methodologies that demonstrate value congruent with purpose. Approaches to consider can include: SROI (Social Return on Investment) & DV (Demonstrating Value) in conjunction with the traditional ROI metric.

4. PROFIT EQUALS OPPORTUNITY

Remember Profit Equals Opportunity - Money isn't the root of all evil, and yes, money may not buy happiness, but it does buy opportunity. So through the initial stages of the start-up or as you conduct your analysis on a future investment opportunity, don't feel guilty about the profitability or the capital you attract. It may be socially responsible or seek to make an impact, but it requires you to be profitable in what you do - as ultimately this provides you with the ability to continue to be sustainable and live.

Best Practice:

Set clear profit forecasts if your business is in early stage development, be clear that this is a business after all and you don't need to apologise or hide it's profitability. Some impact investments are hugely successful. Take for example, Happy Family a start-up from 2006, which through sales of it's baby food feeds children in need. Through it's business growth, it delivered an ROI of 30 times and an SROI of providing 5-million meals to undernourished children.


Being unapologetically clear in how you structure yourself within impact-investing will determine the degree to which you profit and change the world. Like all things, evolution occurs out of necessity, and traditionalist thought in investing is evolving. Whereby investment and growth of a business whether it be a start-up or otherwise develops its longevity from stakeholder success not only by profit but by having a positive impact on the world.

All the best and please make a dent in the universe,

Cheers,

TK