Attracting the most suitable impact investor to finance the social enterpriseAuthor: Dominykas Stankevičius

MSc Global Business & Sustainabilitydom.stanke@gmail.com

Supervisors: Ingrid de Vries and Muriel Arts

Investments intentionally seekingto create both financial return andpositive social impact that isactively measured (WEF, 2013).Part of responsible investing:• Screening• Shareholder advocacy• Community investing

What is impact investing?

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Literature review

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Capital & KnowledgeAsset owners Asset managers Service providers Demand-side actors

Repayments & Reporting

Forces for impact investment growth:1. Failure of the aid2. Investors become impact driven3. Government support4. Improving impact measurements

Little research on impact investing organisations

How can the social enterprises attract the most suitable institutional impact investor?• How can different institutional impact investors be placed on the life cycle diagram?• What are the most important decisive investment factors for the different types of institutional investors?• How can social enterprises readjust their investment requests to attract more capital?

Research question and relevance

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Intership research – 833 organisations;36 questions survey development:

• Academic references• Unstructured interviews

65 responses from which 49 were complete;Kruskal Wallis test with: Null Hypothesis, H0: Type of organisation has no differential effect on decisive investment factors

Methodology

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Findings I

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Stage Capital type Investment Horizon ROIMost important decisive investment factors

Start- up Seed

Growt h Ma

turi ty Equity

Debt

Mezza nine

Grants Thousands ($) Years %

Bank Y Y Y Y Y Y 3 000 – 12 550 1 – 10 15 Align missions, clear business plan with financials, structured financial reporting, financial competence

Foundation Y Y Y Y Y 25 – 350 1 – 10 5 Align missions, social impact, clear business plan with financials

Government Y Y Y Y Y Y 500 – 8 500 2 – 8 12Exit opportunities, country risk, diversify portfolio, clear

business plan with financials, structured financial reporting, multiple revenues, manager’s sector experience, strong

boardHNW family Y Y Y Y Y Y 127,5 – 7 000 1 – 10 8 Social impact, environmental impact, balanced teamInvestment fund Y Y 500 – 2 000 1 – 10 15 Align mission, social impact, growth possibilityNGO Y Y Y 10 – 500 5 – 10 20 Social impact, environmental impact, clear business plan

with financialsVC Y Y Y Y Up to 1 000 4 – 9 10 Align missions, clear business plan with financials, manager’s

sector experience

Findings II

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Actors

Investors

Field is extremely diverse

If missions allign, more commitment

Changing mindset

Hard to reach and confidential

Intermediaries

Intermediaries are crucial to make an impact

Consulting HNW and UNHNW

Taking part of the returns

Investees

Gender equality

Invest with impact, not impact investing

Investing in "bad" companies through governance

Measures are critical, but no consensus on how to

Geographical differences

Developed countriesPrivate sector and institutonal investors are investing

Mature social business scene

Risk adjusted bonds

Developing countries

Lack of education

Risk aversity of capital providers

Under-developed countriesPhilantropic and public sector support

Fast changing environment

Local supporting actors are important

What are the most important decisiveinvestment factors for the different types ofinstitutional investors?• Align missions• Social impact• Clear businees plan & financialsHow can social enterprises readjust their investment requests to attract more capital?• Bootstrap & crowdfund• Select the right investor• Measure the impact

Conclusions

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• Data and analysis• Anova is more reliable• Answers and actions might differ

• Relatively low sample sizes• Geographical boundaries• Blurry definition of impact investing

Limitations

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Investors• Clarify impact interests• Experiment with measurementGovernments• Tax relief schemes• Social bondsMultilateral organisations• Thought leadership• Lobbying government leadersImpact investing associations• Cooperation for research

Recommendations

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For questions and discussionfeel free to contact me via dom.stanke@gmail.com

orhttps://lt.linkedin.com/in/dominykasstankevicius