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Six things we have learnt about impact investing

Way back in May, the Inclusive Economy team wrote about why Impact Investing is the New Black, and invited people to join our event, Bridging the Gap: Impact Investment for a more Inclusive Economy. We have been chatting about what we learnt at that event with our social innovators and today, we want to share with you six things that we now know about impact investing that we didn’t know before! And in no particular order - here they are:

Impact investing is like a love affair

The relationship between impact investors and businesses - particularly in the case of equity finance - is intimate, and a lot rests on nurturing and maintaining good relationships. The relationship between impact investors and businesses can experience ups and downs - like any good love affair. The important thing is regular and open communication, and a strong commitment to making things work.

Knowing your funder is critical to success

There are many different impact investment funds out there, and each has a unique set of guidelines which dictate what it can and cannot invest in. Some funds - like Nesta Impact Investments - define specific areas of focus like sustainable communities, children and young people, and ageing well. In contrast, other funds - such as Big Issue Invest - are much broader in their remit, looking simply for businesses whose activities achieve a range of social outcomes.

Any business wanting to secure investment from a funder should understand these differences and target the funder best suited to their business.

Impact investment is not an asset class

Impact investment is not an asset class; it is a lens or approach which can be applied across asset classes such as fixed-income bonds, real estate or public equities. Many impact investors recognise this; however, some investors continue to view impact investment as an underdeveloped asset class. This is a misconception which Nathan Elstub suggested is important to correct.

Measuring impact is hard (but its worth it!)

One of the biggest challenges for both impact investors and impact-driven businesses is how to measure impact. Can ‘reducing loneliness’ count as an impact? What about improving school outcomes? Some impacts are easier to measure quantifiably than others. Nesta’s Impact Investment Team works closely with its investee companies to help them define and measure their impact, but we are still a long way away from having any sort of global consensus on what impact means.

Nevertheless, there is some really interesting thinking happening in this space as groups are coming together to try to develop some norms and consensus, with a great example of this kind of work being Bridges Impact Management Project.

Drinking wine helps

Finding the right investor is not always easy. Two businesses who have received funding from the Nesta Impact Investment team spoke at the event and described how they found their way to Nesta.

Tara Cranswick, Director and Founder of V22 said that she heard about Nesta’s Arts Impact Fund through word of mouth, and was able to find a connection as a result of mutual contacts.

James Weatherill, CEO at Arbor Education met the Nesta Impact Investment team as a result of a concerted effort to attend many events and network afterwards over drinks.

Mission and profit need not be a trade-off

One of the main problems faced by mission driven companies is that they are not taken as seriously as pure for-profit companies and many investors assume that they will be less profitable than purely commercial enterprises. However, according to many working in the field, there does not always need to be a trade-off between purpose and profit.

James Weatherill also highlighted that social enterprises are often confronted with more regulatory, legal and other challenges than standard commercial businesses. Making a social enterprise succeed requires tenacity and fierce determination. According to both James and Tara, the grit required to make a social enterprise work should dispel any misconceptions that social enterprises are soft and charitable.

With this new understanding of impact investing, we certainly feel even more excited about impact investment than we did before (!!!). What else do you think we need to know about Impact Investing? What have you learnt in your experience that you would like to share? Email [email protected] or comment below!

Author

Kate Sutton

Kate Sutton

Kate Sutton

Head of Corporate Social Innovation

Kate is responsible for managing Nesta's Corporate Social Innovation and Inclusive Growth work

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Thea Snow

Thea Snow

Thea Snow

Senior Programme Manager, Government Innovation

Thea was a Senior Programme Manager in the Government Innovation team.

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Khyati Modgil

Khyati Modgil

Khyati Modgil

Programme Manager, Government Innovation

Khyati is a Programme Manager in the Government Innovation Team, where she works on Nesta's social action and people-powered public services programmes.

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