Impact Investing

Doing Well While Doing Good

WHILE TRADITIONAL ANGEL investing has always been primarily an economic activity designed to generate above-market financial returns, in Chapter 2 I discussed the multiple reasons that individuals put money into high-risk, innovative startups. Many of these were related either to professional benefits or to personal fulfillment and fun. One of them, however, is perhaps the fastest-growing segment of the early-stage finance world: impact investing. This involves putting your money behind companies that strive to produce social or environmental benefits for society even as they work to generate profits, equity growth, and financial benefits for investors.

A popular description of impact investing, or social venture capital (as it is sometimes called) is that investors are targeting a double bottom line. In addition to the financial bottom line of generating economic profit, investments also target a second bottom line of social good. This is different from traditional ‘socially responsible’ investing, where the goal is generally to minimize the negative impact of an investment on society or the environment. Here, the goal is intentionally to benefit society.

The spectrum of impact investing runs from simply “doing no harm” on one end (i.e., avoiding investments in tobacco companies or arms manufacturers), to proactively “doing good” on the other (for example, developing inexpensive mosquito nets in Africa or operating health-care clinics ...

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