Impact Investment: A Practical Guide to Investment Process and Social Impact Analysis

CHAPTER 2

Sourcing and Screening

Investors are in the exceptional position in that they have to do very little beyond saying that they have money to invest in order to get the attention of entrepreneurs. They will receive pitch after pitch for investment opportunities. However, for most investors, resources such as funding and employee's time are limited, and the repercussions of focusing on and choosing too many bad investments are severe. A well-planned sourcing and screening process can avert time- and resource-draining mistakes. Passive sourcing may work for seasoned investment houses whose reputations attract the best and most desirable entrepreneurs. However, for individual investors, advisers, or new funds, an active sourcing strategy is necessary to find enterprises that excel beyond their peers.

Sourcing strategies generally focus on three critical aspects: geography, industry sector, and impact. Although the first two are common for mainstream investing, the third aspect, impact, is unique to impact investing. Impact investors seek an assurance that the investment fits their criteria and is likely to have a positive societal impact. Active sourcing can be done by trying to connect with local or foreign entrepreneurs; however, time and resources can easily be drained if the country of domicile or business operations is too risky for the investor, if the sector is outside of the investor's expertise, or if the impact is insubstantial. Of these sourcing elements, geographic ...