What's Holding Back Investment for Impact?
Originally published on LinkedIn on November 2, 2021
“Lack of deal flow.”
I hear this lament all the time from investors and fund managers looking to invest for impact. In fact, I heard it this morning among my fellow cohort members in the first session of Oxford University’s new Impact Finance Innovations Programme. And the media have been reporting for years that a lack of deal flow is a reason why so little venture capital is invested in female, Black and Latinx entrepreneurs. The prevailing perception is that there just aren’t enough deals out there to justify the time and effort required to implement a gender/racial lens or impact investing strategy. And so, millions — perhaps billions — of dollars remain parked in traditional investments while opportunities to invest for impact are missed.
To a degree these aspiring impact investors have a point...but with some refinement of definition we start to get at the heart of the matter. I believe a big part of the issue here is not that there aren’t enough impact investment opportunities but that there aren’t enough qualified impact investment deals. By this I mean: deals in which an entrepreneur articulates a mission-based capital strategy that identifies their short- and long-term goals along with their ideal investment partners and a proposed deal structure that aligns with all the above.
I know, I know…that’s a pretty big ask of a founder whose main focus and motivation are to prove their concept and get their venture launched to create the good the wish to see in the world. What entrepreneur has the time to think about how to optimize deal structures or an enthusiasm for engaging in the search to find the most mission-aligned investors? They just want to get the money they need so they can get back to what they’re good at and love doing, i.e. launching and growing their business.
So the next question becomes, where is the guidance — in the form of financial consultants, legal advisors, or technical assistance providers — to fill the gap? I see far too many ill-advised (or at least woefully under-advised) founders heading out to raise capital armed with traditional pitch decks and unicorn-like growth projections because “that’s the way it’s always been done,” then wondering why they can’t get past the gatekeepers to talk with actual investors. Alternatively, many choose to bypass capital markets altogether and self-fund their growth through savings, credit cards, or the slow reinvestment of profits, often never achieving their potential scale or impact due to chronic underfunding.
There is a strong need for more and better resources to educate entrepreneurs and those who advise them on the non-traditional and/or emerging sources of impact capital that can effectively launch and grow their venture. To that end, I’m creating a course called “Navigating the Money Map” that expands on the workshops and consultancy I’ve done with entrepreneurs over the years to help them secure mission-aligned capital. Sign up here to be notified when the course is live.
We are also putting together a Securities Database to help guide and inform around non-traditional and emerging deal structures. See the Current Projects section of the Our Projects page to learn more.