I used to think that being an impact investor pretty much meant taking the skills and processes of venture capital and applying them for "good." Deal sourcing, due diligence, valuation -- all the basic steps seemed the same.
When I joined the University of Michigan's student-run impact investing fund Social Venture Fund, I expected to learn about investing while thinking about issues I care about. I think other people feel the same way. However, recent news coverage, like this Harvard Business Review article with tips on pitching to an impact investor, reflects a growing discussion about the differences between impact investing and traditional venture capital.
As a current MBA candidate, I've been thinking lately not about the "what," but the "how" -- the skills that will set an impact investor apart. Two years on the Social Venture Fund, including a year serving as its co-director, have taught me that impact investing does not require you to just do what a venture capitalist does; it requires you to do what a venture capitalist does, but better.
A better salesman
All VCs have to go out on the road to raise money from investors. They sell their expertise, connections, industry knowledge, past success. Impact investors add on the challenge of selling the social value proposition, the fact that social results will really be achieved and the promise that financial and social returns can actually go hand in hand. Like most new impact funds, the three-year-old Social Venture Fund has exciting investments, including food company Jack and Jakes and education technology company LearnZillion, but it doesn't have an exit to its name. Impact investors must sell the business, plus more, all without the luxury of past results to point to.
Content with uncertainty
If a VC has to be comfortable taking risks by betting on yet unproven companies, an impact investor has to be even more so. On top of betting on often-unproven products and markets, impact investors operate in a fast-evolving and ambiguous field that has a broad range of goals. Everyone agrees on how to measure dollar-based ROI. Despite efforts on common metrics by the Global Impact Investing Network, the field is a long way from consensus on what "impact" is, let alone how to measure it.
Next page: A closer relationship with portfolio companies