My biggest learning from nine years of impact investing is the complexity of the space. I spent the first twenty years of my life as a software entrepreneur, i.e. a techie, and in comparison with venture capital for tech startups, impact is an order of magnitude more complicated. Ultimately the complexity boils down to two issues.
1 – Geography
It used to be that 90% of tech investing was local. Local either to the city, state, or region of both entrepreneur and investor. This has lessened over the last three decades, speeding up since crowdfunding became possible, but outside of Silicon Valley and New York City investors, tech investing is still at least 75% local.
Meanwhile, a minority of impact investors are specifically focused on investing locally. Most impact investors are at least national in their scope, if not international, with the bulk of that international efforts in emerging markets. What this means in practice is that if you hava a dozen impact investors in a room, a few will be local investors, a few will be investing nationally, a few will be focused on Latin America, a few Africa, a few India, and a few elsewhere in Asia. You likely won’t find four out of twelve that invest in the same place in the world.
2 – Interests
The UN categorizes impact into 17 Sustainable Development Goals, each of which have multiple sub-goals.
Ask those dozen investors to name the three most important SDGs and you’ll find a dozen different answers. The last time I facilitated this conversations with 11 investors, and their answers not only didn’t repeat once, but their answers included 15 of the 17 goals.
Mix these two criteria together along with the common investment criteria of stage, ticket size, and general risk, and it literally takes 1,000 investors to find a handful that will be interested in reviewing any given impact opportunity.
This is the biggest challenge of impact investing. Investors seek opportunities from around the world which match their interests, and entrepreneurs (and fund managers) have to find those potential investors, turning over hundreds of rocks as most are not interested in what is being sold, no matter how big the impact or financial return.
One solution to help make these matches is investorflow.org. I helped launch this back in 2017 and we’ve aggregated together over 500 self-described impact investors of all shapes and sizes. We’ve learned a lot in this effort, most of all that it will take at least 1,000 investors to reach critical mass, where every good investment opportunity finds enough matching investors to fill enough of the round that it is likely to complete. And it’ll probably take 5,000 investors in one single system before any good investment opportunity is fully funded within the matchmaking platform.
My mantra for summarizing all this is, “impact investing is complicated,” as it is.