Three Keys to Securing Impact Investments
11 April 2016 - Impact Hub Berlin


This post originally appeared on the Impact Hub Amsterdam blog
If you’re reading this, chances are good that a) you are a social entrepreneur; b) you have heard that impact investment could be the answer to scaling your social enterprise; and c) you’ve been utterly disappointed by your experience trying to attract impact investment to your enterprise.
Impact Investment | BMW Foundation | Social Entrepreneurship | Startup | Sociaal Ondernemen

 

Opinion | by Ryan Little – Social Finance Practice Lead | BMW Foundation
Ryan Little | BMW-Foundation | Impact Investment | BMW Foundation | Social Entrepreneurship | Startup | Sociaal Ondernemen | Impact Hub Amsterdam
As a social entrepreneur myself who has spent most of my life on the fundraising side, I know how nauseating the roller coaster ride can be; that very elusive “yes”, the gut-wrenching “no” and, most devastating of all, the “slow no.” Now that I am on the other side of the table, working at the BMW Foundation where I am working on our social finance efforts, I’m trying my best to use my dual perspective to bridge the gap between the substantial funding looking to support social enterprise (it really is out there!) and the legion of social entrepreneurs who are trying to find a match. In this spirit, I’d like to give a few tips as to how to increase the chances of success.

 

 

 

Know Your Theory of Change

My first questions to any social entrepreneur are “who else is working on this problem” and “how are you different?” Based on the answers to these questions, I know if it makes sense to keep talking now or if the entrepreneur needs to go deeper first. I’ve often had a social entrepreneur explain to me in detail the crisis of clean drinking water, or the booming field of e-learning, but explaining the current situation is different from explaining why there needs to be a new organization working on the problem, and why your team is right to lead it. The most successful investment candidates have identified an inefficiency in how an issue is being addressed, and are committed to turning that inefficiency into an opportunity. They are also more open to do this in whatever way makes most sense, be it through setting up a non-profit, a for-profit or, crucially, by setting up an initiative with an existing organization, which is often an excellent, if overlooked, solution. One of the better ways to crystallize your thinking on what makes your approach unique and why it’s needed is to think in terms of your theory of change. This approach shows you’ve thought your approach through from concept to impact and is a great way to facilitate a conversation with a potential funder.

Know What You Want and Why

Make sure any pitch to a potential investor includes three crucial components: a) know how much money you are seeking; b) know what you are offering in exchange for this (equity? If so, how much and on what terms? Debt? If so, at what interest rate and on what terms? c) and, just as crucially, an explanation of how the funds will be used.

Quite often, impact investors see pitches for nice round numbers—€100,000, €500,000, €1 million—and the pitch falls apart when the entrepreneur can’t explain why he or she is raising that specific amount. Answering that the funds are for a new website and vague staffing plans is not going to get you through the finish line. The amount raised should either bring you to the point of being self-sustaining from your own operations, or to a future round of funding whereby substantial growth can be shown in the intervening period of operations between funding rounds.

 

Seek Professional Help!

It’s been my purely anecdotal experience that in continental Europe—as against the Anglo-Saxon world—social entrepreneurs are more likely to emerge from an area of social or environmental topic expertise, rather than from business. “Social, then entrepreneur”, rather than “entrepreneur, then social”. While this brings with it a deep understanding of the challenge at hand, it also often means a shortage of some of the “hard” skills that traditional entrepreneurs have assimilated, like cash flow planning, suitable debt and equity structures, and so on. You needn’t become an expert in this field but it’s worth recognizing there are many people out there who can help. Look in your network for entrepreneurs who have experience with this and get them to provide some pro bono support. Better yet, build a board of advisors that is committed to the work you do and include people with financial and legal expertise.

Finally, it’s important to take into account that the impact investing market is still very much in its infancy—in fact, the term wasn’t even coined until 2007. The good news is that there is an ever-increasing pool of capital that is looking to make investments in social enterprises.

The number one concern of impact investors, incidentally, is the lack of investible deals. Improve your chances of presenting an investible deal by adopting and adapting the best pitching practices of traditional entrepreneurs—and certainly don’t forget to tell your impact story!

Ready to Finance for Change? 

In cooperation with Social Impact Markets, Finance for Change (F4C) is the newest program offering at Impact Hub Berlin. It works to increase awareness and offer learning/networking opportunities around the field of impact-oriented investing. F4C targets investors, foundation/finance professionals development organizations, and others exploring new financing and support strategies for both purpose and profit. On May 13-14, F4C offers a two-day Investor Bootcamp at Impact Hub Berlin. Learn more here. 


 

About Ryan Little

Ryan Little leads the social finance practice at the BMW Foundation, where he is responsible for originating, vetting, negotiating and managing the Foundation’s investments in both social enterprises and impact funds. He works closely with German and international partners to import and adapt best practices from the field into Germany, where the Foundation is playing a leading role in creating the social finance ecosystem. He is a regular speaker and writer worldwide on topics ranging from early-stage investment to green economic policy.
Prior to joining the BMW Foundation, Ryan was co-founder and Vice President, Business Development of StormFisher Biogas, one of the first major initiatives in the biogas subsector of renewable energy in North America, and the developer of one of the largest biogas plant on the continent. Ryan has been involved in social enterprise and social finance since 2000, when, after exiting Avenir, his business-to-business e-commerce firm, he co-founded the charity CanadaHelps. The country’s largest online donations platform and digital knowledge source for charities, CanadaHelps has facilitated more than $600 million in charitable donations from one million Canadian donors to over 14,000 charities.
Ryan holds an MBA from the Richard Ivey School of Business at the University of Western Ontario, by which he was recently awarded the Emerging Leader in Global Impact Award, and a B.A. from Queen’s University. He is Coordinator for Social Startups for the German Association of Startups (Bundesverband Deutsche Startups), and a member of the Board of Advisors for CanadaHelps, and Lions of Science (Kenya). He is based in Berlin, Germany.