Families looking for innovation and entrepreneurship can invest in mission-driven early-stage startup companies , either directly or through a fund manager.
In the third part of its asset class series the ImPact explores the “sexy” world of high-risk, high-reward and yes, potentially high-impact early-stage impact investing. Here's are a few highlights of the report:
Direct Investment can create invaluable experiences for a family, cultivating a family’s entrepreneurial legacy and creating learning opportunities within a new industry or market. Ian Simmons and Liesel Pritzker Simmons of Blue Haven Initiative (BHI) have invested over $50 million in mission-aligned innovative early-stage businesses. They note that, “finding and engaging high-caliber entrepreneurs is hard work. We have a dedicated in-house team to do that. We feel that this kind of high-touch engagement is required to achieve our dual goals of commercial rates of financial return as well as maximum social and environmental impact.”
Investing Through a Venture Capital Fund can offer families expertly-curated portfolios of direct investments. Benefits include the fund managers’ sector or market-specific expertise and relational networks, portfolio diversification, and access to “best-in-class” investment opportunities. Downsides include the lack of a hands-on experience, additional costs associated with fund manager compensation, and lack of fund managers in certain sectors and geographies.
Catalytic capital: Pioneering impact investors, such as family philanthropies, play a critical role in filling funding gaps in sectors and markets where conventional investors perceive a higher investment risk, typically due to unproven business models or nascent markets. Families can help mitigate risk and attract other investors by seeding or anchoring first-time entrepreneurs or fund managers or taking a high-risk or concessionary position within a company’s or fund’s capital stack. They may do so because they believe that conventional investors misunderstand the risk-return profile of certain investments or because they believe that the potential impact of an investment justifies taking additional risk or sacrificing some financial return,” writes the ImPact.
See more of ImpactAlpha’s briefs on The ImPact’s asset class primer series, including:
- Frameworks for impact investing
- Fixed income impact investing
- Public equity impact investing
- Early-stage impact investing
- Real assets impact investing
- Private equity impact investing
Photo by Melody Bates.