Help is here for investors and entrepreneurs who want to add “impact” to the investment deals they are negotiating.
Impact investing is increasingly popular and assets under management are growing. Doing impact investment deals, however, is still a hand-tooled process and often complicated (and expensive). Two new projects aim to equip impact investment dealmakers with legal language and templates and forestall confusion and conflict down the road.
Impact investment transactions face issues beyond the scope of most financial agreements, including mission protection, impact measurement and alternative exit paths. Investors, for example, might come across an entrepreneur that has no intention to ever sell her business. Social entrepreneurs, in turn, might need deals that include more patient or lower cost capital than is normally included in deal terms.
Both new projects aim to take what the pioneers have learned and pass that knowledge and expertise to new entrants.
The Impact Terms Project is an open source library of deal terms for structuring impact investments that was compiled by veteran impact investors and lawyers. It's the brainchild of Diana Propper de Callejon, a private equity investor at Cranemere, and Bruce Campbell, a corporate finance lawyer for social enterprises and founder of Blue Dot Advocates. The two joined up after realizing they weren't alone in continually having to build new investment structures for their impact investments.
“Although growing numbers of people were experimenting with new deal terms and financing structures for impact investments, they were working in isolation and independently trying to develop their own solutions,” the project says on its website.
Propper de Callejon and Campbell assembled a team and funding and collected real-world transactions from over 100 impact investors and entrepreneurs. The searchable library, which launched publicly in May, contains sample legal language and templates for direct investments in early stage companies. Private foundations and family offices including the MacArthur Foundation, F.B. Heron Foundation, Sorenson Global Impact Investing Center and the Blue Haven Initiative backed the effort.
The second investment template project, launched this week, comes from Echoing Green, the New York-based nonprofit that’s funded over 700 social entrepreneur fellows since it launched in 1998. Echoing Green alumni include the founders of Teach for America, City Year, One Acre Fund and SKS Microfinance and yes, Diana Propper de Callejon. She was Echoing Green's very first fellow in 2000 as she sought to help Amazonian residents create livelihoods not based on deforestation.
“At the seed stage, [social entrepreneurs] often don't have access to, or are unable to pay for, quality legal services, so they may agree to unfavorable terms to get the financing needed to scale their meaningful work,” wrote Min Pease, the director of impact investing at Echoing Green, in a blog post. “Compounding these challenges is the fact that they have not had a social enterprise-friendly financing template that they can bring to investors to start the conversation.”
Echoing Green's Seed Impact Investment Template Note, or “SeedIIT,” is a social entrepreneur-friendly financing template designed for debt investments into an early stage social enterprises. Echoing Green tapped its large network of Fellows, and international law firm Sullivan & Cromwell LLP, to design a template that prioritized impact. It is now available as a free download on Echoing Green's site.
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