Families looking for innovation and entrepreneurship can invest in mission-driven early-stage startup companies , either directly or through a fund manager.
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.
- 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.