Inclusive business companies typically need to attract investment in order to scale. This site is designed to help entrepreneurs approach impact investors.
What is impact investing?
“Impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.” (Global Impact Investing Network, GIIN)
Impact investors target enterprises that have a positive social or environmental impact. This focus on sustainable development makes them natural finance partners for inclusive businesses.
Impact investment has several features:
- Intentionality: Impact investing intends to create positive environmental or social change through capital allocation.
- Return expectations: Impact investors typically expect a financial return on their capital. The type of return varies: While some investors merely expect to regain their capital, others target market-rate returns. According to a 2020 GIIN survey among 300 impact investors, two out of three impact investors belong to the second category.
- Asset classes: Investments can be made across asset classes, including but not limited to cash equivalents, fixed income, venture capital, debt and private equity.
- Impact measurement: Impact investors are committed to a rigid measurement of the impact created. In 2020, GIIN estimated the global market size at USD 715 billion. Impact investing is expected to expand further: Roughly seven out of ten participants of the above-mentioned GIIN survey characterised the market as steadily growing.
How can companies attract impact investment?
Impact investing targets companies that contribute to sustainable development.
To attract an impact investor, an inclusive business company needs to demonstrate:
- the ability to generate a financial return on capital;
- the ability to produce returns aligned with investor expectations;
- a positive, demonstrable social or environmental impact;
- an impact story, approach and measurement methodology; and
- the ability to define, measure, and report social and environmental performance and progress.
What does a strong pitch look like?
To convince investors, companies need to pitch their business idea. There are five essentials to successful pitching:
- Define your message: To convince investors, management teams need to be clear about their value proposition, their surrounding environment, and their competitors.
- Structure your message: A successful pitch should have a clear structure. It should outline the development problem solved, the challenges overcome, the business model developed, the impact created, and the opportunity used. It should end with a clear call to action.
- Tell your story in a personal pitch: Telling stories enables entrepreneurs to engage their audience. Read some Impact Stories here.
- Design your pitch deck: Slides should be short and to the point but cover everything an investor needs to know.
- Clear call to action: The pitch should end with a clear message of how investors can support the company.
How else can I fund my Inclusive Business model?
Inclusive businesses typically have longer pay-back times than other companies. This makes it harder to acquire funding on the capital market.
Besides impact investing, inclusive business companies deploy other strategies to fund their operations. Here are some examples:
- Concessional and philanthropic finance: Many inclusive businesses attract a mix of concessional funding and investment. Financing below market rates is provided by both public and private sources, including donor governments and philanthropic organisations.
- Partnerships: Inclusive businesses have found ways to lower costs through networks and partnerships. Zambian honey company Nature’s Nectar, for example, reduces deforestation by providing farmers with sustainable beehives. To fund the hives, it partners with conservation organisations. Similarly, recycling company Alpha Polyplast partners with big beverage companies to accelerate responsible waste management.
- Internal funds: Inclusive businesses may be able to re-invest their own earnings or cross-subsidize their different lines of business. Medical logistics company LifeBank, for example, finances blood and oxygen deliveries to low-income areas by offering extra services to wealthier hospitals.
Where can I find more information?
- The toolkit The Five Essentials of Successful Pitching, developed by the Inclusive Business Action Network, guides entrepreneurs through the pitching process. It links valuable resources that go more into detail.
- The Investor’s Guide to Impact provides an overview of how investors can create impact.
- A series of toolkits created by Impact Capital Africa introduces impact investing and shows you how to write your impact story.
- The Inclusive Business Features describe high-level characteristics of Inclusive Business, including impact measurement and management.
- Search our publication database for more sector- or country-specific information. It also contains research articles and a variety of case studies.
- Take free online courses at AVPN Academy to learn more about impact investing and investment readiness.