Impact Investing

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Philanthropy as Risk Capital: How Foundations are Supporting Impactful Startups

By Tasha Seitz

For those of you interested in how foundations are thinking about impact investing, we highly recommend checking out the Mission Possible Series from Stanford Social Innovation Review, a 10-week series that recently concluded with the announcement that the Ford Foundation will commit $1 billion from its endowment to impact investing. Many leading foundations are thinking about their funding as having the potential to play a catalytic role in providing risk capital, allowing organizations to gather “proof points” and attract other types of capital. This is true of across all types of impact investing, including the very early stage. In the words of Clara Miller, President of the Heron Foundation and a pioneer in impact investing, “success requires a chorus rather than a soloist,” and in that spirit we wanted to share ways that our portfolio companies have benefited from philanthropic capital.

Grants for Product Development

Most foundations will provide grants that award money to support the development of a specific tool or product. Unfortunately, most still limit applicants to 501(c)3 organizations, but some are branching out to support for-profit social entrepreneurs. ThinkCERCA, a member of Impact Engine’s portfolio, was awarded a $250k grant from the Bill & Melinda Gates Foundation through the Literacy Courseware Challenge. This initiative awarded $6 million to 29 organizations focused on building tools to help students in grades 4 through 8 improve their reading and writing skills. ThinkCERCA was already building an online platform for creating personalized critical thinking lessons and utilized the grant money towards expanding their online resource and lesson library. In this case, ThinkCERCA’s mission and pre-existing software platform was well aligned with the […]

By |May 1, 2017|
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Please Communicate With Your Investors!

By Jessica Droste Yagan

Many entrepreneurs don’t prioritize communicating with their investors… and that’s a mistake. At Impact Engine, we know how important the investor-entrepreneur relationship is. We have our own investors in our fund, dozens of investments in portfolio companies, and have supported many entrepreneurs in managing relationships with their other investors. We also know that when investors are out of the loop, they can get disengaged or frustrated. When something inevitably goes wrong in your business, investors will be more skeptical about your ability to handle it, and less likely to re-invest. On the upside, when investors are in the loop and engaged, they can add a lot more value. Many investors will go out of their way to help if they know what you need.

We’ve observed some best practices in investor communications that we thought would be valuable to share. If you’re an investor, you could share this with CEOs that may not be communicating well. If you’re an entrepreneur, we hope you can take something valuable from this and use it to your advantage.

Err on the side of transparency (at a high level).

While there really are no rules about what should be included in an investor update, there are definitely some key pieces of information that you should be communicating. First, always include the quantitative metrics that actually drive your business. Information like bookings, revenues, customer engagement, and customer retention (depending on your business) are required. Generally, there’s no need to include level of cash flow and runway with those outside of your board, but you should give investors a heads up if you will need to […]

By |May 1, 2017|
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Measuring Impact for Social Entrepreneurs

By Tasha Seitz

Financial investors weigh risk, return and liquidity in their investment decisions; impact investors weigh all of these factors, plus impact. Intentionality and measurement are fundamental aspects that define impact investing, yet impact measurement is an extremely difficult challenge.

Impact can be defined in many ways, and different investors may have very different goals and interests. Some types of impact may be “easy” to measure (i.e. how much have unbanked or underbanked customers saved by using this fintech service vs. incumbent solutions?); others much more difficult (i.e. how has this advocacy platform influenced public policy?). Counting “lives touched” is unsatisfying, yet the cost of conducting randomized control trials that serve as the “gold standard” for measurement can be lengthy and prohibitively expensive. And given the variety in the types of impact across a portfolio, and across funds, how do you “roll up” impact measurement in any kind of meaningful way?

The challenges are many, and measurement has been an important discussion in the field of impact investing for many years. In a recent articlein the London School of Economics Business Review, Brian Trelstad, Partner at Bridges US, argues that impact management — articulation of an investor’s impact objectives — is an important precursor to effective measurement.

At Impact Engine, we sit down with entrepreneurs during our due diligence process to talk about the impact they hope to achieve, the target populations they want to serve, and how they might measure and report on the impact they’re having, both now and in the future. We often see a […]

By |April 4, 2017|
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Impact Due Diligence: The Questions We Ask

By Elizabeth Coston

Impact Engine’s Chief Investment Officer Tasha Seitz recently wrote about the evolution of term sheets and the growing trend of investors requiring alignment of values or commitment to specific impacts. We ask entrepreneurs to sign a mutual commitment to impact, which comes towards the end of the investment process, but we also integrate an impact “deep dive” earlier in our due diligence process. In addition to alignment with our core areas of focus, we evaluate specific criteria to make sure each company we invest in is making a sustainable, lasting impact in its designated impact area. We’ve outlined a few of the questions we ask of ourselves and of prospective companies below.

+ How aligned is the impact with our core areas of focus where we believe we can make the best judgments and provide the most support?​Our focus is in education, health, resource efficiency and economic empowerment. When selecting our portfolio companies, we want to make sure we have the experience, resources and connections to provide valuable, effective support for the entrepreneurs we invest in, so alignment is key.

+ How “baked into” the business model is the impact? We make sure that impact is an integral part of each company’s product or service offering, so that impact grows hand in hand with revenue. We want the impact to be very difficult to decouple from the business, and highly likely to survive a corporate acquisition. This means that we do not invest in “buy one give one” models, where revenue generation is separate from […]

By |April 4, 2017|
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Can Financial Advisors Embrace Impact?

Impact Engine has been fortunate to work with a lot of first-time impact investors. While we may be their first introduction to impact investing, we very much want to support them in doing more, and often share content or host events meant to introduce them to the range of possibilities across asset classes and impacts.

Unfortunately, because impact investing is not (yet) broadly embraced, investors can find it challenging to get started by working with their financial advisors. While some advisors are strong advocates for impact investing and very knowledgeable, many are not jumping up and down to help, either because they don’t know what to do or don’t want to do it, or both. If you’re not one of the lucky few who has great support from your advisor, here are three approaches that we’ve seen work.

Convince your advisor to learn.

While not all financial advisors understand or offer impact investing options, some of them will put in the effort to learn if you push hard enough. If they are willing to make the effort, you may want to be patient and be a partner in exploring with them: you could learn together and perhaps create even more impact by supporting the development of expertise and products that could then be offered to other clients, thus moving even more assets in the direction of positive impact. If you want to go this route, try showing them why it’s in their interest or that it’s been around long enough to demonstrate competitive financial returns. Once they’ve indicated they might try, you could share articles like “How Wealth Advisors Can Facilitate Impact Investments” […]

By |February 28, 2017|
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The Future of Term Sheets

For those of you less familiar with the venture capital world, a term sheet is a document detailing agreed-upon terms under which an individual or firm will invest in a startup. Traditionally, this document describes the economics of the deal, control provisions, information rights and provisions for investor liquidity. Today, as investors and entrepreneurs are increasingly interested in the social and environmental impacts of their businesses, we are seeing the term sheet evolve in parallel. In particular, we are starting to see investors requiring alignment of values or commitment to specific impacts.

In January, Obvious Ventures announced its “World Positive Term Sheet”, a concerted effort to help entrepreneurs articulate their values so entrepreneurs and investors are aligned and those values can drive business decisions. This term sheet challenges entrepreneurs to describe their companies’ policies in four main categories: core values; diversity, equity & inclusion; sustainability; and pledging & giving. While each term sheet will be tailored to the individual company, Obvious Ventures emphasizes the need for companies to outline specific statements for each category. For example, will your company create an equitable corporate structure or become a B Corp? Can your product or service be manufactured more sustainably? What are your company’s policies on recruiting for diversity or equitable benefits for maternity/paternity leave? The World Positive Term Sheet is an important anchor for companies, and a way to root business practices in values and ethics that can serve as a litmus test for both entrepreneurs and investors down the road.

A year ago, Kapor Capital launched the Founder’s Commitment, a “road map for startups to create a culture of diversity and inclusion […]

By |February 27, 2017|
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State of the Art: Impact Investing’s Evolution & Future

State of the Art: Impact Investing’s Evolution & Future

Fireside Chat with The Case Foundation’s Jean Case & Impact Engine’s Jessica Droste Yagan

On Tuesday, November 15th, the University of Chicago Polsky Center, Social Enterprise Initiative and Impact Engine hosted Jean Case, CEO of the Case Foundation, for a lunchtime discussion on the evolution and future of impact investing with Impact Engine CEO, Jessica Droste Yagan. Together they discussed philanthropy’s role as a catalyst for social change, how millennials will shape the sector moving forward, and the Case Foundation’s new impact investing visualization tool that provides both investors and entrepreneurs with more knowledge on this growing marketplace. Each attendee received the Case Foundation’s concise and informative A Short Guide to Impact Investing, which outlines impact investing for both new and seasoned investors.  You can check out a video of the entire session or read below for some key takeaways.

The Importance of Impact Investing

Jean Case and her husband Steve founded the Case Foundation in 1997 to reflect their family’s commitment to giving back. The foundation is committed to creating programs and investing in people and organizations that use entrepreneurship, innovation, technology and collaboration to have an exponential social impact. While all investment has an impact, the Case Foundation believes impact investments should be intentional, transparent, measurable and used as a tool to align capital investment with one’s values. The Case Foundation has become a national leader of the impact investing movement, creating pathways to impact investing through “educating, inspiring and activating” current investors to think critically about their investments. For those new to the field, Jean challenged investors to analyze the impact of […]

By |November 29, 2016|
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Newest Players in the Chicago Impact Scene

In past blog posts, we’ve written about the next generation of social entrepreneurs in Chicago and why impact entrepreneurship is thriving in Chicago. We’re excited to highlight a few of the newest players in the field; we couldn’t be more excited to be a part of the growing community of Chicago impact entrepreneurs, mentors, investors, and champions of impact!

Ekistic Ventures

In September, David Spielfogel and Brett Goldstein announced the launch of Ekistic Ventures, a VC firm that plans to invest in startups that make cities more equitable and efficient. Spielfogel is one of Mayor Rahm Emanuel’s former top advisors and Goldstein the ex-chief data officer for the city of Chicago. While working for the city, they noticed that young entrepreneurs building technology often lacked the urban strategy knowledge to turn their small scale ideas into big picture solutions. Ekistic Ventures has launched a $15 million fund that will invest in seed-stage companies bringing new solutions to critical urban problems. Ekistic takes a holistic approach to problem-solving, partnering with research institutions, big businesses, mayors, city government officials and entrepreneurs to tackle the most significant urban challenges.

INVEST Chicago

Launched in 2016 by Good City, INVEST Chicago is an initiative aimed at mobilizing individuals to give their time, talents and finances to social entrepreneurs and nonprofits making a difference in Chicago. They provide philanthropic grants and impact investment opportunities to nonprofits and social entrepreneurs to support strategic and sustainable ideas with strong leadership. INVEST Chicago works with foundations, corporate partners and the city of Chicago to identify and invest in projects serving the most under-resourced communities in Chicago. Their first portfolio, the Women’s Innovation Fund, […]

By |October 28, 2016|
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Investing in Better Health Panel & Showcase

Chicago is a hotbed of innovation in the healthcare industry, yet many healthcare startups lack access to investment capital at the seed stage. This intersection of healthcare and impact investing was the focus of the Investing in Better Health Panel & Showcase on Thursday, October 6th. Impact Engine co-hosted the discussion with MATTER and Furthur Fund, bringing together members of the healthcare and impact investing communities for an afternoon of discussion and demonstration.

The event began with remarks from Steve Collens, CEO of MATTER, and a panel over lunch with Jessica Droste Yagan (CEO, Impact Engine), Tasha Seitz (CIO, Impact Engine), Jordan Dolin (Co-Founder, Emmi Solutions), and David Cohn (CEO, Regroup Therapy). The panel focused on trends in healthcare and impact investing, and strategies for making a great return on investment while improving the healthcare system. Below are key takeaways from the panel.

Macro Trends in Healthcare

Jordan began by giving an overview of the macro-level trends seen in today’s healthcare industry. Money is a big motivator and a growing trend has been the transition from fee-for-service models to fee-for-value service models. The US healthcare system is globally ranked as one of the most expensive service models, spending nearly $10,000/person each year. And yet the system still suffers from the “Innovation Gap”, which means there is a growing need for fast, quality care and a large market, yet an increasing number of barriers to innovation. The system struggles to balance making money and creating a product that fixes modern issues at a reasonable cost.

Macro Trends in Impact Investing

Impact investing is a fast-growing practice in Chicago and beyond. Investors want to align their […]

By |October 14, 2016|
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Impact Investing Bootcamp

This month, Impact Engine, Arabella Advisors, and Forefront hosted an Impact Investing Bootcamp to educate and equip people to begin impact investing in their or their clients’ portfolios. Participants ranged from family offices and foundations to philanthropic and wealth advisers. They came with varying degrees of experience in impact investing, but all shared a common interest and commitment to action.

The day began with Tasha Seitz, Chief Investment Office of Impact Engine, and Julia Sze, Managing Director of Impact Investing at Arabella, running the group through an overview of impact investing and a discussion around the investment spectrum. They highlighted how each part of the spectrum might be relevant for different types of investor, and a debate unfolded around maximizing returns versus maximizing impact and where there are opportunities to have both. They shared the example of the KL Felicitas Foundation, which made a pledge to transform its portfolio into an impact portfolio a number of years ago. Since then, the foundation has reported on its track record and its specific investments and has demonstrated that a portfolio that considers impact can deliver market rate returns.  

Tasha and Julia also outlined three potential approaches to implementing an impact investing strategy in one’s own portfolio. The “Learn By Doing” approach entails making early stage direct investments and “seeing what sticks.” It is a good approach for those who are comfortable with risk, enjoy being up close and personal when working with entrepreneurs, and want to learn by doing and getting personally engaged. The “Assess and Upgrade” approach encourages investors to take stock of their public equity and debt portfolio, and to […]

By |September 30, 2016|

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