Greg Lernihan discovered Impact Engine a few years ago, after a quick Google search on impact investing opportunities in Chicago. Since then he has been a valuable part of our growth as a fund, serving as a member of our Investment Committee, as well as a mentor, advisor, and investor to many of our portfolio companies. We connected with Greg to learn about the many ways he is involved in impact investing and social entrepreneurship, the value of the Impact Engine network, and ways impact focused investors can make investments.
You spent 30+ years as an entrepreneur in the security and building technology industries, how did you learn about impact investing and become active impact investor?
Throughout my career, I have always wanted to work for an organization that had a social purpose or mission. Approximately five years ago, I read the book “How to Change the World” by David Bornstein. It was my introduction to social entrepreneurship and the concept of creating a for profit company to help solve social problems. Around the same time, I led multiple company mission trips to Haiti to provide our colleagues the opportunity to experience extreme poverty first hand. Our focus was building centralized water houses and installing water purification systems in remote villages. The trips to Haiti impacted me greatly.
Shortly thereafter, we sold a majority interest in a company that I co-founded. I made the decision to leave day-to-day responsibilities and focus my life on trying to make a difference with the financial resources, leadership experiences and business acumen I was blessed to acquire. I reached out to Chuck Templeton and immediately became involved as a mentor with Impact Engine second accelerator class. For me personally, I decided the best way to learn about impact investing was to begin making investments. I asked a lot of questions, read a variety of articles/books and hired legal representation to review the contracts. I was then quickly actively engaged in impact investing!
As an investor in Impact Engine’s portfolio companies, can you tell us about the strategies you use when evaluating investments? What are some of the key qualities you look for in the companies you invest in?
First and foremost, I look for passionate founders with excellent leadership skills. All early stage businesses will face enormous and sometimes overwhelming challenges. The best entrepreneurs rise to the occasion and do whatever it takes to survive. I believe in the philosophy of “success is a choice” and desire to invest in entrepreneurs that share this philosophy. I also look to see whether the entrepreneur has “it”. You know it when you see “it” or when you are around a person who has “it”, but it’s impossible to define “it”. After believing in the founder and the team, I look for companies that are trying to solve problems that I feel passionate about. In most cases, this happens after I meet them face to face.
While I see the benefit of targeting investments in a one particular sector, I have enjoyed and remain committed to investing across many social issues. I look for business models that are sticky and have excellent potential for repeatable revenues without heavy involvement from the sales team. While Impact Engine focuses on market-rate returns in through the fund, as an individual investor, I care strongly about the social impact and will potentially accept a lower financial return, for stronger and more measureable social metrics.
You are a board member and teacher for the Barrington High School Incubator program, which was the first entrepreneurship program of its kind in the nation for high school students. How did this program come about, and what are some of the lessons you are teaching aspiring entrepreneurs?
The class was created to offer a college level entrepreneurship program for Barrington high school students during their sophomore or junior year. I agreed to part teach if I was able to introduce the concept of social entrepreneurship to the students early in the school year. I absolutely love the days I spend in the classroom with the students discussing their business ideas, refining their unique value proposition and preparing them for various presentations throughout the year. This experience has solidified my confidence that we are in good hands as the millennials start taking control in the business world.
We just completed our third school year and the results have been nothing short of extraordinary. At the end of each school year, we invest real capital into the best ideas presented to the board in the school auditorium – it’s a real life demo day for 16 and 17 year olds. I am wildly impressed with the student’s desire to see their idea become successful and their overall growth throughout the school year. By the end of the year-long course, they are truly budding entrepreneurs.
This course teaches them everything they need to know about being an entrepreneur including – the Lean Startup method, financial basics of running a company, connecting with mentors, an effective elevator pitch, unique value propositions, understanding cap tables, etc. Alums of the Incubator program, talk about how the class changed their lives and sparked their interest in becoming entrepreneurs. Interest in our curriculum from other school districts has been high from the first semester. The program has received significant press and today we have sold the program to over 60 schools nationally.
Why do you think it is valuable to be part of the Impact Engine investor community?
I value the people that I interface with and enjoy investing with others who share the desire to earn a financial return, while also making a measurable social difference. Having other impact investors participate in a company’s evaluation and due diligence is invaluable. We all gain by the diversity of backgrounds and experiences of the team. I am also encouraged by the number of new impact investors that have joined Fund IV. My hope is the increased interest in impact investing will bring additional visibility to Chicago and our reputation as an impact hub.
Can you share some examples of other impact investments you’ve made outside of Impact Engine?
We recently made a loan to Supply Hope, a non-profit targeting women in Nicaragua earning less than $2 per day. Our loan is helping to create scale needed to establish a sustainable micro-franchising business (chain of individually operated small stores). Their for-profit business is called Mercado Fresco. They sell local quality, affordable food and offer basic consumer products (Unilever is a partner for example) to low-income communities. Mercado Fresco stores are located in the homes of the micro-franchising operators. This is the first for-profit model we have been exposed to that hires from the bottom of the pyramid (BOP) and sells their services to the BOP.
We’ve made a variety of other types of impact investments into various funds including Microvest, Elevar Equity, Endeavor Catalyst, Calvert Foundation Notes and Aperio to name a few. We also invested in Creation Investments, a private equity fund. They focus on investing in microfinance institutions, small and medium enterprise lenders, emerging market banks and other BOP financial service institutions. Their primary focus is in India and Southeast Asia.