Revolutionizing funding in 2023: unveiling the impact investment glossary terms fueling startup success and global change.
In today’s rapidly evolving business landscape, startups and impact-driven businesses are taking center stage, driven by a mission to improve the planet and people’s welfare. To effectively navigate the impact space, it’s essential to grasp the terminology and concepts associated with it. We break down the key terms in impact glossary, offering clarity on concepts like social impact, environmental sustainability, corporate social responsibility (CSR), ethical investing, and more. By gaining a comprehensive understanding of these terms, entrepreneurs and investors can align their goals with the larger mission of improving planet and people welfare.
RELEVANT SUSTAINABLE GOALS
1. Development finance institution (DFI)
A blanket term to describe varying types of financial institutions—investment banks, institutional investors, advisers—with mandates to support economic development via investment and financial service provisions. DFIs tend to target investments in emerging markets, as their support can catalyze and stimulate economic development in underserved regions.
2. Social Impact Bonds: Social Impact Bonds (SIBs)
Also known as Pay-for-Success Bonds, are innovative financial instruments that bring together public and private sectors to fund and support social programs. Investors provide upfront capital, and returns are linked to the achievement of predefined social outcomes.
3. Impact Investing
A strategy of investing in enterprises, organizations and funds that seek to create both financial returns and measurable social and/or environmental impact. Impact investments are most commonly made through the familiar investment structure of closed-end private equity (PE) and venture capital (VC) funds. Impact investing emerged as an “ethical” investment strategy in 2007 when the phrase was coined at the Rockefeller Foundation. At the time, impact investing was defined as “mobilizing large pools of private capital from new sources to address the world’s most critical problems.”
4. Double Bottom Line
The concept of a double bottom line refers to measuring a company’s success not only in terms of financial returns but also in terms of its positive social or environmental impact.
5. Angel Investor
A high-net-worth individual who is funding early stage businesses in exchange for equity. Angel investors are well-connected business people who are (ideally) supporting the invested by providing access to their network and/or business advice.
6. Angel Syndidate
A group of angel investors who decide to pool their resources and invest together in a deal. They often ‘syndicate’ a deal, meaning that they invest as one entity and appear like that on a cap table.
7. Mission-related investments (MRIs)
MRIs are similar in theory to program-related investments (see definition below), but target market-rate returns, as they are made from the portion of a foundation’s endowment that is invested for profit.
8. Venture Scout
MA Venture scouts are typically carefully selected well-connected individuals outside a venture fund used to increase the access to dealfow of a fund. They act as a bridge, connecting a fund to promising companies in their network in hope of making a deal happen, usually splitting returns between a VC and them.
9. Venture Philanthropy
Venture philanthropy is focused on capital building than general operating expenses, and there is a great deal of grantee involvement to help drive innovation. There is also plenty of emphasis on performance measurement, with improving systems and sectors as the primary goal (as opposed to promoting individual organizations and funding individual projects).
10. Socially responsible investing (SRI)
An investment strategy whereby investors utilize screening and exclusion, divestment, positive reinvestment and shareholder activism to achieve positive social or environmental outcomes. A typical SRI strategy would exclude “sin stocks,” such as companies producing tobacco, firearms or alcohol from a portfolio of public equities. SRI is predominantly used with public market securities and is relatively accessible to non-accredited investors.