Mythbusting Impact Investing

Taa’theer 2017–the annual impact and social responsibility conference–is coming up once again, and WOMENA will be joining the conversation to discuss how investors fit into the puzzle of making the world a better place.

Angel investors (at least the investors in WOMENA) in general tend to share certain characteristics. We’re risk-takers, innovation-seekers, and believers in the possibilities of technology and young people. We want to empower entrepreneurs to create jobs, disrupt industries and improve the world with their products. But there are some investors to whom the last category is very important. These individuals want to make profit + impact. They are the impact investors.

As with all buzzwords, impact investing can be surrounded by a bit of confusion. And, because impact investors in the Middle East can be a rare and elusive breed, misconceptions abound. With this short article, we hope to clarify some of the common myths that surround impact investing. 

Myth 1: Impact investing = philanthropy

Charity status is tricky in GCC countries, and there is no official classification for social enterprise business yet. In the spirit of innovation, some organizations tend to brand as businesses, but retain a not-for-profit or social enterprise model which generally blurs the lines for everyone. Here’s how we see it:

    1. Impact only: Organizations that are primarily focused on impact, with revenue stream coming from grants and donations. These are usually classified as charities and NGOs. 
    2. Impact first: These are revenue generating with various models including:
      1. Generating revenue from commerce + grants
      2. Generating revenue from commerce, but all profits reinvested into impact projects
      3. Generates revenue from commerce, but profits are split between re-investment and shareholder payout.
    3. Socially driven businesses: This type of business has a double focus: generating profit for its shareholders, and creating a positive social or environmental impact (often meeting needs in a developing market or focused on a socially driven problem). WOMENA investment AlemHealth is an example of this.

As angel investors, we are interested in funding companies that fall into the last category. Thus, we will evaluate your startup as a business, and we will expect to make a profit off of our investment. In contrast to venture philanthropy, impact investing is a much longer play, with investors seeking exits and returns similar to venture investing.

Source: EVPA

Myth 2: Impact investing = high risk & low dividends

To bust this myth, we turn to a recent report by Morgan Stanley. The report, which surveys over 10,000 equity mutual funds from 2008 – 2015, shows that sustainable investing funds have actually met or exceeded the median returns of traditional equity funds and had lower volatility. 72% of socially driven businesses surveyed offered above average profitability.

Even more interesting, is the rapid increase of impact investments. In 2012 impact investments made up, $1 of every $9 invested. In 2014, this number increased to $1 out of $6, amounting to nearly $6.57 trillion in investments.

And who is driving this increase?

You guessed it! Women & millennials!

Another Morgan Stanley report showed that 3/4th of women surveyed were interested in impact investments, and millennials were twice as likely to invest in an opportunity if there was a positive social outcome attached the business.

In summary, impact investors are on the rise, and we’re looking for profitable, high-growth companies that create a positive impact in the world around them. If that sounds like you, send us your pitch deck! If you’re interested in knowing more about this subject, don’t miss the ‘Investors Panel’ on May 16th at Ta’atheer 2017!