million, and a median AUM of US$89 million. 47 Even using the higher average fund size of over US$200 million reported by the IFC, impact funds remain considerably smaller than conventional private funds. 48 Clear business model. Impact funds often lead with their social impact narrative rather than a strong business case, which can be a barrier to attracting investors. Marisa Drew, former Global Head of Sustainability at Credit Suisse and now CSO at Standard Chartered Bank, explains, “Many times, I have had someone who previously worked for an NGO or other type of non-profit. They’re passionate about achieving impact and want to raise a first-time fund but have never had experience in the markets or an investing track record. Because they do not have history speaking to the financial community, they lead with the impact story but have a hard time articulating a financial proposition to investors and then struggle to raise the money.” 49 Significant track record. Funds need proven experience to be taken seriously by mainstream or larger investors. This includes demonstrating consistent performance and knowing how to structure deals. Craig Douglas, formerly at SET Ventures and now a founding partner of the World Fund, says that when impact funds turn up at his doorstep, their ideas are out of sync with the way venture capital works. “There are a lot of things that are not applicable. The result is a lot of iterations to try and find something that is reasonably acceptable to all parties to the point where we believe that not only do we want to do it, but we think it is robust enough that I can be done effectively without weird things happening or perverse incentives, financial or environmental.” 50 Moving beyond discretionary capital (foundation support) is important and difficult to do. Research stresses that the majority of finance for impact investing is still not coming from the main capital markets. Many funds continue to depend on investors with higher tolerance for financial risk, including catalytic capital. Even medium-sized funds operating for more than a decade often remain reliant on discretionary sources. The promised growth of impact investing funds from the margins to the mainstream has not materialized to the extent once imagined. Providing technical assistance to investees. Many funds secure external funding from public or Development Finance Institutions (DFIs) to support their investees. This funding is often used to help investees grow their businesses and improve skills in areas such as finance, management, and communications. These skills are typically provided by third-party consultants or coaches.
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Ten Years in the Making
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