In the past couple of years, lots of capital has poured into social impact businesses, taking pages out of the original black investors playbook. Since venture capital funds have long sought out high growth companies with strong bottom lines, factoring in a new level of consciousness can be tricky.
The Breakdown You Need to Know
Traditionally VC’s haven’t focused on impact investing, which is a subset of socially responsible investing. CultureBanx research found these investments have been driven by returns, sometimes at the expense of other companies. “Yes, many VCs are primarily interested in high growth companies. This is typically because their limited partners are looking for a high ROI which high growth companies are more likely to provide. In some cases, an angel investor will work with a slower growth company if they believe in a personal cause or decide that the long-term ROI makes sense for them,” said Heather Gates, National Emerging Growth Company Practice Leader for Audit & Assurance at Deloitte.
McKinsey forecasts impact investing to grow to more than $300 billion by 2020. They note this would be a small fraction of the $2.9 trillion or so that will likely be managed by private-equity firms worldwide in 2020.
Social impact companies need investors ready to put capital into more than just benchmarks on a spreadsheet. This is something Edward Dugger, one of the pioneer investors in black founders knows all too well. Dugger was a managing partner at UMC Ventures in the late 80s and early 90s, the fund only invested in black founders. During that time they were able to finance more than $2 billion for these companies to grow. “We were providing a counter point that black founders could grow and scale companies along with tapping into tradition forms of capital,” said Dugger.
In The World Economic Forum’s “Global Risks” Report they determined it’s vital for global economic stability to address the inequity in access to capital. The need for growth stage impact investments is extremely high and something Dugger is tackling with his new fund Reinventure Capital. His four decades of experience in the space taught him that the “increased concentration of wealth, is contributing in an unintended way to less equity in society.”