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Conscious Money: The Double Returns of Impact Investing

Mon, 05 Mar 2018 08:07:27 +0000

Impact investing—funding enterprises with the intent to create positive change while earning a financial return, is on the rise–and for good reason. The rewards can be two-fold, and can also help spearhead more socially and environmentally focused endeavors. This potential prompted Dallas-based entrepreneurs Eva Yazhari and her husband Hooman to found Beyond Capital, an impact investing fund that helps to grow for-profit companies in India and East Africa with a mission to alleviate poverty. After working in the venture capital and asset management industries for five years, Yazhari set out to build a different kind of model that could affect individuals living under the poverty line. “I was motivated to follow in my grandfather’s footsteps after hearing stories of his time operating a health clinic in rural Tanzania,” she says.

Nine years since its inception, Yazhari reports that Beyond Capital is impacting 2.3 million people–1.6 million of which are women–with eight investments that are helping to provide healthcare, clean water, sanitation, energy access, and agriculture tools. We asked her for a closer look at impact investing, the risks vs. the rewards, tips for success, as well as her forecast for where it’s headed.

A Q&A with Eva Yazhari

What advantages does impact investing have over philanthropy?

Impact investing sits at the intersection of financial returns and social good. Philanthropy plays an ever-important role in society, and can at times be the best solution to aid social problems, but impact investing offers greater potential to generate a financial return—and have it grow over time. It also offers the opportunity to invest in a solution to a social problem that will one day become self-sustainable. An example is our recent investments in Kasha, a Rwanda-based company that makes health and hygiene products accessible to women in Africa. While Kasha could certainly operate as a charitable organization, the founders decided to run it as a business so that one day they could operate without reliance on grants, and have the ability to grow organically and eventually return money back to its shareholders.

Impact investing also pushes the boundaries of the potential available funds that can go toward doing good, beyond even the estimated $390 billion that’s donated to US nonprofit organizations by individuals, corporations, foundations, and estates annually. The most recent annual survey of the Global Impact Investing Network estimates that at least $114 billion is already invested with a social impact focus and is largely producing returns in line with expectations. I anticipate this number to grow as foundations continue to shift their endowments to charitable organizations, millennials increasingly invest with their conscience, and financial institutions offer a greater number of impact-investing products available to the general public.

What are the risks that come with impact investing? Are they similar to traditional investing, and can the financial returns be just as lucrative?

The risks do vary specifically with impact investments. For example, management teams are often leaner in early-stage social enterprises because it can be more difficult to attract talent to work in a remote area of the world. Markets for a particular good, such as solar lanterns, are also less proven, so there are fewer examples of social enterprises being successful in the long-term.

“Impact investing pushes the boundaries of the potential available funds that can go toward doing good, beyond even the estimated $390 billion that’s donated to US nonprofit organizations annually.”

Financial returns can be comparable to those of traditional investors, particularly when investing in more traditional asset classes like stocks and bonds that are screened for social criteria. The 2017 Global Impact Investing Network survey reports that 91 percent of impact investors are outperforming or in-line with their financial performance expectations. At Beyond Capital, for example, we doubled our money in an investment into eye care services in a remote part of India, and overall, our portfolio rate of return is currently 26 percent—very comparable to, if not outperforming, traditional venture capital funds.

We analyze all opportunities as a traditional venture capital investor would. Namely, we consider the strength of the management team, the target market, the competitive landscape, and the details of the business model, in addition to researching the social impact potential of the business.

The term socially responsible investing is often used interchangeably with impact investing—are they one in the same?

Socially responsible investing (SRI) is an extension of impact investing. Historically, SRI has been practiced for centuries among mostly religious communities and emerged in its modern form in the 1960’s. Today, it refers to screening publicly listed companies for specific social value criteria, such as female representation on corporate boards, and often involves investing in a fund that holds companies responsible for meeting these specific social criteria. Impact investing can span many different types of investments, from public stocks to venture capital, and an impact investor can choose which investments match her own values, as well as her expectations and goals.

Do you see a shift happening in the finance world, with investment decisions evolving as a way to express values (social or environmental)?

Today, banks and asset managers are becoming increasingly aware of the massive opportunity to serve younger generations who demand the integration of their social values in everything they do, including what companies, organizations, and causes they support. We’re definitely seeing more comfort around impact investment opportunities and an increasing array of options to meet the demand of this new wave of influential wealth holders.

How do you vet, or measure, a company or organization’s social impact?

Social return expectations are first determined by an impact investor herself: What social causes is she passionate about? What impacts does she want a company to make? Using Beyond Capital as an example, we are looking to improve the lives of individuals living under the poverty line through our investments, so first and foremost, we measure the number of people who will be impacted by the investment. We’ve set up an individualized impact framework for each of our investments and aim to align our own reporting to the Impact Reporting and Investment Standards metrics that have been established across the industry.

“We wanted to challenge the notion that impact investing is only accessible to a select few and create a way for ordinary people to get involved. “

Socially oriented companies are often concerned with their customers’ satisfaction. We like to invest in companies that regularly seek out feedback and data to improve their businesses, and in the process, understand if their customers are happy with their offering and their success rate. At our own portfolio level, we have developed a scorecard to measure both the quantitative and qualitative returns of our investments. We communicate the impact of our portfolio regularly to our donors and supporter network so that they can measure their own social impact.

How do you choose the companies you ultimately invest in?

Approximately 200 companies each year are reviewed and screened to select the right four to five to support. Over the past ten to fifteen years, the social enterprise sector has blossomed, and a number of business plan competitions, fellowship programs, and other networks have developed to support companies that are driven by a social mission. We have forged relationships with growth-oriented entrepreneurial groups like Unreasonable East Africa and SPRING Accelerator, as well as other investors who all contribute to our awareness of the best companies looking for funding.

Our number one goal is to seek out and partner with companies that impact individuals living under the poverty line. We rule out many companies in India and East Africa that are building promising, sustainable businesses but that do not meet our criteria. We frequently direct those companies to other financing options and try to make introductions where we can.

In getting to know a company better, we analyze it as would any traditional investor. When we feel comfortable that a company meets our impact and financial criteria, we invest confidently, giving all we can. A large part of how we make sure companies have all the support they need, though, is through co-investment so we also introduce the company to other investors.

Tips for making successful impact investments:

Avoid a company that has positive intentions but is not sustainable.
Remember that like many other investments, impact investments are investments in people behind the companies that match your values
Consider co-investing with others to share resources and learn.
Remain active, when possible. This will help you get the most out of your investments.

What was your drive to create Beyond Capital? What’s been a win for you and what’s next?

I was inspired by the moral philosopher Peter Singer and his book, The Life You Can Save. Also, I have a family history of public service–and my husband and I knew we didn’t want to wait until we were retired to do this type of work, so we partnered as co-founders of Beyond Capital and sought to build an organization that drew in resources from our network and was larger than our own individual philanthropic efforts. We also wanted to challenge the notion that impact investing is only accessible to a select few and create a way for anyone to get involved. To this end, over the next six months we’re launching our Ambassador Program, which will allow individuals to engage more with our work.

Our starting point was to use the skills from our finance and corporate backgrounds to invest in companies that had a social mission. In addition to the highly curated, immersive funding that Beyond Capital provides its portfolio companies, we offer mentorship and free legal advice to mission-driven entrepreneurs in the world’s poorest regions. We recently nearly doubled our money in an investment that has provided access to eye care services for 150,000 people in rural India over four years.

I’ve also begun to detox my own personal investments and shift them to be more consistent with my values, which include supporting clean energy, gender parity, and access to education, clean water, and healthcare.

Beyond Capital’s ultimate aim is to empower women and their families around the world to take control of their destiny, as well as to inspire them to invest with profound impact that builds sustainable businesses in some of the world’s poorest nations. Our next step is to grow into a household option for all impact investors, which, we hope, is to say all investors.

Eva Yazhari is the CEO of Beyond Capital, a non-profit impact investment organization that believes investing is a mindset that can inspire good and improve the lives of impoverished communities.

By goop.com

Equity-Based Crowdfunding: The New Kid on the Block

Wed, 20 Apr 2016 08:06:36 +0000

You’ve come up with a great business idea, and after plenty of due diligence and sleepless nights, you’re ready to turn it into something big. Naturally, your first order of business is money. There are a number of ways to raise early capital for your business, and understanding your options will set you up for the best chance of success.

What we hear about all the time in the media is generally the Series A to D rounds of fundraising, where a business has shown traction, received market validation for which they can justify significant valuations, bringing in funding in the single to triple digit millions of dollars from venture capital or private equity.

But to get to this point – to build a prototype and have something to sell to early customers to get this validation – you need seed capital. Depending on how much cash you need to get started, and how deep your pockets are, you may be able to bootstrap your way to a Series A, using salary from a “day job” or levering your (and your co-founders’) savings. But if that won’t cut it, there are a few other options. Fundraising amongst “Family and Friends” allows an entrepreneur to legally include up to 35 non-accredited investors in their pool of early investors, while fundraising among “Angels” allows you to tap into rich individuals that qualify as accredited investors, who have an interest in the startup community.

Or there’s a completely different approach – crowdfunding – that allows the general public to get behind you and your brand.

In the past decade, “rewards-based crowdfunding” began to gain traction as a viable route to raise seed capital with the launch of IndieGoGo in 2008 and Kickstarter a year later. This type of crowdfunding allows a transaction of cash, in exchange for some type of reward which could be an early version of the product, signed merchandise or ticket to an event. Typically, these campaigns have the dual benefit of building brand awareness and establishing an early customer base (getting that initial validation), but the amounts raised tend to be on the smaller side, with most averaging four-figures or below.

Which brings me to the point of this article, and to a topic that I’m actively interested in right now. It’s the new kid on the block, and it’s “equity crowdfunding”.

In June of 2015, the SEC enacted “Regulation A+” to facilitate the creation of the equity-based crowdfunding system. Unlike the previously-mentioned rewards-based crowdfunding, where investors are repaid with gifts like merchandise or event tickets, equity-based crowdfunding actually grants investors shares in the company, giving them a level of ownership in the business. Before Reg A+, only a wealthy echelon would have the ability to invest in a startup business and reap the benefits of future increases in valuations. Thanks to Reg A+, now virtually anyone can invest up to 10% of their income this way. Private companies have a brand new avenue to raise up to $50 million from the public, and non-accredited investors – not just friends and family! – have an opportunity to get involved.

There are two possible stages of a Reg A+ crowdfunding campaign: The optional first phase is called “Test the Waters” (TTW), and this means time-interested investors can submit a non-binding expression of interest. The second phase is the “Live Offering,” when actual investments are made. Both phases are done on platforms like StartEngine or SeedInvest, where companies provide a public “investor deck,” inviting people to learn more about the company, the team, the market and the overall investment opportunity. There, the general public can choose a company, and invest money in exchange for equity in the form of shares.

Any company can launch a TTW campaign, but they won’t transition to Live Offering until they’ve gone through a mandatory SEC filing and qualification process. Granted, this process does require significant preparation of audited financials, plus all relevant company information like ownership, debt, and use of proceeds must be made public. Since the process can take several months, some companies see this period as a perfect time to “Test The Waters” and choose to make the most of it by getting their company story out into the public sphere while waiting for full SEC approval. With paid media like websites and display ads, and social media like Facebook and Twitter, the internet age has made it easier than ever for word of great new inventions and technological breakthroughs to spread like wildfire.

As CEO of two start-up technology companies Ultra Mobile and Primo, raising money is always something I have in the back of my mind. And now with Reg A+, it’s great to have another option. Although this route is relatively new, the word is starting to catch on. Take some time to learn more about this great new alternative – it may be exactly what your business needs.