You should know this before you put your money into impact investments
There is a lot of momentum building around impact investment all over around the world. Impact investors have access to a bigger number of investment opportunities and more and more of them are willing to commit even bigger amounts of money towards various impact causes.
If you are new to impact investment but have any hope of staying long in the field and make some money, there are several factors that you need to pay attention to. I will highlight some factors that you should work hard to know before you get into impact investment.
Attention to detail
Like it is the case with any kind of investment, it is important to pay particular attention to every detail of an impact investment. You must ensure that the investment is built around robust implementing agreements and that you conduct comprehensive due diligence every step of the way. Implementing agreements must clearly address how commercial risk is allocated. This should however not be taken to imply that all risks are allocated to investors and intermediaries.
If you are getting into service agreements, it is important that you ensure that they include measures and standards so that service providers have the incentive to deliver intervention or face possible recourse. To attain outcome and intervention, it is important for investors to demand that service providers have enough commitment into the investment.
In case you are involved in large projects such as affordable housing, it is important to ensure that investors and lenders are afforded step-in rights. The lenders and investors should be able to exercise these rights in the event that the service provider ends in a non-performance situation.
Clarity around investor motivation
Investors usually invest in impact investment for various reasons and as such, it is important to be upfront about them. Investors make impact investment for purposes such as extending extant philanthropic efforts, becoming an early adopter, or seizing a good investment opportunity.
An investor should make clear their objectives and motivations for making an investment. They should let the service provider know if they intend to take on a bigger role if an opportunity comes up. This way, the service provider will be better prepared to deal with any eventuality so that the transition goes on smoothly.
The role of government
This is one is very important. For any impact investment you make, it is important to always consider the role the government will be playing. An ideal project is one in which the government has a short-term involvement. The role of the government should be to increase viability of the market to attract new flow of investment to the project. After that, the government should pull out and let private investors handle the rest of the project.
Impact investors such as Bo Parfet have been involved in several impact investments and have a lot to share with people who are just getting started. You can visit his company’s website and learn more about how you can succeed as a new impact philanthropist.