No disrespect intended towards my roots in Big Law! I appreciate that I am able to leverage my broad-based corporate legal experience and the solid training I received from my colleagues in Big Law firms! My mentors continue to support and guide me to grow my practice to this day. Shout out to my mentors!
Nevertheless, upon going solo, I quickly discovered that one of the most rewarding aspects of building my own legal practice is the opportunity to target clients involved in businesses, which I respect, admire, and have an expertise and/or an interest in, or which are simply engaged in social causes I want to support.
But, no matter where you practice law, hopefully you’ll agree that one of the most fundamentally rewarding aspects of being a practicing attorney is the opportunity to learn something new every day!
Notwithstanding having over 20 years’ experience representing clients in corporate finance transactions, I was surprised and excited to learn that non-traditional, socially responsible capital-raising strategies continue to emerge.
The term Impact Investing was first mentioned to me by an ambitious, entrepreneurial woman seeking to raise funds in connection with a series of fitness and wellness events, intended to have a positive social impact directly on the communities her company serves. In researching creative solutions to the capital-raising concerns faced by her small business, she stumbled upon a relatively new investment vehicle.
So What is Impact Investing?
Emerging in 2007, impact investments are made into companies, quasi-governmental organizations, and funds with the intention of generating a measurable, beneficial social or environmental impact along with a financial return.
Impact investments are also characterized by:
- An investor’s commitment to measure and report the social and environmental performance and progress of such investments;
- Below market returns (sometimes called concessionary) but, at a minimum, are expected to yield a return of the capital invested;
- Longer than traditional venture capital payment times; and
- The non-existence of a traditional “exit strategy.”
Impact investments are gaining momentum and occurring across asset classes, such as private equity/venture capital, debt, and fixed income. They typically empower for-profit businesses with a socially or environmentally driven mission. Investors in this space are harnessing the power of enterprise, which is to say that (at least in theory), a larger social impact can be made by deploying more capital on an enterprise basis.
But, a real challenge exists in determining what performance metrics/targets/milestones can be used to accurately measure investor goals and stated objectives.
The best of intentions and lofty goals notwithstanding, measureable social change is not only difficult to achieve, but even more difficult to definitively measure. Without an exit strategy, impact investments seem a lot like short-term, potentially interest-free loans or donation-based, philanthropic gifting.
Have You or Would You Consider Making an Impact Investment?
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