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Different Approaches to Impact Investing

What are the different approaches that impact investors use to build their investment strategies?
So how do impact investors bring together the ideas around investment, and the ideas around impact, into their investment strategy? In the next video, you’ll hear from a number of impact investors discussing different approaches. Different impact investors have different approaches and strategies Of how they go to the market. There are three different ways one could look at this. One is - a mission based approach. So there are organizations with a specific social mission Gender empowerment, promoting clean energy, Enabling education for low-income children So if you have such a mission, all your activities, all your goals focus on that mission. Another approach is sector based.
There are funds, such as Lok Capital for instance, which is a leader in financial inclusion investing, which justs looks at specific sectors. This could be agriculture, this could be education, This could be healthcare, where your goal is really to have Deep expertise in a sector And these are all huge, very complex, very large sectors With many many subsectors So these are funds who are really capitalizing on having deep expertise In a particular area And there are other funds which are more sector-agnostic And the basis for their strategy is, the third variable - which is stage.
Different startups go through a growth cycle, Starting with seed stage investing, Later on, they have to raise series A or series B capital And then there is growth stage investing And these three types of investing are enormously different. Particularly seed stage or early-stage investing, which has its own set of challenges which requires a heavy degree of operational involvement in the affairs of the company. So these are so of the pillars that different impact investment funds use as they craft their strategy and they shape their approach to the market What is their overall mission, what sectors do they invest in, or not invest in, and what is the stage of investment they are focused on.
and therefore what capabilities do they need to bring to bear to be successful at that kind of stage.
At Factor(e) ventures we’re focused on Four different thesis areas Access to energy, agriculture and agri-tech, sustainable mobility and, what we call, waste and resource management which includes things like water, waste to value, and proper sanitation. The reason why we are focused on these four areas really is that it, it impacts people at the very core of their daily lives, everyday very fundamental issues that people have in terms of making a living, their access to proper drinking water, proper sanitation and hygiene
Various issues around the use of electricity and reliable power These are the things that people are impacted with on a daily basis. We’re very focused on trying to help improve the lives of people who are impacted in this way. So factor(e) ventures is focused on seed stage investments primarily because we are really engaged with technology and technology risk So that is the area where we feel like we provide the most value Given that most technology risk is at the very early stages of a companies life For us, it has the most impact to be at the very early stage of the companies development We love to see companies in the growth and maturation of their enterprise overcome risk in technology and grow to a point where they’re ready for the next stage of investment.
So as far as we are concerned impact investing is the idea of Identifying large scale social problems and then taking extraordinary risks with capital to create unpredictable returns. Just to elaborate on that there are large complex problems, There is a problem of waste, there is a problem in education, healthcare How do you take these services that some of us from middle, or upper middle, or rich communities take it for granted. How do you take this to those people who don’t have access to them?
To make that happen you’ll actually have to come up with new business models Those business models require capital to take extraordinary risks And that’s why commercial venture capital, commercial private equity is not willing to do it. So in my view, Until and unless you are doing something that is quite different From what venture capital and private equity is currently doing then you do not qualify as impact investing. I think unifying all the sectors that we invest in there is a single theme which is access. And that for us is access to capital. That in which we built out a thesis, which is capital for small merchants.
Access to, what we call, essential services Which for us would be high quality, low cost education and healthcare. And then access to markets And with access to markets we built out a very large portfolio of companies and the majority of what we’ve done in small farmer productivity enhancement and supply chain logistics. Specifically, we have companies that link small producers, small growers to end consumers And thereby they are bypassing many of the intermediated steps along the agricultural supply chain. So our investment strategy would focus on a few different things, One is we want to see really groundbreaking innovation and new technology that’s going to be breakthrough in its impact. Secondly, we look for great teams.
Thirdly, I think we look for a business model, or an execution plan, That’s gonna have a real chance to succeed and impact the most people that it possibly can. And another really important way of using our philanthropy in the developing and the developed world, is to find local leaders across class, ethnicity, religion, caste who are stepping forth as changemakers and link them, inspire them, and support them to be part of the kind of change our interconnected world really needs and wants to see.

What are the different approaches that impact investors use to build their investment strategies?

Hear from leading impact investors what defines their investment thesis and how to navigate the nuanced approaches in the sector.

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Impact Investing

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