Fear of missing out or FOMO: a term that emerged over the last few years, especially since social media have made it easy for everyone to share their life online. It describes the anxious feeling that you are missing out on information or events that everyone else does seem to know about and could make life better or more pleasing. It can be associated with fear and regret on missing opportunities. The term is usually used in the context of a cool event or when all your friends are going on an exciting trip, but might it also be applicable to impact investing? Is the fear of missing out on impact investing enough to shift focus from ‘’doing no harm’’ to ‘’doing good’’ investing? Read more to find out what our thoughts are on this subject!
Whose problem is it anyway?
Societal issues such as refugee migration, environmental problems and educational inequality are more and more pressing. Not a day goes by without any news outlet covering one of these and other social problems. Which makes our question even more important: should you, as a business angel or ‘’traditional’’ investor, feel anxious about not putting your capital to work towards more social enterprises that aim to alleviate some of these problems?
To answer this question, it is good to think about whose problems these are to solve. While governments and NGO’s play important roles in putting societal issues on the map and putting capital towards prevention and (partially) stopping the problems from getting worse, in our opinion, societal issues are everyone’s issues; they belong to all of us. To us that means that those who have the means to invest in impact, should play a role in providing support to social enterprises focused on solving societal issues and making sure such enterprises are funded with money and expertise.
Taking a step back
People working on societal issues have always been around: historically they started foundations or advocacy groups, and worked with philanthropic money or public funding to finance their efforts. But since a decade or so, doing good has changed and more people that have solutions to tough societal issues are very much aware of the vulnerability that comes with depending on donations. That’s why people concerned with societal issues often choose to start a social enterprise, meaning they want to make impact first, while using a sustainable business model.
As an investor, it might be scary to start investing in social enterprises. After all, the focus is not on monetary revenue but mostly on social return on investment, which often requires a little more risk taking. That means you have to approach impact investing a bit different from how you would normally look at your investment.
What are the differences?
When taking an approach to impact investing, according to us, these 5 requirements should definitely be part of your plan:
- Be there for the social enterprise to give hands-on support, such as supporting management and business development. Most social entrepreneurs have more experience with the social problem than business development and thus can use an extra pair of brains and hands to get the enterprise going.
- Being patient with your capital – you’re in impact investment for the long run.
- We have experienced that growing an impact enterprises can take longer than scaling a commercial start-up. Successfully solving a societal issue does not automatically create a need and a need does not automatically create a customer demand. In other words, social entrepreneurs often have the extra challenge of creating awareness for the issue in combination with selling their product or service.
- Measuring impact and putting societal value at the core first. This is not only key for business intelligence, but measuring impact is critical if you want to exit to larger impact investing funds.
- Last but not least: as the investor, you should be modest. Impact investing is not a game of earning triple digits: it is about putting money to good use and really helping people and/or the planet. You can expect a fair return, but chances are not one that will immediately make you rich(er). In the end, impact investing can only be truly successful if both the social entrepreneur and the investors are intrinsically motivated to solving the social issue the enterprise is working on and take that as seriously as the financial return.
The choice is yours!
Are you experiencing FOMO on impact investing yet after reading this? Of course, you are not required to immediately deep-dive into impact investing. Many investors who want to add impact investing to their traditional investments or philanthropic goals, start by investing in traditional businesses or listed companies that work Environmental, Social and Governance (ESG)-compliant. You have to start somewhere! But what we do know from looking at the past, is that grantmakers, NGO’s and governments can’t solve today’s pressing societal issues on their own. We need impact investors who dare to take risk, are patient and most of all, who prioritize solving these issues. So, the choice is yours: do you want to be a business angel or an impact angel?