Why Social Impact Investing Is the New Venture Capital
Venture capital is a major section of the investment market, managing large amounts of money and deals. Last year it reached a new high of US$155 billion. With such success and attention it’s only natural that people are looking for its next step or its role in “the next big thing.”
The most logical successor? The most common opinion is that social impact investing is the new venture capital. Combining the need to make a positive impact with the quest for financial returns, social impact investing has the real opportunity to overhaul the venture capital market and turn the movement into a global game changer.
Why is the investment market shifting this way? That’s what we’ll look at this week.
So, why is social impact investing the new venture capital? There are several reasons. The first reason: Social impact investing is an improved version of investment.
Venture capitalism, to be blunt, is all about the money. Your backers are offering financing because the return is beneficial to them.
This is a bleak view of the world and a depressing way to finance a business.
Social Impact investing, in contrast, offers a much more hopeful approach. Yes, the financial backers provide support with the expectation that there will be a positive return for them, but the “real reason” they offer funding is the positive impact the company is set to make.
Investing with a purpose means your money is doing more. By financially supporting social impact causes you are making the world a better place and improving your portfolio.
One of the major reasons for the increased interest in social impact investing is the rise of the millennial.
Millennials are now the major force driving the market and their dollars do the talking. This is also the generation that brought forth Occupy Wall Street and had their careers delayed due to the 2008 recession. They do not trust boardroom financing.
Highly socially conscious, this generation doesn’t just want to grow their nest egg: they want to know their investments made a positive impact. In fact, a Morgan Stanley study found that 86% state an interest in sustainable investing.
This is a very large section of the investment market and is comprised of the people gaining more control over the business world. Their interests show where the market is going.
Smart investment firms see this and are catering to this area. Startups like Aspiration offer sustainable, socially-conscious investing, tapping into the market while helping to make a better world.
You may wonder why we haven’t made this power shift before. Well, when it comes down to it, the environment wasn’t set up for the shift until recently.
The market of yesterday limited who could invest in companies, which reduced the reach social impact causes had and made it harder for startups to get funding and wannabe philanthropists to supply funding.
Both the U.S. and Canada have seen the changing of the market, however, and have amended their laws and regulations to allow more funding opportunities.
These changes have opened up the field of investing to a wider audience, and this in turn is changing how startups are marketing themselves to potential investors.
Once the environment was amended to allow for social impact investing the response was very positive and the field is now growing at astonishing levels. In 2017 the impact investing market reached $114 billion in assets and this was doubled to $228 billion in 2018.
With the increased levels of interest and financing it’s easy to see why impact investing is now getting so much attention. This is amazing to see and I look forward to seeing what innovations come forth from the next crop of impact investing innovators.
Heraclitus, a Greek philosopher, once said that, “Change is the only constant in life” and the market and business world reflect this fact. As society evolves our way of handling everyday realities changes.
Technology has had a radical impact on our lives and is obviously remaking how we manage our businesses. Its impact is a positive thing and the changes it is bringing with it are improving the business world and opening it up to sections of the market that previously had limited access.
Venture capital is a great way to fund a business, but it should not be the only way to fund a business as not all entrepreneurs can access this passageway. Thankfully FinTech is opening new doors and today’s social investing startups now have access to technology that will help them get the funding they need.