A common piece of advice given to startup founders is to focus exclusively on company growth towards eventual profit. But a prominent alternative to profit-above-all-else thinking is emerging, asking both investors and entrepreneurs to care about the impact made by businesses as much as its financial return.
“If you don’t try to move the dial on any of those things, we’re going to continue to face systemic challenges.”
In a recent BetaKit Live, Blair Miller, Managing Partner of the TELUS Pollinator Fund for Good, Chenny Xia, the CEO of Pollinator Fund portfolio company Gotcare, and Amit Bouri, the CEO of the Global Impact Investing Network (GIIN), looked back on how impact investing has developed globally, the growth of impact investing in Canada, and what it means to scale impact.
Positive, measurable impact
The concept of impact investing, as Bouri described it, is a serious approach to investing that looks both at financial returns and producing a “positive, measurable impact on the world.” Now counting over 40,000 members globally, Bouri said GIIN is a prime example of how impact investing is growing.
“It’s quite the phenomenon all around the world,” said Bouri.
Where impact investment differs from traditional charity or philanthropy, though, is the idea of incentives. Bouri said that charity and philanthropy have a role to play in filling gaps made by disaster, but Xia added that it’s important to have proper financial incentives as well, which are often missing in other types of funding for social good.
“It’s high time that not only do we incentivize and support businesses addressing those systemic challenges, but also figure out how we can sustainably scale those businesses as well,” said Xia.
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Balancing profit with purpose
Often confused for charity or assumed to not focus on financial returns because of the word “impact,” Bouri said impact investing explicitly thinks about scalability in a way that charity, philanthropy, or other programs like micro-loans might not.
For Bouri, scale is defined as “moving capital to high-impact projects with integrity.” And the way to ensure integrity, said Bouri, is to track data that shows real results versus being happy with good intentions.
“We’re operating in an age of data,” said Bouri.
Miller described this situation as balancing profit with purpose, saying that it’s not about expecting a profit next quarter but building the business in a way that scaling impact naturally scales the financial returns.
“We’re aware that there’s this moral hazard that can occur in businesses where founders look at trading off impact for financials,” said Miller.
To counteract this potential moral hazard, Miller said the TELUS Pollinator Fund for Good assesses businesses not just on their financial projections and impact mission, but how they embed a theory of change into their business model. This, said Miller, helps the fund ensure that an entrepreneur will continue to choose impact when presented with this moral hazard.
From a founder’s perspective, Xia summed up this moral hazard simply: “it’s a choice.”
The founder added that if a business doesn’t choose impact, the reality is that the business is not sustainable. For example, Xia’s company Gotcare focuses on home healthcare. As a business leader, Xia also thinks about how she can address systemic issues like providing personalized patient experiences, empowering patients to be active in their own care, and paying healthcare workers fairly while providing real career progression.
“If you don’t try to move the dial on any of those things, we’re going to continue to face systemic challenges,” said Xia.
Canada’s point of acceleration
In his role with TELUS Pollinator for Good, Miller thinks Canada is ready for massive growth in the impact investing space.
He cited TELUS’ $100 million commitment – one of the largest-ever corporate impact funds in Canada – as one potential catalyst for the movement. As portfolio companies prove that you can scale a business both financially and impactfully, Miller believes more institutions, corporations, and even individuals will see that impact investing is valuable. He was also quick to add that impact investing is “not a concessionary investment thesis,” but instead areas with massive economic return and the ability to do good at the same time.
To get to mass adoption, Miller said TELUS is focused on building a “coalition of the willing,” bringing together those who understand the upside of impact investing and leveraging their success as a way to draw in more people. Luckily, Miller said it seems like Canada is on its way to producing more high-quality impact investors.
“We’re at a point of acceleration of impact investment in Canada,” said Miller.
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