Impact Entrepreneurship and Impact Investing

Basically, a traditional entrepreneur is in the risky business of undertaking some sort of enterprise, typically for one and only purpose of financial gain. It doesn’t matter if the business is suffocating the economy with Chinese plastic disposable toys that pollute Chinese rivers, fill our landfills and poison our children. It doesn’t matter if it is tobacco, alcohol, coal mining, guns, propaganda, violent video games, or cute apps to get babies addicted to electronic devices. It doesn’t matter if the gadget self-destructs after one use. As long as it is cheap, cost-effective, and it sells, it is a traditional entrepreneur’s goldmine. As well as traditional investor’s dream come true. An entrepreneur is typically seen as a business leader and an innovator starting new businesses for profit. The financial gain and the maximum return on investment is be-all and end-all of entrepreneurship. Increasing value for the shareholder and chasing hockey-stick growth are the two benchmarks for judging success of a company. This is in part driven by our capitalist society – an economic system based on private ownership of the means of production and their operation for profit.

Companies that exist for the sole purpose of contributing to society in a positive way and making a positive difference in the world are typically not organized for financial gain and achieve a non-profit status. These companies typically struggle financially because their primary source of funding are philanthropic donations, which means these organizations need to operate on a very lean budget and spend a huge portion of their resources on continuous fundraising, which is not a very efficient way of doing business. Non-profits are often critiqued for being ineffective, because they are so focused on spending the least amount of money, while putting together impressive marketing materials and throwing lavish parties for their wealthy donors, instead of making the largest impact towards their mission. The progress towards their mission is completely decoupled from the amount of funds they have coming in, which once again takes the focus away from the mission.

So how do we solve the problem of irresponsible entrepreneurs and inefficient non-profits? This where the impact entrepreneurship and impact investing come in. Impact entrepreneurs are building businesses that make a difference in the world. Specifically, they make a POSITIVE difference, while generating a profit at the same time. Being ethical and transparent, living according to your integrity and personal values, and pursuing your passion is what impact entrepreneurship is about. Making a living while making a world a better place is hard, but it is possible. You might not get the same financial reward (or your might). You might have to wait many years before you see a reward (or maybe you don’t have to wait). It is not easy, but many people prefer this investment model because they feel good doing it.

What is Impact Investment? Impact investment is different from traditional investment which pretty much only looks at the numbers on the bottom line. In traditional investment model there are only two questions: What are the risks? What are the potential financial rewards? The risks need to be minimized, the financial gain maximized. How that is accomplished doesn’t matter. Unless you are an impact investor. For impact investors How the money is being used, Who is managing the money, Where in the world’s economy the money is going, What is the positive difference the money is making in the world are the critical questions that have to be fully, intentionally, and systematically explored and answered before the investment can be made. Lastly and most importantly, the impact needs to be measured. Otherwise, how do you really know if you are making an impact?

Over the last decade more and more people are getting on board with impact entrepreneurship and impact investing, because it is the right and the moral thing to do. I feel hopeful about the future of our planet. Isn’t it time you reviewed your stock or mutual fund portfolio to see where you are investing your money?