Myth vs. Fact: Impact Investment Edition

With more founders considering impact investment, it is important to debunk certain myths about this rapidly growing field. In this short edition, I share 7 common myths and clarify what’s important to impact investors. Ready? Let’s go!

Myth 1: You need to be a non-profit to get impact funding.

Fact: Impact investors fund both for-profit and non-profit ventures, as long as they generate measurable social or environmental impact alongside financial returns. There are many social enterprises and sustainable businesses that have received funding from impact investors who seek a double or triple bottom line (profit + impact). So, do not count yourself out. Read the first edition of this newsletter as it has answers to this myth.

Myth 2: Impact investment means sacrificing financial returns.

Fact: While some impact investors accept concessionary returns, many funds are structured to deliver market-rate or above-market-rate returns while driving positive change. The success of firms like Acumen proves that impact investment can be both financially rewarding and socially beneficial. In addition, with more founders rising and solving problems, financial returns can be recycled to reach new founders.

Myth 3: Impact investors only care about ESG (Environmental, Social, and Governance) scores.

Fact: While ESG factors play a role in impact investing, investors go beyond ESG screening. They look at intentionality, measurable impact, and the scalability of solutions tackling pressing global challenges. Unlike traditional ESG investing, impact investment demands clear, trackable outcomes. It moves from “potential” to “actual” outcomes.

Myth 4:  Impact investors only fund large-scale projects.

Fact: Many impact investors actively support early-stage startups and SMEs that show strong impact potential. Funds like Aruwa Capital Management focus on empowering small businesses and emerging entrepreneurs who address societal issues at the grassroots level.

Myth 5: If your business is impactful, investors will automatically fund you.

Fact: Having a mission-driven business is great, but impact investors expect strong financial models, execution plans, and measurable impact data. You must prove scalability, operational efficiency, and risk mitigation strategies in order to attract serious impact investors. To strengthen your organisation, consider reading previous editions of the ImpactVantage newsletter.

Myth 6: Measuring impact is too complicated.

Fact: While impact measurement can be challenging, there are existing tools that can make your work easier to track and report social and environmental outcomes. Most investors want transparency, not necessarily perfection. A solid framework for tracking impact is key. In the sixth edition of this newsletter, we addressed this topic and highlighted some tools. Check it out.

Myth 7: Once you get impact funding, you don’t need to worry about financial performance.

Fact: Impact investors still require strong governance, accountability, and financial discipline. You will be required to provide regular reports on both impact and financial health to retain investor confidence and unlock future rounds of funding. You cannot afford to do a substandard job.

Impact investment is not charity. It’s about leveraging capital to drive sustainable change while ensuring financial viability. Understanding these myths and facts will help you approach impact investors with clarity, confidence, and a solid value proposition. 

What other myths have you heard?

Resources

Worth Reading

The “Messy” Subject of Impact Measurement 

Let’s Start at the Very Beginning 

Highlighted Resource

The highlighted resource for today is the ImpactVantage newsletter. If you joined us recently or someone sent this edition to you, catch up. 

End Notes

If you have a product or resource that can be helpful to an impact-oriented organization on its way to becoming investible, fill out this Google form. Who knows, you might be featured in the highlighted resource section.

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PS: Are there topics you would like to see covered? Share them, and I will see how to add them to the existing content schedule.