Impact Investing 101: A Beginner’s Guide to Making a Difference (2024)

Impact Investing 101: A Beginner’s Guide to Making a Difference (2)

More and more people today want their investments to impact the world positively. Impact investing lets you do just that. It means obtaining funding or putting money into companies and organizations that generate social and environmental impact and financial returns.

You may have heard about impact investing but need help figuring out where to start. This beginner’s guide will walk you through the basics so you can immediately begin investing for impact. We’ll explore impact investing, how it works, the options available, and how to build an impact portfolio that matches your financial and social goals.

Unlike traditional investing, where the goal is purely financial gain, impact investing seeks to make a difference. Impact investing firms support causes like renewable energy, healthcare, education, and economic development. The companies and projects these funds invest in are creating innovative solutions to issues like poverty, lack of access to resources, inequality, and environmental degradation.

Currently, the top 5 impact investing firms according to the value of their assets under management are Blue Orchard Finance S. A., Triodos Investment Management, Community Reinvestment Fund, The Reinvestment Fund USA, and Vital Capital.

There are a few common ways to obtain impact investing funds:

· Community investments help build wealth and opportunity right where people live. They fund projects like affordable housing, small businesses, and community services. Many credit unions offer community investment options.

· Debt financing lends money to social enterprises, usually with the expectation of repayment with interest. Unlike traditional debt financing, it focuses on supporting ventures that generate positive social or environmental outcomes alongside financial returns.

· Equity financing, as an impact investing type, refers to raising capital for social or environmental projects or enterprises by selling ownership stakes, or equity, to investors. In this context, equity financing aligns with the principles of impact investing, which seeks to generate positive and measurable social or environmental impact alongside financial returns.

· Microfinance involves small loans to mostly impoverished borrowers in developing nations who need access to traditional banking. Interest rates on the loans are usually higher than average to offset risk but still provide affordable capital for the borrowers to start or expand businesses.

· Social impact funds focus on generating positive social and environmental outcomes alongside financial returns. These funds pool together capital from various investors, such as individuals, foundations, and institutional investors, specifically intending to address social and environmental challenges.

Impact Investing 101: A Beginner’s Guide to Making a Difference (3)

The options for making a difference with your dollars are growing every day. With some research, you can find an impact investing firm that matches your financial and social goals. Together, we have the power to create a better future for everyone.

Impact investing firms typically have specific requirements for the loans and investments they provide. Some key things they will evaluate include:

Environmental or Social Mission: The company or project must have a clearly defined environmental or social goal and be able to demonstrate how they will achieve and measure impact. Things like improving education, healthcare, economic opportunity, and environmental sustainability are common impact areas.

Experienced Management Team: A funding candidate’s management team needs relevant experience and a proven track record of success. Impact investors want to see that the company can execute its vision and business plan.

Financial Viability: While the impact is essential, the company must demonstrate the ability to generate returns for investors. A solid business model, revenue model, and financial projections are necessary. A realistic exit path must exist, such as an acquisition or IPO. For debt financing, there must be a plan to repay the loan.

Measurable Metrics: Clear metrics and KPIs must be in place to track social impact and financial performance. Impact investors will want to know precisely how the funds will be used and the timeline for deployment. Funds should be used to scale operations, not cover basic operating costs. They will want to see quantitative and qualitative ways of measuring outcomes.

Impact Investing 101: A Beginner’s Guide to Making a Difference (4)

By understanding these requirements, social entrepreneurs can better determine if impact investing is right for them and how to position themselves for investment.

If you started your company to make a difference in the world, impact investing could help fund your vision. Impact investors seek businesses that aim to solve social or environmental problems, not just maximize profits. They provide capital to scale your operations and increase your impact.

Don’t give up hope if you’ve struck out with traditional funding sources. Impact investing opens up a new pool of investors interested in more than just the bottom line. They evaluate businesses based on the potential positive impact in addition to financial returns. While impact investors still want a viable business model and path to profitability, they may be willing to take on more risk or accept lower returns to support a meaningful mission.

Impact investors need a well-developed business & financial plan demonstrating how your company will achieve financial sustainability and scale its impact. Be prepared to show realistic financial projections, key milestones, risks, and how you’ll mitigate them. Impact investors want their money to fund growth, not just keep the lights on. Clearly envision how their capital will help expand your operations and social impact.

Impact investing often involves close collaboration between the investor and investee to maximize impact. Be open to input on your business model and theory of change. They frequently take board seats or observer roles to support your work actively. If you want passive, hands-off investors, there may be better choices than impact investing.

Impact Investing 101: A Beginner’s Guide to Making a Difference (5)

The opportunity to secure funding from impact investors who share your vision for change can be life-altering for mission-driven companies. But go in with realistic expectations about the level of partnership and commitment involved to make the most of this impact investing relationship. With open communication and shared goals, impact investing can be a powerful way to scale your business and its impact.

So, there you have it, a quick primer on impact investing. Now that you understand the basics, you can explore the top 5 impact investing firms more. They can provide ideas if you’ve been interested in the topic but need help determining where to begin. They show how to match your finances with your ideals through their many impact areas and investing approaches.

You can also use Excel financial modeling templates to obtain impact investing funding. They can provide a clear and comprehensive analysis of your financial projections and the potential impact of your investment. eFinancialModels offer industry-specific Excel financial modeling templates incorporating relevant financial and impact metrics to instill confidence among impact investors. Make a difference today!

Impact Investing 101: A Beginner’s Guide to Making a Difference (2024)


What questions are asked at the impact investing interview? ›

Impact investing interview sample questions

How do you demonstrate a commitment to social and environmental change in your own life? Tell me about a time you overcame a significant challenge on the job. When you are stuck on a project, what is your go-to response? Are you comfortable learning new skills?

What is impact investment for dummies? ›

Impact investors seek businesses that aim to solve social or environmental problems, not just maximize profits. They provide capital to scale your operations and increase your impact.

What is the 5 rule of investing? ›

This sort of five percent rule is a yardstick to help investors with diversification and risk management. Using this strategy, no more than 1/20th of an investor's portfolio would be tied to any single security. This protects against material losses should that single company perform poorly or become insolvent.

What are 5 questions you should ask when investing? ›

5 questions to ask before you invest
  • Am I comfortable with the level of risk? Can I afford to lose my money? ...
  • Do I understand the investment and could I get my money out easily? ...
  • Are my investments regulated? ...
  • Am I protected if the investment provider or my adviser goes out of business? ...
  • Should I get financial advice?

How do you answer an impact question in an interview? ›

Explain the impact of your example: this goes beyond a recounting of what happened and helps the interviewers understand why your experience matters. For example: In doing this, I was able to ensure the event ran on time and I was able to adapt to an evolving situation.

What skills do you need for impact investing? ›

Social finance and impact investing professionals need to have a solid grasp of financial analysis and management, such as accounting, budgeting, valuation, risk assessment, and portfolio management.

What makes a good impact investor? ›

Investors with credible impact investing practices use shared industry terms, conventions, and indicators for describing their impact strategies, goals, and performance.

What are the cons of impact investing? ›

One of the key risks is that impact investments may not generate the intended social or environmental impact. Another risk is that financial returns may be lower than anticipated. There are a number of different types of impact investments.

What is impact investing summary? ›

Impact investing is a style of investing where a clear and positive outcome (social, environmental, etc.) is prioritized alongside financial return expectations. Impact investing is not the same thing as ESG investing, though there are some common threads.

What are the main three features of impact investing? ›

The main elements of impact investing include:
  • Intentionality. Impact investing is purpose-driven. ...
  • Measurable Impact. Impact investments have measurable, quantifiable and transparent outcomes. ...
  • Expected Returns. Like traditional investments, impact investments involve an assessment of risk and return.
Oct 25, 2023

What are the stages of impact investing? ›

Developing an impact investing strategy and taking subsequent action steps can be organized into three stages: PREPARE, BUILD, and REFINE. We explore each of these phases in detail in this guide.

What are the 4 golden rules investing? ›

In conclusion, the 4 golden rules of investment - start early, watch out for costs, stick to your goals, and diversify - collectively play a crucial role in building a resilient and rewarding investment portfolio. By starting early, investors can benefit from compounding returns over time.

What is the Buffett rule of investing? ›

“The first rule of investment is don't lose. The second rule of investment is don't forget the first rule.” Buffett famously said the above in a television interview.

What is the 70% investor rule? ›

Basically, the rule says real estate investors should pay no more than 70% of a property's after-repair value (ARV) minus the cost of the repairs necessary to renovate the home. The ARV of a property is the amount a home could sell for after flippers renovate it.

What are the questions for impact based interview? ›

For impact, ask: 1) Tell us about a time you had a measurable (read: quantitative) impact on a job or an organization. 2) Tell us about a person or organization that you admire. Why do you think they have made an important impact?

What skills do I need for impact investing? ›

Social finance and impact investing professionals need to have a solid grasp of financial analysis and management, such as accounting, budgeting, valuation, risk assessment, and portfolio management.

What are the biggest challenges in impact investing? ›

The risk of not achieving the desired impact: One of the biggest risks associated with impact investing is that the investments may not have the desired positive impact on society or the environment.

How do you plan to make an impact interview question? ›

You should focus on one or two strengths, and provide examples where you've demonstrated these specific strengths in the past. Simply listing your strengths without facts to back them up makes the answer fairly shallow.


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