Private Equity and Venture Capital Impact Investment Funds
Whilst the lion’s share of asset owners portfolios tend to be invested in listed equities, most funds in this asset class trade in secondary markets. Some argue this, and the fact that addressing social and environmental challenges requires innovation with new technologies, means that private markets have an outsized role to play.
Private equity and venture capital asset managers exist across industry sectors and geographies and their fund sizes vary widely from under $10million to tens of $billions. This page isn’t intended to be a directory since there are simply far too many funds to list. Instead consider it an introduction to some of the more common names you should be familiar with, whose annual reports make great reading to learn more about this industry segment. The PRI also has useful resources for private equity based investors.
Investment Process
Many venture capital firms specialise in an industry sector or theme based off the team’s professional experience to give them the competitive advantage required to deliver top-quartile performance. However, limited deal flow sometimes results in impact investing funds being less selective in their investment thesis and taking a more generalist approach covering multiple sectors when sourcing investment opportunities.
A fund’s investment thesis will determine the instruments used, ticket size, ownership stake and if board access is required (usually so). Follow-on capital is often reserved for use meeting cash needs of successful portfolio companies to prevent dilution in later financing rounds. Some fund models buck the norm, such as Yunus Social Business who offer market-rate loans to profitable social impact businesses who are unable to secure financing from their local financial institutions.
Job Roles
The roles at funds can be defined by a fund’s typical activities: fundraising, deal origination, screening / evaluation, due diligence, deal structuring, technical assistance (capacity building), exit. Typically investment based roles require prior experience in this function, either from venture capital or investment banking firms. Without this experience, people with experience in SMEs or start-ups might be able to demonstrate that this is useful for a fund’s technical assistance team, if they have one. Fundraising roles can also provide a way in to the industry, but it can be harder to move from these into other parts of the business if that is your aim.
Finding an internship can be the best way to gain experience and get your foot in the door, but these opportunities are in competition and not always published. The best bet is to identify a region or sector tied to your professional experience, and find a fund which aligns with this. You must be able to demonstrate that you can create value and learn quickly as the majority don’t have the capacity for formal training. To increase your chances consider some of the available online courses which will build your skills, demonstrate your dedication and build your credibility come interview.
Larger Firms
TPG Growth
TGG’s global growth equity and middle-market buyout platform leads The Rise Fund, one of the world’s largest impact investing funds. The fund raised $2B and boasts co-founders including Bono, Richard Branson and Paul Polman. Investing across 7 sectors the fund uses novel propriety impact measurement methods including the fund’s propriety ‘Impact Multiple of Money’. The firm announced in October 2018 that a second $3B fund would be launched soon.
Bridges Fund Management
Founded in 2002 to finance companies that serve the most deprived 25 percent of the UK population. Several of its funds, the last of which raised £200 million, have delivered returns that match or exceed those of traditional private-equity managers. The firm has consistently developed investment funds with progressive features. For one of its funds, Bridges created a way to invest in social enterprises whose legal structures make it difficult for them to accept outside financing. Many impact-oriented investment firms will also need to combine novel financing mechanisms with professional investment practices to appeal to a wider range of limited partners and increase the assets they manage. The firm has raised a total of over £900m to invest in SMEs, properties and social sector organisations that are helping to tackle some of society’s biggest challenges.
Rockefeller Foundation
The term impact investing was coined by the Rockefeller Foundation in 2007, and the organisation now uses their capital in blended finance arrangements to help de-risk fund structures and investments.
Lightrock (fka LGT Impact Ventures)
This fund is the impact investing arm of family office of the Princely House of Liechtenstein (which itself has over €100B under management). It evolved in 2016 from LGT Venture Philanthropy – one of the pioneers of venture philanthropy itself established in 2007. This fund has a very highly recognised fellowship program.
KKR
The latest private-equity giant to move into impact investing has launched fundraising for what it expects to be a $1 billion Global Impact Fund with 12-15 investments in sustainable business development, next-generation energy, agriculture and food and other sectors aligned with the UN Sustainable Development Goals.
European Investment Fund – Social Impact Accelerator
The SIA operates as a fund-of-funds managed by EIF and invests in social impact funds which strategically target social enterprises across Europe. The SIA also seeks to ensure knowledge-sharing between private sector actors committed to social impact investing and aims for the EIF to be a core part of this initiative.
Smaller Firms
Village Capital
Focusing on access to opportunity for underserved communities and resource sustainability of the planet, this fund provides capital to peer-selected entrepreneurs from it’s accelerator program. This peer-selected investment model has won awards and the fund also has a novel venture evaluation framework called VIRAL.
Mustard Seed
An early-stage focused fund with an interesting twist. Mustard Seed has a membership-based investor network, which provides access both to investment capital and expertise for post-acquisition value creation.
Yunus Social Business (YSB)
A non-profit venture fund that turns philanthropic donations into investments in sustainable social businesses. Investments are made as market-rate loans, usually given to social business that struggle to raise financing via banks in their markets. YSB has supported over 3000 entrepreneurs, completed $13M of social business financing, helped create over 30,000 jobs and impacted the lives of over 3 million people in Colombia, Brasil, Haiti, The Balkans, Tunisia, India and Uganda.
