Introduction

Impact investing refers to the practice of investing in companies, organizations, and funds with the intention of generating a measurable, beneficial social or environmental impact alongside a financial return. Impact investors aim to create positive change in areas such as affordable housing, renewable energy, education, and healthcare, while also generating returns on their investments.

More and more startups are working on impact driven solutions. They are garnering the attention of like-minded investors, building sustainable business models, and creating a positive change in the world.

The purpose of this article is to provide an introduction to impact driven startup development, different kinds of investors interested in this domain, and why startups should consider working in causes that aren’t entirely economic in nature. 

Why building an Impact driven startup is good

Impact driven startups aren’t just focused on economic value. They create many other forms of value, i.e. social, environmental, etc. that creates positive impact in the society. Some of the major reasons for building an impact driven startup are listed below:

1. Creating positive social and environmental impact: Startups create a meaningful difference in the world by addressing pressing social and environmental issues. Startups can create a positive impact and contribute to a sustainable future.
2. Attracting like-minded investors and customers: Impact driven startups attract like-minded investors and customers who are looking for opportunities to align their investments with their values and make a difference in the world. By demonstrating a commitment to impact, startups can differentiate themselves in the market and build a loyal customer base.
3. Building a sustainable business model: Startups can focus on building a more sustainable business model by addressing the social and environmental challenges that are most relevant to their industry. By identifying and addressing these challenges, startups can create more value for their customers and shareholders, and build a more resilient business that can weather economic downturns and market disruptions.
4. Access to capital: Finding startups working on impact driven initiatives is a little hard. Startups working on this will gain unfettered access to capital because of their values.  Impact investors willing to invest in early-stage companies that are addressing social or environmental challenges know that they may not have a clear or immediate financial return, and they’ll be willing to wait, as long as they believe in the capabilities of the founders.
5. Better decision making: Impact driven startups can also make better decisions and prioritize long-term value over short-term profit. This can lead to more resilient and successful companies in the long run.

Types of Impact Driven Investments

There are several different types of impact investing, each with its own set of characteristics and considerations. Although there is a significant overlap with traditional forms, they are also covered for the sake of consistency. The details of each are shared below:

1. Venture capital: Impact venture capital is a type of impact investing that involves investing in early-stage companies that have the potential to create significant social or environmental impact. Impact venture capitalists typically focus on investing in companies that are addressing specific social or environmental challenges, such as renewable energy, education, and healthcare.
2. Private equity: Impact private equity is a type of impact investing that involves investing in established companies that have the potential to create significant social or environmental impact. Impact private equity investors typically focus on investing in companies that are addressing specific social or environmental challenges, such as renewable energy, education, and healthcare. The general difference between Venture Capital and Private Equity is usually on the basis of startup stage and the size of capital being invested. 
3. Debt financing: Impact debt financing is a type of impact investing that involves providing loans or bonds to companies or organizations that are working to create positive social or environmental impact. Impact debt investors typically focus on investing in projects that are addressing specific social or environmental challenges, such as renewable energy, affordable housing, sustainable agriculture, etc.
4. Community investing: Community investing is a type of impact investing that involves investing in organizations that are working to create positive social or environmental impact in a specific community or region. Community investors typically focus on investing in projects that are addressing specific social or environmental challenges, such as affordable housing, community development, microfinance, etc.
5. Theme-based investing: Theme-based impact investing is a type of impact investing that involves investing in companies, funds, or projects that align with specific impact themes, such as sustainable agriculture, gender equality, financial inclusion, etc.

Each type of impact investing has its own set of characteristics, opportunities and considerations. Startups should carefully evaluate the best fit that aligns with their own values and priorities.

Conclusion

Impact driven startups are slowly gaining more attention in society. The positive social and environmental impact is bringing like-minded investors and customers together, providing startups with necessary support to create sustainable business models. Impact investing can take many forms, including venture capital, private equity, and debt financing, and can target both for-profit and nonprofit organizations. Impact investors may also focus on specific themes such as sustainable agriculture, gender equality or financial inclusion. Building a startup focused on impact can be challenging, but with the right guidance and resources, startups can effectively create significant value and make a meaningful difference in the world.