Impact Investing
The most interesting feature of technology is it’s remarkable versatility. It hosts a wide range of fields and specialisation, from software development, Internet of Things, BIG DATA, to venture capital. These fields are constantly filled with evolving trends birthing new innovations, which have greatly impacted humanity.
Some school-of-thoughts have posited that Angel and Venture Capital investing is the most exciting aspect of technology development based on the buzz and adrenaline fuelled ROI[1] potential. From scouting the next “big Startup” while still in its MVP[2] stage or with clear strategy for growth expansion/valuation and investing time, effort and money into it. The rewards require time and patience, but can be very bountiful if and when the Startup is able to successfully progress to its next stage of funding round or ultimately reaching IPO[3].
Some term it “Patient Capital”… Evidence has it that some very brave, patient and fortunate investors have indeed become very successful today.
What is Venture Capital (VC) / Angel Investing?
Venture capital (VC) is a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. Venture capital generally comes from well-off investors, investment banks, and any other financial institutions. However, it does not always take a monetary form; it can also be provided in the form of technical or managerial expertise according to Investopedia.
Angel investors are wealthy individual venture capitalists who take riskier investments and provide seed funding support to Startups.
These investors are one of the key pillars responsible for developing the technology ecosystem. Without them, we wouldn’t have the Silicon Valley successful growth stories or most recently what we’re witnessing on the African continent with the likes of Paystack and Flutterwave. The venture capital space is evolving as well, experiencing new trends and more innovative ways of financing startups. The latest trend being Impact Investing.
With the constantly emerging socioeconomic challenges on the African continent, could impact investment be the acceleration we need?
It is widely believed that there’s always a contrast between good deeds and profitable returns. These two concepts just do not go hand in hand…Or do they? Venture Capitalists have innovated a way to drive social impact and secure profitable returns. This is called Impact Investing.
According to the Global Impact Investing Network (GIIN); Impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return. The growing impact investment market provides capital to address the world’s most pressing challenges in sectors such as sustainable agriculture, renewable energy, conservation, micro-finance, and affordable and accessible basic services including housing, healthcare, and education.
Why Impact Investing?
Impact Investments are said to use the power of Capital for good and drive measurable impact in our society. It’s not focused only on financial returns but is entirely based on measurable societal impact.
Impact Investing as a tool for the development of the African continent
Technology is still highly underdeveloped on the African continent. Nigeria in particular, stands to gain a lot from leveraging technology to its full potential. We strongly believe that the more innovative solutions challenge our socio economic crisis, the more room it gives Nigerians to rebuild our economy from the ground up. We see it as a cause and effect chain: utilise technology solutions to solve environmental and social problems. This in-turn leads to a workforce that is highly focused on rebuilding the economy, once they don’t have to worry about the basic amenities like healthcare, education and housing.
Certain startups have identified ways to utilise technology to solve these social problems. An example being LifeBank; a health-tech startup that facilitates the transmission of blood from labs across the country to patients and doctors in hospitals.
Unfortunately, while Nigeria has attracted large capital from a number of foreign impact investors, our local investor pool is still quite small. With very few recorded investments into impact driven startups, this may be based on the fear of not securing substantial ROIs. We believe a three pronged approach to Impact Investing is necessary for widespread adoption.
- Raise Awareness about Impact Investing and educate key stakeholders within the sector.
- Support ecosystem development through specialised masterclasses for service providers, government, and suppliers of impact capital and investee companies to bridge knowledge gaps and improve sectoral knowledge at all levels.
- Engagement between senior government officials and investors, and commission research on policy and regulatory bottlenecks that inhibit the supply and demand of impact capital.
In conclusion, could a widespread adoption of impact investing in the localised VC space be the push the startup ecosystem/technology world has been waiting for… we believe it is. Nigeria is currently in dire need of innovative solutions to the societal and environmental issues. Once awareness is increased, it will foster the creation of more impact driven startups and ensure the sustainability/scalability of existing impact driven startups.
