Changing Expectations for Impact Investors
Historically, being a board member for an impact investor or a non-profit has often been an honorary position or perhaps a chance to network with other board members. Today, with an increasingly limited amount of capital available for investment and the development of technology tools, board members are asking more of the organizations which they oversee.
For example, board members today want to ensure that their organizations are getting to see the best investments they can. Certainly there is no shortage of organizations asking investors for money, but savvy investors are realizing that the best deals do not fall in their lap; they have to track their best sources for deals and cultivate those sources so that they consistently have access to the investments that others may be missing out on. Having a system in place to track the big players in your space, what conferences produce the most deals, and who you need to keep in touch with to generate those deals can help you do that.
Secondly, boards are asking for more thorough diligence on the investments they approve. When investment teams make recommendations to their boards, board members are now asking for more than just a recommendation; they want to see evidence as to why they should approve the investment and they want to be assured that the deal has gone through the proper due diligence—including examining financials and business plans—to make sure a grant or investment is properly vetted.
Analysis of historic investments is another step that board members are now looking for. Using current database technology, it is much easier for organizations to examine their investments over time to see new trends, topics, or themes. For example, after recent disasters in Japan and Haiti, the impact investment community saw a renewed focus on disaster relief. Analyzing historic data to forecast future trends is a capability that some organizations currently have but it often takes a long time to compile such analysis.
Also, board members are requiring organizations to be more transparent about cash flow. Many impact investors make commitments that span a number of years and the recipient has to meet certain benchmarks in order to continue to receive that money. Tracking not only the money that has been invested but also the money that has been promised in the future can be difficult and often requires more sophisticated technology to let an Executive Director determine whether the organization has the funds to make an investment.
And finally, board members are asking “so what?” There is an increasing focus on the results of social investing. How many schools were built? How many gallons of water were cleaned? How many jobs were created? Board members today realize that the most important thing to find out before making an investment in a social entrepreneur is “will it do any good?” And the best impact foundations and managers, using today’s technology, are more able to give accurate answers.