Sustainable Investor Relations
Three ways to create successful impact projects
by Nathalie Feingold
Impact investments are commonly defined as aimed at producing positive impacts on society and the environment, while generating profits. As in any project, entrepreneurs can turn to private investors to finance themselves. However, the specificities of projects with impact compared to so-called “classic” projectslonger time horizon, evaluation of quantitative and qualitative criteria must be clearly described in order to ensure good and lasting relations with investors. Here are three tips for doing this.
When looking for investors, there is a great temptation to present the project in its best light. But once investors are on the ground, some aspects that are underestimated during the investigation can be a source of conflict. Cases of project owners on bad terms with shareholders exist and at the same time, I see more and more entrepreneurs projecting themselves into a launch without fundraising, in self-financing. A sign that fundraising, considered the Holy Grail in recent years, is changing its image. And for good reason, conflicts with investors are bad for the project because: they are time-consuming, they discredit the project towards third parties, and they often discourage investors from investing again, while having private investors at your side that can be solicited “on the spot” is very valuable. Here are three tips to avoid these pitfalls, especially in the context of an impact project.
First Tip: Present the Business
#1 Plan Realistically
Annexed to the legal documents during a fundraiser, the business plan represents the roadmap and sets the milestones that will be used to validate the project and its progress over time. It describes in detail the project, the action plan, the necessary resources and the precise use of the funds, as well as the expected profitability. As an impact project, it also presents the expected returns in terms of impact. The deadlines must be given special attention, especially if the project is intended to produce its long-term effects – outcome and impact. In a result-oriented world in which it is very common for the business plan not to go quite as planned, to be transparent about the underlying assumptions and regarding the risks (political, social, financial …) that could impair profitability or mitigate the impact. Investors, very sensitive to uncertainty, will appreciate the precision and realism of the business plan.
#2 Quantitative & Qualitative Indicators
All investors want to follow the projects they support. Not only to check the good execution of the business plan and the proper allocation of funds. But also because they often have empathy for the project and will want to ensure its success, they open their address book and do not hesitate to enlighten with their knowledge if necessary. Investors are allies that should therefore be informed on a regular basis. However, the elements to be analyzed in order to evaluate an impact project are very numerous and of a diverse nature. In particular, they can be tangible (technical efficiency of the solution, budget compliance, …) and in this case be the subject of an objective assessment based on measures or inventories that facilitate their evaluation. But other essential elements are intangible (team motivation, reputation of the ecosystem, …) and therefore more subtle to evaluate. Similarly, the non-fungible nature of the expected impacts (well-being, education, …) requires traceability and close monitoring (site, factory, school visits, etc.). The realism of the metrics – feasibility, cost, relevance – is crucial, because it is a question of being able to really inform about the situation, both from a quantitative and qualitative point of view. It should be noted that in the long term, a monitoring tool with a great depth of history is a guarantee of seriousness, organization and continuity in the action that reassures investors.
#3 As Soon as Investors Enter, Plan for Their Exit
The impact investment implies a financial return, even if it is minimal. In addition to the payment of infrequent interest rates or dividends in this type of investment, the profit is materialized by the resale of the forward position – ideally at a better valorization than at the time of entry. This type of investment being particularly illiquid, the prospects of exit are largely based on the project owners who must agree to have the prospect of: making the project autonomous … find industrial partners … or find new investors … The subject of investors’ exit must arise as soon as they enter, bearing in mind that they are neither donors nor associates and that their role is to make capital available for a limited time to allow the project to develop. And that they are destined to withdraw eventually and sometimes in a shorter time frame than is necessary for the complete completion of the project.
In conclusion it can be said that private investors are preferred partners in impact projects.
They bring capital, and often do not hesitate to share their network and skills. It is therefore important to maintain good long-term relationships while keeping in mind that they are not donors or associates and that they have a time horizon that may be different from that of the project. Everything that is mentioned above contributes to a virtuous process: a detailed and realistic business plan taking into account the timelines of this type of project, transparent and effective reporting including quantitative and qualitative elements relating to social, environmental and financial performance, and investors who can make profits. It is on this basis that investment in impact projects can grow and bring capital together. Invest in sustainable investor relationships to ensure sustainable financing.