3 Tips for Becoming an Impact Venture Capitalist
You don’t have to make a choice between earning a profit and creating a positive impact on society. The two can go hand in hand. A study by Cambridge Associates found that impact investment funds performed at similar levels to conventional funds; in some cases, impact funds even had stronger returns than conventional funds.
By providing capital to companies making a social impact through their core business model, you can earn a return while making the world a better place. These types of companies are often led by Black or women founders, who are dramatically underrepresented in venture capital funding. Here are five ways you can be more mindful about finding and evaluating companies in order to create greater social impact through your work.
Make Sure Impact is a Part of the Business Model
Make sure that impact is an integral part of the company’s core business model. Ask yourself, “If I removed the social impact aspect, would the rest of the model still function?” If the answer is “Yes,” it’s probably not a social impact business.
To illustrate: a company that created a new waste processing method which reduces the amount of garbage sent to landfills is a social impact business. A company that donates a portion of sales to environmental groups is not.
Choose Impactful Networking Events
As a venture capitalist, most of your time is spent in meetings: lunch meetings, dinner meetings, coffee meetings, weekend meetings, and more. You attend conferences and networking events to rub elbows with founders in the industries you specialize in. You probably spend more time with companies than your significant other.
To help ensure your portfolio is socially impactful, it is important to be intentional about the conferences and events you attend. New Majority founders often lack access to the spaces venture capitalists frequent. Make a point to go to conferences featuring companies owned by women and people of color. Make yourself accessible, and commit to meeting with founders who follow up.
Research the Market if You Haven’t Heard of It
Black and women founders have different life experiences than yours. They have witnessed or overcome problems you may never have heard of, let alone seen firsthand. However, this does not mean the problem does not exist or that the market lacks high potential. It simply means that you may need to learn more about the opportunity.
A lack of knowledge or experience on a VCs part can lead to missing out on prime opportunities. For example, Spanx founder Sara Blakely was turned down by every male venture capitalist she pitched to. But when a woman VC tried on Blakely’s prototype, the VC understood the problem immediately and greenlit funding for the now multimillion dollar brand.
Firsthand experience, or lack thereof, makes a tremendous difference in your ability to evaluate opportunities. Rather than dismissing companies because you have not experienced or heard of the problem they are solving, take the time to learn about the market. It will pay off.
The Bottom Line
Becoming an impact venture capitalist requires an even greater investment of time and research than traditional VC spaces. In addition to evaluating a company’s financial performance, you must consider the integration of the impact into a business model. You also have to carve out time to understand pain points you have never experienced (or heard of) before. But all your hard work pays off in the end: in addition to earning a return, you make the world a better place to be.
Increase Access to Capital for Businesses Typically Ineligible for Venture Capital
For every company eligible for venture capital, there are 1000 traditional businesses that the VC space doesn’t serve.
Our mission is to bridge the funding gap by increasing access to capital for these underserved businesses. EnrichHER’s platform makes it easy for you to donate to Black and women-owned businesses to empower them to weather difficult times and scale their operations. We are partnering with Bootstrap Capital, a Georgia based 501 © (3), to connect underinvested founders to funding. Click here to make a donation to Bootstrap Capital and fuel the growth of Black businesses across the nation.
About Bootstrap Capital
Bootstrap Capital, a Georgia based 501 © (3) is laser-focused on helping early stage companies achieve what others believe is impossible. We connect entrepreneurs with the resources, connections, and capital they need to be successful. Through our hybrid approach, we partner with passionate founders who are looking to transform large markets. We are entrepreneurs investing in entrepreneurs.
About EnrichHER:
EnrichHER is a financial technology platform that matches revenue-generating companies led by women and founders of color to individual and institutional sources of funding. Since 2017, EnrichHER has deployed upwards of $4 million through its platform and matched business-owners to $13 million in working capital through its Accelerator. By providing capital, coaching, and connections, we are fueling the fastest-growing demographic of business owners. Our network has engaged with over 23,000 advocates through its digital community and in-person activations.
