The Impact Angel Group’s definition of “impact” has been evolving over time in order to make the most needed and efficient impact possible. For the last year, we concentrated on investing in Colorado-based companies, but we have recently decided to widen our focus.
Why did we focus exclusively on Colorado? Two reasons:
1) Colorado needed a jumpstart. The Colorado angel community took a big hit after 2008. We believed we could make the greatest impact by improving our entrepreneurial ecosystem: recruiting more local angel investors and supporting local companies.
2) We were new. Because we became a formal membership organization just this past August, we were better known here locally than we were nationally. Most of the investment opportunities we reviewed were Colorado companies referred by Colorado angel investors.
In order to diversify our risk, we aim to invest in 10 companies per year. However, we’ve found it’s not possible to find 10 Colorado companies that meet our impact and return criteria. We feel very strongly that sacrificing returns for impact will have a long-term detrimental effect on the impact investing industry. If we stay focused on Colorado and invest in 10 companies annually, we believe we will have to sacrifice a return for impact.
1) The Colorado angel capital community is much stronger. Because of the work the Impact Angel Group and others have been doing, we have more active local angel investors. Thus, raising local angel capital is not as difficult. Also, many organizations are working on this issue to ensure continued improvement.
2) We have a much stronger national network of angel investors and entrepreneurs. Because our organization is more mature, we receive qualified referrals from outside the state of Colorado from our members, and the dozens of national angel investors and networks with which we’ve built relationships.
For these reasons, we’ve decided to become more diligent about our focus on impact by expanding our investment criteria to consider companies outside the state of Colorado. Below is our revised definition of “impact”.
If you have any questions or comments about our new investment criteria, we’d love to hear them. Please leave a comment below.
Our Definition of “Impact”
The Impact Angel Group is an angel investment group equally dedicated to making a difference and realizing a return. We make an impact by investing in companies that have the potential to make a significant social and/or environmental impact and produce a venture return.
How do we make an impact?
We invest in early-stage companies. We invest in entrepreneurs because enabling people to make a living doing something they are incredibly passionate about is an important impact. Investing in innovation and passion builds strong communities and empowers exceptional, motivated people to truly change the world.
We invest for venture returns. Angel investments are extremely risky. We need to see the potential for a significant return to outweigh our risk. Additionally:
- Thriving companies can create more impact.
- Proving it’s possible to make a difference and make money is a powerful motivator for change.
- If we invest well, we can reinvest our returns for more impact.
We invest for venture-scale impact. We invest in companies that will be able to scale their impact beyond their local community to improve our overall environment and/or the lives of at least a million (ideally a billion) people.
How do we define impact investing?
We use the GIIN (Global Impact Investing Network) definition: “Impact investing aims to solve social or environmental challenges while generating financial profit.”
Also, the World Economic Forum definition: “Impact investing is an investment approach that intentionally seeks to create both financial return and positive social or environmental impact that is actively measured.”
These definitions are very broad. Arguably, every company creating jobs is addressing a “social challenge”. In many ways, impact is in the eye of the beholder. However, the intentionality and the measurement of impact separates impact investors. We filter opportunities based on their ability to be financially successful and use an impact assessment and a committee approach to determine whether the company meets our venture-scale impact criteria. Our role as an angel group is to assess the impact of the investment and share that information with our members so they can make informed decisions.
How do we assess the impact of our investments?
Companies can make an impact in many ways beyond the products and services they provide. We use the B Impact Assessment Framework to assess the impact that companies have on their local communities, environments, employees, suppliers and other stakeholders. We also ask prospective investments to complete a short questionnaire about their business model and local community impact. If we invest, we require our portfolio companies to complete the full B Impact Assessment five years after the investment is made.
How are we different from non-impact focused angel groups?
Our difference is defined by intention, information and understanding. We provide an impact analysis to help our members make informed decisions and we offer ongoing impact investing education. Further, by publicly stating that we care about more than the financial return of our investments, we hope to encourage entrepreneurs and investors to be mindful of the impact they are making.
What do you think? We welcome questions or comments about our new investment criteria. Please leave a comment below.