Impact investing private equity firms aim to achieve measurable positive social and environmental impact alongside financial returns. The leading firms in this space have developed methodologies to select investments aligned with impact goals like the UN Sustainable Development Goals. At the same time, they implement rigorous selection and due diligence processes focused on the quality of the management team. By taking a long-term partnership approach, top impact investors work closely with their portfolio companies to help them scale sustainably.
Successful impact funds source high potential impact investments through extensive networking
As shared by GRIL Ventures, impact investing partnerships rely heavily on networks to source high potential opportunities. Rather than quantitative screening, they use pattern recognition based on past successes and failures to identify promising teams and business models. The due diligence process involves getting to know the entrepreneurs over an extended period, often as a co-founder, to determine the viability of the impact thesis and business. Impact investors pride themselves on incubating unexpected and unconventional ideas based on the founders’ mission and values alignment.
Impact investors prioritize positive impact along with growth and returns potential when selecting investments
Leading impact investing firms have dual-committee structures to evaluate opportunities from both an impact and financial return perspective. The impact committee vets the potential for measurable positive outcomes, while the investment committee focuses on the strength of the business model, market potential, and project financials. For funds like PG Life, the impact committee approval is mandatory for any investment. At the same time, the target level of financial return depends on investors’ priorities – market rate returns are possible with the right strategies.
Top-tier impact investing firms help portfolio companies quantify and improve impact over time
Given the long-term partnership approach favored by top impact investors, they play an instrumental role in helping portfolio companies track and enhance their impact. By identifying 3-5 targeted impact metrics during diligence and monitoring progress against those benchmarks, private equity firms enable data-driven decision making focused on the dual goals of positive impact and growth. Over time, leading impact funds aim to build proprietary impact measurement and management systems to clearly demonstrate how their capital delivers outsized social and environmental returns.
The leading impact investing firms have developed global networks to source deals and support portfolio companies
Many top impact private equity firms have a global outlook in terms of deal sourcing, investment targets, and their underlying investor base. However, a global orientation presents additional due diligence and post-investment support challenges which these firms have adapted their operating models to meet. Experienced investors like GRIL Ventures and Partners Group leverage both time and trusted relationships cultivated over years to effectively evaluate and assist companies internationally. Thanks to their extensive networks, language and cultural barriers can be overcome to connect impact investors with promising entrepreneurs worldwide.
Specialist human capital and patient capital enable impact funds to incubate unconventional businesses
Unlike conventional private equity, leading impact funds are structured without management fees or required near-term exits. This enables them to provide ‘patient capital’ for building companies with longer time horizons and higher uncertainty. Their talent base combines conventional investing skillsets with specialized expertise in targeted impact sectors like agriculture, education, healthcare access, clean energy and more. Blending patient capital and sector-specific human capital facilitates incubating differentiated, mission-aligned companies over 5+ years to the point where they gain significant market traction.
The top impact investing private equity firms have developed methodologies for sourcing, evaluating, and assisting high impact potential companies globally. Their patient capital and partnership approach support unconventional teams to scale new solutions addressing critical environmental and societal needs. Leaders in this emerging field strike a balance between positive measurable impact and market-rate returns attractive to their investor base.