Impact investment is a relatively new concept designed to improve social outcomes for a charity while offering a financial return to a company or full-profit investor.
An impact investor will allocate funds to a charity to increase capacity within their organisation while simultaneously generating revenue for the investor.
While the charity builds their resources, the investor increases their social impact by helping the charity drive new revenue and further achieve their mission.
Everyone’s a winner?
While the notion is fast gathering credibility across Australia and it’s impossible to ignore the merits of impact investment, it’s not yet a signed, sealed and delivered revenue stream for all charities.
If you’re considering impact investment opportunities, read our pros and cons of impact investment before deciding if it’s a viable source of revenue to integrate with your existing charity model.
Pros of impact investment
Investment from a corporate source will provide the opportunity to build resources to further achieve your mission.
To meet the needs of an impact investment agreement, you may receive funding for the following:
- More advanced equipment
- A new building
- Launch new programs
- Increase workforce
Strengthening capacity of the organisation will increase potential to deliver the charity mission and boost opportunities for growth.
Create a sustainable model of self-funding
As donors are tiring and becoming more strategic in their giving, it’s in the best interests of a charity to evolve and diversify income.
Any opportunity that creates less reliance on a single source of funding and can help move towards sustainability is a big plus for a charity.
Aligning with an impact investment company may present further opportunities for exposure. Depending on the terms of the agreement, you may have access to their database and receive potential opportunities for collaboration, both of which will help increase impact, within the community.
Improve social outcomes
An integrated blend of more funding and exposure will create a stronger fundraising model to improve social outcomes.
Impact investment can help a charity launch new services, run new programs and provide access to innovative equipment which may previously not have been on the radar.
Innovation helps you stay ahead of the competition and better meet the needs of the donor.
Cons of impact investment
It has to be paid back
Impact investment isn’t a grant and must be repaid. This notion of borrowing may be looked upon negatively by charity sponsors or board members who could effectively see investment as little more than a loan.
Generally, impact investment will also attract interest which, for charities which rely on fundraising income, may not be seen as the best use of a donor’s money.
Repayment terms of the investment will be defined from the outset and must be approved by all board members.
Accountability to another body
When you receive money on the proviso that someone is getting something tangible in return, you then become accountable to another investor. This accountability can take the primary focus away from the core running of charity operations which could impact output.
The investors may (but not necessarily) want a say in the systems, processes and equipment used which may not suit the needs of the charity.
The deliverables by the charity will be negotiated from the outset, and you’ll need to determine the process if you don’t meet forecasts or hit targets as outlined. If an investment is withdrawn due to lack of results, this could leave you with an unfamiliar model you can’t afford to sustain.
Mixed focus on tasks
Impact investment programs may mean staff and volunteers have more than one focus. Of course, you can employ staff purely to work on the cause, but as they’re your responsibility, they will have to be aligned with the charity which may confuse.
Is Impact investment for you?
To prepare for impact investment you must be at a point where you can provide an external service and focus on meeting the needs of a secondary organisation.
To prove your charity is viable for investment, you’ll need to provide a detailed business plan which will give potential investors clarity around your business model. Access to financial history and forecasts, and impact measurement protocol must also be in place with a strong focus on governance and leadership.
As a relatively new concept, impact investment may not be a suitable income stream, but as the idea develops, for any charity that’s reliant on one source of income it’s always worth exploring.
SupporterHub can track and analyse income and outgoing data to assess whether impact investment is a viable income stream for your charity. Contact us to find out more.