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Social Impact Venture Building Vs. Impact Investing

In recent years, Social Impact Venture Building and Impact Investing have begun to draw increased interest from both the general public and professionals. However, given both are relatively new entrants into an already rich, diverse, and complicated landscape, and both have the word "Impact" in their respective names, often they are confused with each other. As both are incredibly important to sustainably solve impactful problems for the greater good, here we wanted to help dispel any confusion, draw some distinctions between the two, and build a better understanding for all those involved!


Here are 4 similarities between the two, and one difference, to build a better understanding. Hopefully, this serves as a guide to you around where you can best get involved, depending on your interests and expertise.


Intentionality

Both activities are dedicated to reaching impact. That is, they are both deeply invested in the intentionality of contributing towards measurable social or environmental benefit for the greater public. This intentionality towards impact considerations is at the heart of what differentiates Impact Investing from traditional investing activities and Social Impact Venture Building from traditional Venture Building. They both seek to address the world’s most pressing challenges in sectors such as sustainable agriculture, renewable energy, conservation, microfinance, and affordable and accessible basic services including housing, healthcare, and education.


Rigour and Design

Despite being impact-focused subsets of traditional Venture Building and Investing activities in their pursuit of more human-centric goals, neither forsake rigorous analytical and design activities. Success cannot be achieved by hunches, so both are evidence-based and use data where available to drive intelligent investment design that will be useful in contributing to social and environmental benefits.


Measurement of Impact Performance

Both come with a specific intention whose success depends on activities being managed towards that intention. This includes having intentional monitoring and evaluation of interventions, establishing feedback loops, and communicating performance information to stakeholders to manage towards impact. Here, both borrow heavily from the well-established non-profit world, which has a long history of managing efforts towards impact.


Community and Contribution to the Growth of the Industry

Core tenets of both are the need is large, the scale of possibilities immense, and reaching the collective good "takes a village". As such, driving replication of successful efforts and sharing learnings where possible are integral for both, to enable others to learn from other experiences, reaching success in theirs.


Organisations of these types do share similarities in vision and ethos and often partner very closely together. Fundamentally, though the two are different types of organisations, acting very differently within the wider impact ecosystem, albeit towards a common goal. Where they differ is in their chosen organisational purpose, and as a consequence, their tools and processes to reach common impact goals.


Here is the one difference between the two:


Organisational Purpose

Critically, the two differ in how they choose for their organisation to act within the wider impact space: Social Impact Venture Builders start companies; Impact Investors provide capital for Companies.


A Social Impact Venture Builder creates its own enterprises by first identifying a particular area in which it wants to acts, formulating an idea or hypothesis that captures an intervention that is able to reshape the market with better outcomes. Then, the idea is operationalised and gradually transformed, in various stages, into a self-sustainable business that is able to operate, reach profitability, scale, raise its own capital, and is able to inspire replication efforts by others regionally and globally.


Impact Investing refers to investments made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return. Impact Investing can occur across all asset classes; for example, private equity/venture capital, debt, and fixed income. In fact, many impact investors choose to invest through Impact Investment funds whose social, environmental, and financial goals match their own. In fact, such funds are often the first source of third-party support provided to early-stage businesses created by Social Impact Venture Builders after ideas have been validated and piloted – capital from traditional Venture Capital and Private Equity funds often can only be raised at later stages.


I hope this helps you distinguish between the two, and with this clarity create interest in helping either one or the other.

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