Choose Your Investment Story
You have a difficult task in front of you: persuade an investor that giving you cash now will result in both financial return and impact in the future, despite all the things than can go wrong in between. Every interaction with an investor is an opportunity for persuasion. Arm yourself with the right investment story – for your venture and your investor target – to have the greatest chance of successful persuasion. Why?
Investors need a coherent and compelling story that aligns with their blend of social and financial preferences. This requires more than merely walking an investor through your product or service, or emphasizing “impact first” or “financials first.” You need a more customized pitch than that.
Consider this: you wouldn’t send the exact same cover letter and resume for every job application, nor use the exact same talking points in every interview. You’d tailor your application to the specific job and particular interviewer. The same goes for pursuing investors.
A compelling investment story gives investors a frame to understand your strategic pathway for growth and impact. The frame gives them a way to organize all the information you provide, and a way to judge your progress moving forward. It also serves as a hook to convince the investor to go on a journey with you toward a specific goal, and shows you are already on the path to get there.
The 4 Impact Investment Stories
We see 4 key investment stories used successfully by impact entrepreneurs. Choose the right investment story to frame your conversations with investors based on:
the realities of your business,
the investor you are targeting, and
how you want your future progress to be judged.
Then weave your investment story through every investor interaction – from first email, to sharing an executive summary, to a formal pitch, and beyond.
This guide:
clearly explains each investment story,
gives examples of why telling the right story is so important, and
provides tips to effectively weave your story into all investor interactions.
The High Growth Opportunity Investment Story
“We are exploiting an impact opportunity that will deliver market-rate returns.”
Description: This is a typical story for a venture capital investor, and most of the advice you find online is geared toward this kind of story. It focuses on convincing the investor that they can help you grow and reap significant returns in 3-5 years. A particular impact focus or industry may be an entry-level hurdle for some of these investors; they’ll want to be sure you are working in an area that matches their goals, but then the focus is usually on growth and factors that lead to or threaten financial returns.
Biggest Barrier:
Convincing investors you have, and can deliver on, a high growth opportunity.
Keep in Mind:
Focus on market size, value to customer, cost of customer acquisition, and revenue traction.
Don’t spend too much time on the impact. You want to tell a clear but succinct impact story; touch on the rationale to be sure they buy in, and then move on.
Know your unit model and the evidence of your ability to scale.
Provide compelling details on the experience of your team in leading high growth ventures.
Consider this story if...
You:
Are seeking equity
Have significant revenue traction
Are working on a large market opportunity
Have or can define a profitable unit model
The Investor:
Expects market rate returns
Is “Impact Motivated,” meaning she only seeks alignment with a sector, geography, or thematic area
Common investor types: investment funds, high net worth individuals/angels, institutional investors
Examples: Leapfrog Investments, DBL Investments
The Innovation Play Investment Story
“We are using a new/novel approach that could redefine or disrupt an existing industry, in a way that includes better impact.”
Description: This pitch is focused on a clear, compelling innovation that can disrupt a status quo industry, value chain, or market, and intrigue the investor enough to believe you could be an early success in an emerging industry segment. This is the kind of pitch that launched companies like FedEx and Google, or impact businesses like Sproxil (using mobile technology to prevent counterfeit drugs), Aspire Foods (breeding edible insects to create cheap protein sources for underfed populations), or RecycleBank (providing rewards for amount of recycled material in order to drive down landfill use and costs). An innovation pitch has to clearly show how your solution is not just novel, but higher value-add, and why customers will think so as well.
Biggest Barrier:
Showing investors that you have a willing customer and the right timing.
Keep in Mind:
Tell a story about the future that captures their imagination.
Describe how your impact approach is new & novel, and what makes it better for
customers than existing approaches.
Demonstrate that people are willing to use/pay for the product/service.
Provide signals that point to your ability to scale, be self-sustaining in the future, and have
an impact – even if you don’t yet have all of the evidence.
Consider this story if...
You:
Have a unique solution
Can show exciting potential for your innovation
Are pursuing a big market opportunity
Believe your industry segment will look very different in 5-10 years if you are successful
The Investor:
Actively seeks out the big, new idea
Has a relatively high financial and impact risk tolerance
Could be an impact-first or finance-first investor
Actively seeks to “prime the pump”
Is “impact motivated” or “impact committed”
Common investor types: high net worth individuals/angels, foundations, competitions
Examples: Hult Prize, Omidyar Network
The Impact Delivery at Scale Investment Story
“We are delivering real impact on our thesis through a scalable business model”
Description: The impact deliverer business has a strong thesis about how impact can be achieved, and is building a business that shows that that impact is repeatable and scalable. It is often industry specific and is most convincing when it comes from deep experience within that industry. The impact does not need to be through product or service, but can be in who the company sources from, hires, or how it operates. Examples of impact delivery businesses include affordable housing investments, community development businesses that achieve impact through who they hire, recycling businesses and consumer product companies like Patagonia or Method. There may not a disruptive innovation at the core of their business from the outset, but there is a serious commitment to having impact in a way that is different from others in the industry. Many B Corps are impact delivery businesses.
Biggest Barrier:
Showing that your impact thesis will not cost the investor a trade-off in returns.
Keep in Mind:
Highlight alignment with investor’s impact thesis and industry areas.
Demonstrate reliable evidence of your venture’s ability to attract customers and growth.
Convince investors you have “locked” your mission into the business, and that the impact helps rather than hurts your bottom line.
Demonstrate the connection between this investment and your ability to achieve greater impact.
Explain rationale for why you can now jumpstart your business and effectively engage
other parts of the value chain.
Consider this story if...
You:
Have a strong impact thesis about how your offering creates real impact
May be trying to differentiate from many other mainstream players
Believe impact and financial return are inextricable if you are successful
The Investor:
Could be an impact-first or finance-first investor
Has medium to high financial risk tolerance
Is usually “impact committed” or sometimes “impact motivated”
Common investor types: high net worth individuals/angels, CDFIs/DFIs, foundations
Examples: B Corporation investors, Omidyar Network, Bridges Ventures
The Addressing an Underserved Market Investment Story
“We can sustain a business that solves an important problem for an underserved population.”
Description: This is a pitch you make to an investor who is squarely focused on serving and solving deep problems for underserved populations, usually private foundations, government agencies, or individual investors. This pitch needs to show your rationale for who your target customer segments are, what the value proposition is for them to pay for your project or service, and how you can afford to make money on what they can afford to pay. The instrument they use to invest can vary, and the return they seek can be very low to market rate, but the emphasis in this pitch is on being sure you are serving this customer base.
Biggest Barrier:
Convincing investors that you deeply understand the needs of your customers and can create a sustainable business without exploiting them.
Keep in Mind:
Show what you have done to understand and address the needs of your customers in a way no one else has to this point.
Describe how you know that customers want and need your product/service
Demonstrate how you can afford to acquire and serve customers in a cost-effective way (i.e., customer acquisition cost).
Describe how you will show that your product/service is working and achieving impact.
Consider this story if...
You:
Have a strong impact thesis
Are working in a market considered concessionary by most investors
Are serving people in an underserved market, often targeting low to middle income customers
May be a for profit offshoot of a nonprofit doing deep impact work
The Investor:
Is an impact-first investor
Has high financial risk tolerance
Prefers “impact certified” or even “proven impact” investments
Common investor types: government investors, foundations, some family offices
Examples: Global Innovation Fund, Acumen, Calvert Foundation and MacArthur
Foundation’s Benefit Chicago Fund