What Investors Want

This story originally appeared in our May 5, 2011 e-magazine. Click here to subscribe.

Ben Powell, the Founder and Managing Partner of Agora Partnerships, an impact investment firm that works with early stage companies, reveals how to get the attention of impact investors.

What do you look for in an investee?

The number one thing that we look for is someone who, in our view, is an impact entrepreneur. We really look to see if the entrepreneurs truly are trying to create shared value with their businesses. We are looking at a set of values and attitudes about the role of business in society and a real commitment to creating a company that will very deliberately solve social and environmental problems while also generating a profit that can be used to grow the company and to reward investors.

Is the entrepreneur or the business model more important?

I think the entrepreneur is more important because business models can always change, but it’s harder to change entrepreneurs. Certainly they can grow, you can give them leadership development, you can give them a community. The entrepreneur is front and center. It’s the most important thing that we look at. The business model obviously is very important because lots of companies go out of business because they have the wrong business model, but we find that with an early stage organization there is a lot of tinkering around with the business model.

So, it’s better to have a great entrepreneur with a so-so business model than a so-so entrepreneur and a great business model?

Yes. I would say so. Ideally, you have both, but we will sometimes accept an entrepreneur that we think is amazing but their business may not be a business that you look at and say, “Oh my gosh, that’s going to be an incredibly high-growth, successful business that will change the world.” I think that sometimes we can be overly optimistic about new business models and underestimate two things: one, the importance of the entrepreneurs to actually executing that business model, and second, the ability of a great entrepreneur to create enormous social change with a relatively unsexy business model.

Do have an example of an “unsexy” business model that has done really well with a great entrepreneur?

Sure. One of the entrepreneurs that we work with, her name is Aida Patricia, and she runs a business called Oscaritos. Oscaritos makes children’s clothing—they’re basically a textile company. First of all, the woman’s story itself is incredible because she’s one of the very few people in the entire world who got their first loan from a microfinance institution, and in this case it was for US$100 (INR 4,400) for a sewing machine. Now, she has 45 full-time employees. She has a factory. She’s exporting. She is an incredible role model for women entrepreneurs in Nicaragua. She employs about 40-45 mostly single mothers, and she provides training, she provides them a whole support community. Just the way that she runs her business, who she is as a person, her commitment to lowering the environmental waste that her business produces. All of that in our mind is indicative of the great impact entrepreneur—the kind of entrepreneur that impact investment was designed to support.

When talking to investors, what kind of approach works best?

What we look for – and what good impact investors are looking for – is primarily two things. They want to know will your business create social and environmental impact. Meaning, are you actually measuring that? Is that something that is core to your business or is it a by-product? We look for people who are not afraid of talking about the social impact that they’re going to create.

What are come common mistakes that you’ve seen social entrepreneurs make?

I think that one area where entrepreneurs – with fairly little work – can really help their cause is to do some deep thinking about how their company creates shared value for all of its different shareholders and stakeholders. What turns me off is when I see a presentation that has a slide at the end that’s tacked on as an afterthought about the social impact of the company. I want to see real passion for the mission. I think a lot of impact investors want to see that, too.

So, impact measurement is important?

Yes. I think if you’re not measuring impact, you’re not an impact investor. But, I don’t think that it’s the investor’s job to measure the impact. I think it’s the entrepreneur’s job to measure the impact and to communicate that, not only to the investor, but to their customers, to their staff, to their community. Measurement of impact has to be part of the core business strategy. One way of explaining this is to reference the latest Harvard Business Review piece by Michael Porter on how to fix capitalism where he talks about creating shared value. We really believe that.

Any last thoughts?

We’re at the beginning of a historic shift, and entrepreneurs who are reimagining the role of business in society and doing new and innovative things with business and integrating business into society in new ways, those are going to be the real winners in the future.

Ben Powell started Agora Partnerships in 2005, and has been named an Ashoka Fellow. He learned about the power of small businesses to transform poor communities as an entrepreneur in Mexico, where he co-founded CityGolf: Puebla, a miniature golf course and pub.

Photo credits: Agora Partnerships