GIIN, 11 Jan 2018: Click here to read the report.
This report demonstrates why and how investors attempt to safeguard the continuity of their investments’ impact beyond exit. The report draws on insights from interviews with over 30 investors and entrepreneurs and outlines practical approaches to achieving responsible exits. Four case studies provide in-depth examples of responsible exits from impact investments.
The report reveals investors’ strategies to strengthen their ability to meet liquidity objectives and ensure the long-term impact of their investments. These approaches span the lifecycle of the investment, including: pre-investment, at the time of investment, during the investment, and at the time of exit.
Pre-investment: It is widely accepted that the foundations for a responsible exit are laid even before an investment is made. To increase the likelihood of continued impact after exit, investors often select investees based on whether impact is embedded in their business model or inextricably linked to financial success. They also seek to understand the likely growth trajectory of the business, which has implications for which exit paths and options will become available. Founders’ commitment to mission is yet another pre-investment consideration.
At the time of investment: The very structure of the capital provided can affect whether a business will be able to follow a sustainable growth path that leads to long-term success, as aspects like time horizon for return or repayment influence business decisions. Two additional considerations at this stage include alignment with co-investors on impact and growth strategy and the inclusion of language on impact in legal structures and documents.
During investment: Some investors work with management to instil positive policies and practices for the longterm, such as those that govern employment, sourcing of raw materials, or customer service.
At the time of exit: This is, of course, a critical phase. First, timing is key, since impact investors’ objectives at exit extend beyond their own financial success to include a company’s continued access to the right resources, networks, and knowledge. A related consideration is to select the right buyer—one who not only offers resources for the investee to grow and improve but who also understands the value in the business model and shares a vision for growth alongside sustained impact.