Social impact venture capital investing: an explorative study

ABSTRACT

In this paper, we look at venture capital funds that invest in enterprises striving to achieve a positive societal impact (SIVCs). We observe that SIVCs are likely to pursue two different investment strategies. On the one hand, they select companies with negative profitability results but interesting growth patterns. On the other hand, they do not disregard more established companies with profits but a reduced prospect of growth at the time of the investment. We then assess the impact that these SIVCs have generated on invested firms: while we do not observe significant improvements in the sales figures, all the models show that total assets have been positively affected by the new equity raised. However, when we disentangle between short- and long-term effects, our analysis reveals that the effect of SIVCs on total assets is concentrated on the first years after the receipt of capital, while it disappears in the following years. A positive and significant effect of SIVCs on sales is instead found in the long run. The overall evidence seems to support the view that SIVCs favor the growth and transformation of target firms towards more capital intensive and scalable businesses.

KEYWORDS:

• Social impact investing
• venture capital
• entrepreneurial finance
• growth patterns
• ventures

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. The concept of SI investment is not new. The decision to avoid the so-called “sin” stocks (i.e., arms, tobacco, alcohol and sometimes oil) from investors’ portfolios is somehow mainstream for a consistent number of financial operators (Nicholls and Daggers 2016).

2. The SI finance umbrella includes different financial tools such as alternative currencies, community investment, crowdfunding, ethical banking, microfinance, social impact bonds, social impact investing, social responsible investing and venture philanthropy (Allison et al. 2015; Périlleux 2015; Rizzi, Pellegrini, and Battaglia 2018).

3. https://thegiin.org/impact-investing/need-to-know/#what-is-impact-investing

4. Please note that the impact agenda of listed funds is verified by ImpactBase managers. ImpactBase is not currently available online. In order to check for data reliability, we verified the presence of the funds listed in ImpactBase into other available datasets (ImpactAssets, ImpactSpace, Prequin).

5. Please note that SIVCs, when registering in Crunchbase, could indicate more than one country as target investment country.

Additional information

Funding

This work was supported by the Ministero dell’Istruzione, dell’Università e della Ricerca [SIF16_00055].