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It's always important to make informed investment decisions – even more so in times of economic uncertainty. What if we told you there’s a strategic way to make investments with the aim of social impact in Africa and maybe even financial returns?
Today, we’ll cover how to get into impact investing, mainly investing in Africa.
How to Get Into Impact Investing
What is impact investing? In 2007, the term “impact investing” was introduced by The Rockefeller Foundation as “investments made with the intention of generating both financial return and social and/or environmental impact.” Impact investing allows investors to use capital to make a difference economically, socially and/or environmentally in a particular sector.
Impact investments can help promote gender equality and move sectors like clean energy forward. Though impact investing has been a reputable investment practice for over a decade, the concept has spread significantly over the years. Nearly 90% of respondents who were part of the Global Impact Investing Network’s 2020 survey reported that impact investing met or exceeded their investment expectations.
But before we explore how to break into impact investing let’s review a few of the most common methods.
Impact Investment Networks
Social impact investment companies may have their own angel networks that invest in high-growth potential businesses in low-income communities. The benefits of this type of impact investment network include a more personalized touch and access to a continuous pipeline of meaningful investment opportunities.
Exchange Traded Funds
Investors may also choose to invest in a set of companies with values that align with their own. Exchange-traded funds (ETFs) that have been screened according to socially responsible investing (SRI) principles are quickly becoming preferred investment vehicles for millennials.
Donor-advised Fund
A donor-advised fund (DAF) is a philanthropic vehicle administered by a public charity that can generate an immediate tax benefit, increasing your charitable impact. As a donor, you will have the opportunity to recommend where charitable dollars in your DAF will be directed. Accredited, entrepreneurial-minded givers from the United States can invest in companies with Renew Capital from a DAF and potentially earn a return on their charitable capital, increasing the amounts they can donate to a charity of their choice.
How to Impact Invest
1. Qualify as an accredited investor
Before you can begin impact investing, you must qualify as an accredited investor per the U.S. Securities and Exchange Commission criteria (e.g., wealth, income thresholds). As an accredited investor, you must be aware of and willing to accept the risks of investing in pioneer markets.
2. Do your research
Many philanthropic causes need funds, but not all are right for you and your goals. Start by researching and asking questions about the mission, strategy, and investment vehicles offered. You’ll also want to understand how potential partners or impact investing firms uncover opportunities. Are there local boots on the ground to directly provide support and resources? Ask for a portfolio or case studies with historical information to paint a more comprehensive picture.
3. Leverage the expertise of impact investing firms
Social impact investment companies specialize in sourcing strategic opportunities which align with the firm’s goals for socioeconomic impact and financial potential. They typically offer a variety of investment vehicles depending on your risk tolerance level, investment strategy and desired investment level that caters to institutional and individual investors. Many impact investment opportunities exist across various sectors, so finding an expert firm can help unlock the greatest potential.
4. Understand the risk
As with any financial investment, you'll want to understand and weigh the potential risks, whether you're a new or seasoned investor. Impact investing is less mainstream and may not be for everyone, especially when investing in developing markets.
The Case for Impact Investment in Africa With Renew Capital
If you’re considering making an impact investment, Africa is rising. It holds six of the world’s 10 fastest-growing economies. In addition, with the recent establishment of the African Continental Free Trade Area (ACFTA), Africa is officially the world’s largest free trade area. Through impact investing, Africa has the potential to experience significant economic and social growth.
If you’re wondering, “how can I invest in Africa?” apply to the Renew Capital Angels network. Renew Capital offers investors the ability to take part in building vibrant private sector ecosystems and potentially fruitful economic opportunities in Africa.
This blog should not be viewed as investment advice, or as a solicitation of an offer to buy or sell securities or to adopt any particular investment strategy. Impact investing, and investing in frontier markets specifically, is speculative in nature and involves a high degree of risk. The Renew Capital Angels invest in companies located and doing business in sub-Saharan Africa. Investors should understand and be willing and able to handle the risks of investing in such frontier markets, which are more significant than the risks associated with investing in securities of U.S. companies or in other developed countries. Risks include the risk of total loss of an investor’s entire investment. Investors should fully understand all risks and consult with their independent financial, legal and tax advisors to determine whether any particular investment or investment strategy is appropriate for them. Renew Capital does not make any recommendation regarding the appropriateness of any specific investment opportunity for any specific investor.
Renew Capital is an Africa-focused impact investment firm that backs innovative companies with high-growth potential. Renew Capital manages investments made on behalf of the Renew Capital Angels, a global network of angel investors, foundations and family offices who seek financial returns and sustainable social impact. For the latest on investing in Africa, subscribe and follow us at our social links below.
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