Investment Criteria of Impact Investors

Abstract

We investigate the investment criteria of 179 impact investors using an experimental conjoint analysis. Our findings reveal that the three most important investment criteria of impact investors are the authenticity of the founding team, the importance of the social problem targeted by the venture, and the venture’s financial sustainability. In contrast, the degree of innovation, founding team characteristics, and a first proof of concept are less important. We then compare these investment criteria across different types of impact investors (i.e., donors, equity investors, and debt investors). We find that donors pay more attention to the importance of the social problem and less to financial sustainability than equity and debt investors. Also, equity investors place a higher value on scalability than debt investors. We contribute to nascent literature on impact investing by documenting how impact investors make investment decisions and by providing a nuanced view of different investor types active in this novel market. Practical implications exist for both impact investors and social enterprises that seek financing.