Barely a week goes by without the arrival of a new, innovative and exciting enterprise into the impacting investing world. At ClearlySo we mentor, advise and promote companies until they are ready to set sail across the sea and spread its impact far and wide. Occasionally the companies have to put into port to replenish their coffers, take on fresh supplies and even repair a few leaks. But our job is to do all we can to make sure these enterprises don’t sink along the way to achieving their goals and missions. Okay, enough of the nautical metaphors…
Most enterprises have a catalogue of goals, missions and impact KPIs, and achieving these is what makes them exceptional and impactful. But what is far too often overlooked is the financial destination for many of these companies once they have achieve scale and stability.
In July, we saw what we believe is the world’s first successful exit of a high impact business from equity crowdfunding, as Europcar bought E-Car Club (a car sharing club using electric cars). This acquisition was a hugely positive moment for the impact investment sector as it set a benchmark for future equity exits.
July also saw another impact investor success story in the form of Scope repaying the £2m that it borrowed from investors in 2012. As the first major charity to launch, utilise and repay a charity bond, Scope has proven the concept of charity bonds as a tool to raise additional capital and increase its impact.
Unfortunately, examples such as these have been very few. Let us not forget that impact investing is still in its infancy and most deals are medium- to long-term and so haven’t realised significant returns yet. Perhaps this explains why exits and building bridges to secondary markets have been consistently overlooked.
It was therefore unsurprising to read in the GIIN and JP Morgan survey earlier this year that investors placed ‘difficulty exiting investments’ as the 3rd biggest challenge to the growth of the impact investing industry today.
Admittedly, this barrier is still eclipsed by the top two challenges, a ‘lack of appropriate capital across the risk/return spectrum’, and ‘shortage of high quality investment opportunities’, both of which the impact investment industry is relentlessly trying to solve and overcome. However, I feel more attention and time is needed on discussing viable routes to exits for those companies and investments that are coming of age.
Is listing on Aim a viable option, given the heavy upfront and ongoing NOMAD and brokerage fees? Good Energy has shown that this can work, as they reach their three year anniversary on AIM next month with their share price doubled since listing.
Can secondary markets flourish and produce the sort of liquidity that investors crave? A new entrant last week on the Social Stock Exchange, Capital for Colleagues Plc, shows continued growth and demand from companies to achieve scale. But will such sector-specific platforms be able to entice the type of investors these businesses need in the long run?
Perhaps clearer thinking around exit strategy even before the investment is made is the missing ingredient to opening up liquidity, attracting appropriate capital, and eventually building deal flow. By plotting a distinct route from one port to another at the start of a company’s journey, we can go some way to solving an important challenge to investor confidence and sector growth.
First published in Third Sector in August 2015.
