I know, I know. I don’t like how that sounds either. Give me a minute. I don't mean these guys
For the past ten years I have worked with impact focused companies and fund managers at every stage - from those just starting to those raising money for expansion to those looking for an exit that preserves the impact they have worked so hard to create. At every step, almost every one of these people, most of whom had deep domain expertise, had no idea what they were doing. They were chronically under-advised.
This shouldn’t be that surprising. Impact investing and social entrepreneurship are still relatively new domains. So, at best, I meet people who have been successful entrepreneurs or fund managers in other fields looking to move their talents into the impact space. More often, I meet people who know their sector well but have never raised money for anything. In both cases, there are networks and knowledge that these people don’t have, many of which are common to impact transactions that would be better held and re-used by an advisory firm than re-learned from scratch every time someone wants to get something funded. The key questions include:
So that’s what companies and funds need from their investment bank. I think there is enough activity in the market to justify a few different firms providing this kind of service. But there are rational reasons it hasn’t happened yet
One last thing, I do think these need to be new entities. I don't think traditional investment banks can do this work. There isn't nearly enough money in it for one. For another, I don't think they mesh culturally with either investors in this space or entrepreneurs. I do think, though, that this type of firm could selectively poach talent out of investment banks.
So my hour is up, that’s the idea for today. Impact investment-focused banks could greatly accelerate the introduction of a whole host of impact focused companies and products. The next step is to identify some projects that are closer to investability that could use the services I listed above and figure out specifically what they need. If you know someone with $10m to capitalize a new bank, leave a comment.
Patrick Maloney lives in Portland, OR where he helps nice people working on cool stuff. He tries to limit his blogging to things about which he knows something.