You don’t have to reinvent the wheel. Impact investing pros share their lessons from the field. This week, Mohan Ramani of Leftfield Services on fundraising for impactful scale ups.
Specialist in capital raising
- Mohan is the founder and CEO of Leftfield Services BV, located in Amsterdam.
- At New York-based investment bank Mellon, he was part of the team developing the company’s socially responsible investing (SRI) platform, which attracted over $5 billion in new assets in three years.
- Leftfield assists impact investment funds in raising capital, and works with impact businesses in sectors such as financial inclusion, environmental sustainability, health and agriculture technology.
When Mohan Ramani looks out his home office window, he has a great view of the UNESCO listed Amsterdam canals. The Dutch capital has been his home for the past ten years. “Right here in my street are the offices of Molly (a payment service provider, ed), which is the new unicorn in town. And just around the corner you’ve got Dimebox. We see an incredible explosion of payments companies in Amsterdam right now,” says the American.
At Leftfield, he works with all sorts of new businesses to match them with the right investors. Some of those new companies are impact businesses. They have specific lessons to learn if they want to attract investors for their scale up, according to Ramani.
1. Business case first
It is something of a cliché that entrepreneurs who aim at reducing poverty, cutting greenhouse gas emissions or improving the planet in some other way would be less focussed than other companies on their business case and financial profit. But Mohan says that the cliché often corresponds with reality.
“Getting your business case straight is the hardest part for a lot of companies. Simply: Is the quality of your business idea good enough? It is important that impact companies take the time and clarify for themselves what the core of their business is, why it matters to people, and how it works.”
This sounds very basic. But impact-driven entrepreneurs, sometimes driven by philanthropic or moral ideals to improve society, tend to deprioritise this part, is Ramani’s experience. Only once you’ve got your business idea straight in your own mind, you will be able to tell investors what your company does better than others, why people will pay for it, and why investors should care.
2. Stay focussed
Investors look at your track record and jumping from one business case to another isn’t convincing, Mohan argues. He recently experienced this with a Dutch impact company in automotive. The client wanted to move from Europe to the US, and Leftfield had identified new prospects overseas. Then Christmas came and everything changed. “Automotive wasn’t sexy enough for them any more and they thought everything took too long. The founder said he wanted to go after an idea he had had for years – clean air! That’s a far reach, and a high risk for investors. I’ve understood that that company is still struggling.”
3. Open discussion on return expectations
Sure, investors want their money back. That said, it doesn’t mean your business has to be in pair with market returns. Ramani: “Most impact investors I get in contact with don’t expect a market value return, but they don’t want to lose money by investing in you. How high a return they expect is always something you discuss with the potential investor.”
According to the GIIN 2020 Annual Impact Investor Survey, two thirds of investors expect market rate returns. The rest expect their investments to perform below conventional market returns. With this in mind, an overwhelming part of respondents (68%) were positively surprised at the actual financial performance of their investments, according to the survey.
4. ‘Interesting’ is a red flag
Once you are in a conversation with a potential investor, be wary if they tell you that your business idea is ‘interesting’. It is the worst you can hear, Mohan concludes. “It means that your business case isn’t crystal clear to the investor. What matters is: is there a business there? Does the company solve a problem worth solving? Impact business founders are sometimes so excited about their own idea, that they forget about the next level research, such as whether people actually will buy their stuff.”
5. Put yourself in the shoes of the investor
Don’t waste your time on chasing the wrong investors. Do your homework: Who is this person or organisation, what do they care about, what do they need? What might seem like basic research before a pitch to an investor often gets forgotten by enthusiastic founders, according to Ramani. “Simply check their website! And do a search on Crunchbase and you’ll quickly see if your company is a good fit. Is it a yes? Only then would I send them my business plan.”