Typical financing structures based on debt or equity are often inappropriate for early-stage impact enterprises. Due to potential conflicts between the investor's expectations of returns and the entrepreneur's commitment to their mission, impact entrepreneurs have a difficult time securing the right kind of capital for their specific needs. As a result, many fail to get off the ground due to this capital gap.
Commissioned by the Multilateral Investment Fund with support from the Rockefeller Foundation, this summary of Transform Finance's upcoming report provides an overview of the specific problems with traditional financing structures, the innovations happening now in investment funds and deal structures to alleviate the capital gap, and recommendations for how fund managers, investors, and entrepreneurs can engage with these alternatives to increase their impact.
Renewable energy investments could be at risk from overlooking harms to local communities. Managing these impacts is key to secure a fast and fair transition to a low-carbon economy, and safeguard financial returns, according to analysis by Business & Human Rights Resource Centre, Transform Finance and Sonen Capital. This briefing sets out why investors in renewable energy should take action to ensure projects respect local communities’ rights and provides tools to use in their investment relationships.
Haiti has been battered by too many natural and human-made disasters, many of which have provoked a strong international response of support. However, most of these interventions, whether by philanthropy or foreign aid, have not achieved meaningful results.
It was with all this in mind that we welcomed an invitation by a group of Haitian activists and entrepreneurs to bring the work of Transform Finance to them. We overcame our general reluctance to engage in contexts that we don’t know well based on the strong support and tireless preparatory work of our Haitian collaborators, Isabelle Clérié, who ran a social business incubator in the country, and Patrick Dessources, who for years has led Root Capital’s efforts in the country.
In a typical private equity fund, a general partner’s financial compensation is linked to the fund’s financial performance in the form of a carried interest – a percentage of the earnings of the fund. In the context of impact investing, a fund manager promises both financial and social returns, yet compensation is still traditionally tied only to financial performance.
This traditional compensation structure leaves out financial incentives for the general partner and fund manager to meet the fund’s stated social impact objectives.
In this issue brief, we explore the reasons for tying compensation to impact and showcase how a few pioneering funds have done it.