As we look back on the ground we have covered in this The ImpactAssets Handbook for Investors, it is clear that while impact investing has moved from the fringe toward the mainstream, the individual investor still has many moving parts and challenges to consider. Among the questions we've explored are:

A key point to remember when discussing resources of interest to impact investors is they are continually being updated, evolved and expanded. Your best option is to subscribe to a few magazines and newsletters in order to receive updates on the field, attend a few impact investing events to learn the latest on issues of interest to impact investors and simply keep your eyes and ears open! You'll be amazed at the number and quality of resources available to you—most of which are free.

What follows is simply a starting place with no doubt many additional groups we may have overlooked and could have been included in this initial list. We should also note that given the authors of this book are based in the United States, most of these resources are “US-centric.” There are growing numbers of networks and resources being introduced in communities around the world, so don't forget to think globally, but act locally when looking for information and networks to inform your own good efforts. The following list is simply a starting place for you to begin your journey to impact!

Investor Networks

Toniic; www.toniic.org

Toniic is a global network of impact investors consisting of individuals and foundations investing in a variety of thematic areas. They host many annual conferences and regional networking sessions.

Investors Circle; http:// www.investorscircle.net

Investors Circle (IC) is the largest and most active early stage impact investing network. Together with hundreds of angels, venture capitalists, foundations and family offices, IC has propelled over $200 million into more than 300 enterprises dedicated to improving the environment, education, health and community.

Gratitude Railroad, http:// gratituderailroad.com/ #welcome

Gratitude Railroad serves as a community and catalyst for investors to learn, discuss and invest across asset classes focused on delivering top tier returns and helping to solve environmental and social challenges. This community has achieved significant success as investors, operators and entrepreneurs across various sectors and stages in the traditional capital markets.

Silicon Valley Social Venture Fund; www.sv2.org/

Silicon Valley Social Venture Fund (SV2) is a community of more than 200 individuals and families who have come together to learn about effective giving and pool our resources to support innovative social ventures.

A handbook is a tool, like an implement with which to dig into the dirt, a hoe with a rough-hewn handle one uses to work the soil, to remove the rocks and to till the ground, breaking up clods of earth, moving it into rows, and opening up new areas for seed and eventual, future growth.

A handbook may also serve as a compass, offering readers an orientation toward the North and helping position themselves in alignment with the forests, mountains and rivers to be entered, crossed and summited. But a handbook is neither a bible nor a book of wisdom to be reflected upon as much as a set of guidelines and guidance for the traveler.

Progress on the Fundamentals

In the brief two years since the publication of the first edition of The ImpactAssets Handbook for Investors, little has changed in the field of impact investing and everything has changed. The field continues to grow, newcomers continue to launch new products, funds and investment firms, and capital continues to flow into the field, seeking impact—but also seeking financial returns and diversified approaches to placing capital in pursuit of doing well while doing good. These newcomers bring fresh energy and new passions, just as they bring a lack of awareness of the past or sense of progress made to date. Indeed, many of the issues and themes impact investors were debating three years ago when we first began assembling this volume continue to be explored, with progress being made on a number of important fronts.

The Global Impact Investing Network (known as the “GIIN”) has now published its four Characteristics of Impact Investing.2 These include the ideas that impact investors:

IMPACT INVESTOR CASE STUDY: “LINDA SHORELY”

Year Started Impact Investing: 2010

Primary Focus: Private equity, debt and venture capital impact funds

Background: Linda is an accredited investor who seeks out professionally managed funds that do seed, early stage venture, later stage venture and private equity investments in mission-driven businesses. The impact funds that Linda invests in generally have minimums starting at $250,000. When Linda invests in impact funds through his donor advised fund (DAF), minimums start at $25,000.

Impact Trigger

Linda's background is in law and during her career she's had the opportunity to work with some of the most disruptive game changers in technology. In 2010, she began to understand that the “real deal” entrepreneurs were those moved by something other than making money. They had a bigger mission. Their satisfaction came from using their creativity and energy toward solving an identified problem as opposed to simply making money. She also started to notice the growing success of companies that are creatively solving for social and environmental challenges, whether in Clean Technology or Fintech (financial technology). It deeply resonated with Linda when she saw that an innovative and sustainable business model could do “financially well while doing good.” This intersection of mission and financial return had staying power. It just made sense and Linda began to revise her worldview on the meaning of money. This awareness began to reshape a vision for a future that she wanted for her family and that she wanted to participate in.

Investment Approach

Linda now believes there is no better opportunity than the present to use private capital to solve massive global problems. And she believes impact can actually be the key to finding growth and value in an increasingly crowded marketplace. It's become clear that there is exciting and real potential with companies seeking to solve social and environmental problems. For example, there are more than 2,000 certified B Corps companies globally, redefining success in business because of having a social and environmental mission and not despite it. Some of the fastest growing and most recognizable companies in the United States are B Corps, such as Warby Parker and Toms Footwear.

Your picking up this book is a reflection of the fact that while we all may acknowledge many of the incredible, positive effects finance and capital have had upon our world—lifting millions out of poverty, bringing electricity (increasingly solar generated) into formerly dark places and improving housing options for great numbers of people—the reality is many of our planet's most critical challenges remain. Accessible primary health care and secondary education are beyond reach for many, affordable housing is an issue in both developed and developing nations and the diverse effects of climate change are now making their presence felt around the globe. These are not issues government or nonprofits can address alone. While the role of philanthropy and public funding will continue to be key, the reality is you cannot donate your way out of poverty or back to a green planet. There is a direct and meaningful role to be played by business in working with other sectors to drive positive change in our world. And whether we're talking about mission-driven for-profits or nonprofit social enterprise, the fuel of business is capital.

Traditional, mainstream investing has been built on the belief that investing and consideration of social or environmental issues are two distinct worlds—and that if you include considerations of social or environmental factors within your investing, you will underperform financially. The reality is investing currently creates impacts—both negative and positive—in our world. But today we have the opportunity for investors, both large and small, to work to minimize negative impacts and optimize positive ones through the intentional and strategic deployment of their capital. And in recent years investment strategies that seek to generate various levels of financial return as well as the creation of positive social and environmental impacts have come together under the broad banner of impact investing.

This process has occurred because we now know that not only may we invest to create a better world, but we may do this and at the same time provide for ourselves, our families and our community. We can be financially responsible and advance a more just, sustainable planet.

STORIES THAT INSPIRE: MORRISON SHAFROTH

Year Started Impact Investing: 2008

Primary Investment Focus: Retail mutual funds, exchange traded funds and individual stocks

Background: Morrison (Mo) Shafroth is an independent investor saving for college for three children and retirement. He has been a lifelong investor—he opened an IRA with savings from a high school summer job and invests primarily in individual securities and mutual funds. About 10– 15 percent of his portfolio is in sustainable and impact investing, and he plans to convert a small charitable account into a donor advised fund (DAF) that allows for impact investing.

Impact Trigger

Mo is the owner of a public relations agency in Boulder, Colorado and is busy raising three children with his wife, Barr Hogen. Naturally, investing often has taken the back seat to “day-to-day” life. Mo has worked throughout his adult life, starting with summer jobs in high school and employment in college to pay for incidentals and housing. Growing up, his father and uncle taught him very fundamental lessons about investing: do your research, buy-and-hold investments forever, and save rather than spend.

It was good advice, but the accumulation of assets, rather than the social utility of money was the focus. Money had a singular meaning and a singular purpose, and there was a sense that earning money was a zero sum game.

Money was utilitarian, a tool for personal benefit and it was kept in one bucket. Money for good, such as a UNICEF box at Halloween or passing the plate at church on Sunday, was categorized as charity.

After he moved to Boulder in 2004, Mo was fortunate enough to meet Steve Schueth and George Gay of First Affirmative Financial Network, the founders of the SRI Conference.

He worked for the conference in 2009 and gained knowledge about sustainable and impact investing. It was eye opening to see how investors at the conference were blending the two notions Mo had about money—as an investment that profited himself and his family and as a benefit to the broader society to create more meaning and impact.

Many investors think of philanthropy as altogether separate from their strategies to build wealth, generate return and make change. While market investments are seen as means to an end, philanthropy is often an afterthought—charitable donations made along the way to “give back” but not necessarily related to an individual's overall goals for business or life and certainly not viewed as part of one's overall capital management and deployment strategy.

But donors who fail to recognize the potential power of their philanthropy to amplify return on investment and contribute to an overall investment strategy are missing a key tool in the investor's tool kit. As described in terms of Total Portfolio Management, rather than an afterthought, philanthropy deserves consideration as another asset class that links to and strengthens other investments within a portfolio.

For example, an investor with a keen interest in the alternative energy industry might provide a philanthropic investment in a green-jobs training program that will ensure a competent workforce for that industry. An investor who believes medical technology is the key to the future might support research institutions that develop those technologies. And an investor who wants to build an empire of organic grocery stores may recognize the importance of supporting nonprofits that help small farmers employ sustainable agriculture practices.

In addition to working hand in hand with market investments, philanthropic investments can provide early venture or seed money from which new innovations and ideas take root and flourish. In fact, many inventions and practices that society now takes for granted—such as public libraries, disease treatments or even white lines along the sides of roadways—were sparked by the charitable investments of others.

The options for effective philanthropy are more varied today than ever. What used to involve simply making financial gifts to qualified nonprofits has now grown to include public-private partnerships, social impact investing, program related investing, crowdfunding and many more avenues for achieving a philanthropic mission. However, giving and grantmaking make up the bulk of philanthropic activity in the world, so it is through the lens of giving and grantmaking that this chapter explores philanthropy.

To meet a promising entrepreneur, be convinced their venture will thrive in the market, and subsequently invest at the ground floor; this is the exciting vision of seed stage investing. In this chapter we will explore some of the opportunities and “how to's” of investing in seed stage companies. Although a risky proposition, seed investing has nonetheless attracted investors who want to put their capital where it may be the only chance these ventures have to build and grow a potentially great solution to some impact challenge. An entire ecosystem of venture capital and angel investing has developed to support seed stage technology start-ups and other companies with large-scale potential.

As the market for impact investing has grown, however, it would appear the capital available for seed stage investing has not kept apace.

In the authors’ conversations with industry players, it is clear that many believe social entrepreneurs need capacity-building support to make their ventures “investment-ready,” and point to accelerators or incubators as a solution. Others advocate for philanthropic dollars to fill the funding gap while an organization tests its product and establishes a customer base. On the capital side, many interpret the seed stage gap as an investor issue; the economics of investing in a round of $500,000 or less in an early stage social venture just doesn't make sense considering the extensive due diligence, term sheet negotiation and ongoing monitoring of investments required by this type of investing. In addition, it can be very difficult to generate the deal flow to match an investor's financial and impact-based expectations as well as their geographic or issue area focus.

Compounding these issues, the whole discussion can be somewhat opaque, with outsiders gaining little visibility into funds, investors, ventures and deals within the seed stage landscape. This creates a level of uncertainty and reluctance to invest in the absence of such transparency and data. Each of these factors contributes to the frustration experienced by both investors and entrepreneurs trying to increase funding flows between impact investors and promising social entrepreneurs. But there are, nonetheless, opportunities in the exciting, risky, “deep end of the pool” that is seed stage impact investing. And for many, “going direct” is what impact investing is all about. Let us walk through some of the characteristics, both the challenges and opportunities, in this category of investment practice.

In this chapter we will review in full the process of performing due diligence on a potential investee. We will walk through the various stages of the diligence process and provide key tips and things to keep in mind along the way. We will provide a framework that an investor can adapt and tailor as necessary for a given investment. Some of the key questions that we will address include:

Elsewhere in this book, the reader will discover any number of threads that, when woven together, reveal the tapestry that is Total Portfolio Management (TPM). Better Investing. Better philanthropy. The future of capital markets. Metrics and reporting. How to work with advisors. An inevitable evolution of the way we deploy capital. More responsible stewardship of the environment. Less exploitative markets. And all based on the braided notions that:

Ah, impact measurement …

Perhaps no single topic in this book has this particular quality of being both essential and anathema at the same time. Hold onto your hats, because that combination of opposites means this is a potentially transcendent topic!

At the outset, many investors may doubt one can ever really know one's impact, let alone account for it to someone else. I often hear those who are not yet engaged in impact investing say something along these lines: “If it were measurable, wouldn't it already be integrated into conventional investment decision-making?” But as ample and growing evidence presented elsewhere (including in this book) demonstrates, seeking out and including information about the environmental, social and governance (ESG)-related qualities of investments results in a more complete view of not only investments’ impact on the world but also of their potential financial performance. In other words, it is increasingly clear that investors’ fiduciary duty includes understanding the material ESG qualities of investments.

Although one may intuitively gauge the social or environmental value of one's own investments, intuition is both impossible to transmit to other decision makers up the capital supply chain without supplementary means of communication, and intuition can be wrong. For example, early equity investors in microfinance believed it to have almost miraculous povertyalleviating benefits– so much so that some I know have felt that asking microfinance operators to stop and measure their social performance would require an unethical diversion of resources away from direct beneficiaries who might otherwise be saved from dire poverty. Yet studies show mixed poverty alleviation results of microfinance across the board, and solid evidence that certain practices in microfinance are what drive more consistently positive impact. These measurement insights combined with volatility in microfinance driven by scandalous negative impact where insufficient attention was paid to social and governance issues are all proof that, despite the surface appearance of obvious and sometimes even miraculous social benefits from impact investments, in order to have positive impact, systematically measuring impact is important.

What is impact, metrics and reporting in impact investing? How do you do it especially given the fact that privately held companies do not have to disclose their environmental and social performance, and currently there are no publicly available databases of information on the environmental and social impact of alternative investments?