What Do Impact Investors Do Differently?

64 Pages Posted: 30 Sep 2022

See all articles by Shawn Allen Cole

Shawn Allen Cole

Harvard Business School

Leslie Jeng

Harvard University - Private Capital Research Institute

Josh Lerner

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)

Natalia Rigol

Harvard University - Business School (HBS)

Benjamin Roth

Harvard University - Business School (HBS)

Date Written: September 22, 2022

Abstract

In recent years, impact investors – private investors who seek to generate simultaneously attractive financial and social returns – have attracted intense interest and controversy. We analyze a novel, comprehensive data set of impact and traditional investors to assess how the non-financial characteristics of impact portfolios differ from their traditional counterparts. We exploit the co-investment network between venture investors to identify the extent to which impact investors expand the financing frontier, versus invest in companies that could have attracted traditional venture financing, and find considerable heterogeneity across impact investors. We then explore the portfolio allocation decisions of impact investors and document that they are more likely to invest in disadvantaged areas, crowd in non-impact follow-on investors, and are more likely to invest in 'pioneer companies' – the first 30 or 40 companies in new industries. Relative to traditional investors, impact investors select companies that are less likely to reach exits and take longer to do so, which is consistent with greater risk tolerance and longer time horizons. These patterns are most pronounced amongst the impact investors that seek out deals that did not attract traditional investors.

Suggested Citation

Cole, Shawn Allen and Jeng, Leslie and Lerner, Josh and Rigol, Natalia and Roth, Benjamin, What Do Impact Investors Do Differently? (September 22, 2022). Forthcoming, Available at SSRN: https://ssrn.com/abstract=4233480 or http://dx.doi.org/10.2139/ssrn.4233480

Shawn Allen Cole

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Leslie Jeng

Harvard University - Private Capital Research Institute ( email )

114 Western Ave
Allston, MA 02134
United States

Josh Lerner

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6065 (Phone)
617-496-7357 (Fax)

HOME PAGE: http://www.people.hbs.edu/jlerner/

Harvard University - Entrepreneurial Management Unit

Cambridge, MA 02163
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Natalia Rigol

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Benjamin Roth (Contact Author)

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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