The myths of impact in investing
/
by Alex Lazarow, Managing Partner at Fluent Ventures
This piece was originally published on Alex Lazarow's newsletter, [99%tech]
The Myths of Impact in Investing
When I started at Omidyar Network a decade ago, we were early in both venture capital in emerging ecosystems and impact investing.
Since then, both ecosystems have exploded.
I appreciated this piece exploring the many myths about impact and investing. Three that I particularly resonated with:
1. “Gaps only occur in poorer, less economically developed parts of the world.”
Investing in financial inclusion, I was blown away at the scale and scope of the challenge domestically in the U.S. Over 60 million Americans are unbanked or underbanked. Yes, that's smaller than in many emerging markets, but massive nonetheless. And that's why iconic companies have scaled to serve these markets, including portfolio companies like Chime for consumers and ZenBusiness for SMBs.
I believe that often the best opportunities lie in investing in the largest TAMs, which is the middle market. These can scale downmarket over time too. These yield not just massive impact but also massive businesses.
2. “Gaps are pretty easy to spot—just look for the absence of capital on offer to potential investees.”
Like everything in innovation, you don't know what will work until it’s obvious—in retrospect. The absence of capital doesn't mean it doesn't work or won't work. It equally doesn't mean the opposite.
The best investors, impact or otherwise, are ultimately taking educated bets and partnering with great founders to realize the idea's potential.
3. “The gap faced by innovative solutions is greatest at the outset and gradually narrows as they scale.”
Yes there are gaps at the earliest stages. But if anything, I have found that for the most impactful businesses in emerging ecosystems, the larger capital gap is at Series B & C (early growth) when there are no scaled players offering a solution. This has become even more acute in the last 12 months.
