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Impact Investing and Fundraising

In recent years there has been an explosion of interest from both the international development and business communities in “impact investing,” an umbrella term for efforts and approaches that share the specific goal of bringing about social and environmental benefits through investment mechanisms that, at minimum, aim to return investors’ principle. The actual expectations of groups that self-identify as impact investors can vary significantly, however, with some investors expecting commercial-rate returns and others expecting a return of principle or nominal, below-market returns. The vast differences in expectations, among other factors, have led to an intense and ongoing debate on “impact investing tradeoffs” - the idea that you cannot have both significant social impact and significant financial returns on investment simultaneously. In other words, achieving significant social impact through investment deals means that financial return expectations must be reduced (often significantly), while investors seeking higher financial returns must settle for lower social impact resulting from their investments. This tradeoff is captured by the now widely used terms “Financial First” Investors and “Impact First” Investors.