Private Equity and Capital Additionality
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Questions and Answers

What significant event occurred with Blue Horizon's initial public offering?

  • It was postponed indefinitely.
  • It transitioned to a private placement.
  • It was successful and raised substantial capital.
  • It was canceled. (correct)

What aspect of the investment strategy focuses on addressing poverty?

  • Developing companies that provide income sources for impoverished individuals. (correct)
  • Supporting multinational corporations for economic growth.
  • Investing in the luxury goods market.
  • Funding organizations that support environmental sustainability.

What investment model is predominantly used by deep dive investors focusing on start-ups?

  • Debt financing only.
  • Equity crowdfunding.
  • Shareholdings and loans. (correct)
  • Principal-only investments.

What is the primary focus of the impact measurement methodology utilized by elea?

<p>Assessing the number of people positively impacted. (D)</p> Signup and view all the answers

Which of the following is NOT a focus area for impact investors in sustainable food systems?

<p>High-end gourmet restaurants. (B)</p> Signup and view all the answers

What describes a limitation faced by deep dive investors in terms of scalability?

<p>High investment costs and time commitment. (C)</p> Signup and view all the answers

What type of investments do deep dive investors prefer when supporting early-stage companies?

<p>Seed or Series A investments. (C)</p> Signup and view all the answers

Which statement best sums up the impact focus of deep dive investors in relation to food systems?

<p>Transforming the food system while ensuring financial returns. (C)</p> Signup and view all the answers

What is the primary goal of investing according to the impact focus described?

<p>Driving measurable social and environmental impact alongside business performance (B)</p> Signup and view all the answers

Which fund is NOT mentioned as managing assets in the context of impact investing?

<p>Impact Investment Partners (A)</p> Signup and view all the answers

What methodology was created in partnership with Y Analytics and Bridgespan Social Impact?

<p>Impact Multiple of Money (IMM) (C)</p> Signup and view all the answers

What distinguishes Hasiru Dala's business model?

<p>Integrating informal waste pickers into the formal waste management system (C)</p> Signup and view all the answers

What is a key characteristic of the business model aimed at informal waste pickers in India?

<p>Lifting people out of poverty and offering improved livelihoods (D)</p> Signup and view all the answers

In which sector does Planted operate?

<p>Development of plant-based meat alternatives (D)</p> Signup and view all the answers

What does the investment strategy primarily focus on?

<p>Investing in growth-stage, high potential, mission-driven companies (C)</p> Signup and view all the answers

What is NOT a focus in the innovation and scalability aspect mentioned?

<p>Emphasizing investor impact in all investments (D)</p> Signup and view all the answers

What is the potential risk associated with the for-profit oriented business model of Dodla Dairy?

<p>High risk of mission drift (D)</p> Signup and view all the answers

Which impact target is specifically mentioned for the alternative meat industry?

<p>Reducing environmental impact (A)</p> Signup and view all the answers

What characteristic distinguishes investment in health tech from investments that solely rely on traditional PE funds?

<p>Enhanced additionality of capital (D)</p> Signup and view all the answers

Which industry is highlighted as one where a for-profit model has lesser risk of mission drift?

<p>Dairy industry (A)</p> Signup and view all the answers

What does 'additionality of capital' primarily depend on according to the content?

<p>Existence of market inefficiencies (C)</p> Signup and view all the answers

How does sector expertise influence investments as opposed to capital alone?

<p>It provides a competitive advantage (C)</p> Signup and view all the answers

What is the projected environmental benefit of replacing 20% of per capita beef consumption with microbial protein by 2050?

<p>A decrease in emissions from the beef production system (D)</p> Signup and view all the answers

Which statement best captures the operational focus of competitive markets in context to investment?

<p>Entrepreneurs find funding regardless of capital source (C)</p> Signup and view all the answers

What is a characteristic of concessionary returns in investments?

<p>They operate to benefit the entrepreneur's growth (A)</p> Signup and view all the answers

What is Blue Horizon's primary focus as a private equity General Partner?

<p>Food tech and alternative protein companies (C)</p> Signup and view all the answers

Which concept is emphasized by Blue Horizon in their investment approach?

<p>Balancing financial and impact returns, termed Dual Mandate (C)</p> Signup and view all the answers

What unique aspect of Planted Foods is highlighted in the session?

<p>It is considered a leading example of impact investing success (C)</p> Signup and view all the answers

Which element is critical for Blue Horizon when selecting potential investees?

<p>A convincing underlying transformation thesis (B)</p> Signup and view all the answers

What distinguishes owning impact from causing impact according to the session?

<p>The source of capital does not affect the outcome of impact (D)</p> Signup and view all the answers

What can be inferred about the role of expertise in Blue Horizon's investment strategy?

<p>Expertise plays a role in contributing to investees' success (B)</p> Signup and view all the answers

What is a major advantage of the growing market for alternative protein mentioned?

<p>Improved distribution channels for plant-based foods (C)</p> Signup and view all the answers

What is a common outcome when a startup begins with an altruistic mission?

<p>It may eventually prioritize profit over its original mission. (C)</p> Signup and view all the answers

Which factor is crucial for effective impact measurement in investments?

<p>Measuring both company impact and investor contribution (A)</p> Signup and view all the answers

What is a potential drawback of providing expert resources to a startup?

<p>It can lead to higher operational costs. (D)</p> Signup and view all the answers

What does the term 'concessionary returns' imply?

<p>Returns are expected to lower than market rates. (B)</p> Signup and view all the answers

What does mission drift often correlate with?

<p>A shift in the ownership of a company (A)</p> Signup and view all the answers

What must investors measure to align with impactful investing?

<p>The trade-offs between returns and impact (C)</p> Signup and view all the answers

What framework can assist in classifying the impact of an investment?

<p>The Impact Management Project's framework (C)</p> Signup and view all the answers

What is a significant challenge in impact measurement mentioned in the context?

<p>The lack of a unified accounting standard (D)</p> Signup and view all the answers

What is the main challenge faced when investors seek to document impact ex-post?

<p>Noisy ex-post indicators (D)</p> Signup and view all the answers

What kind of estimates do investors need for their investment decisions?

<p>Ex-ante estimates of impact (C)</p> Signup and view all the answers

How can a lack of credible ex-post data affect promising impact investments?

<p>It can hinder potential investment opportunities (B)</p> Signup and view all the answers

What does it mean when an investment vehicle claims to have an impact?

<p>The investment benefits a wider audience or sector (B)</p> Signup and view all the answers

What is an example of a second order effect in investment as stated in the content?

<p>One unicorn emerged from similar startups (D)</p> Signup and view all the answers

What is often a motivating factor for entrepreneurs in the context of impact investing?

<p>Investor appetite for alternatives (B)</p> Signup and view all the answers

What can characterize an investment vehicle's mechanism for impact?

<p>Clear definition of its theory of change (A)</p> Signup and view all the answers

How is the impact of a loss-making investment perceived within the broader context of impact investing?

<p>It can still contribute to sector growth (C)</p> Signup and view all the answers

Flashcards

Microbial Protein

A type of meat produced through fermentation of microorganisms, intended as a substitute for traditional meat.

MP20 Scenario

A significant reduction in beef consumption, replaced by microbial protein, leading to lower greenhouse gas emissions in the beef production system.

Planted Foods

A Swiss food tech company specializing in plant-based meat alternatives.

Blue Horizon

A Zurich-based private equity firm, focused on investing in food technology companies with a focus on both financial and impact returns.

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Dual Mandate

A private equity firm's focus on both positive financial returns and positive societal or environmental impact.

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Additionality

The contribution that an investment makes to a positive outcome, beyond what would have happened without the investment.

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Impact Measurement

The ability of a company to demonstrate that its products or services are producing positive environmental or social impact.

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Governance

The process of influencing a company's operations and direction towards creating positive environmental or social impact.

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Impact investing

Investing in companies that aim to create social or environmental good, alongside financial returns.

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Deep dive investors I

A type of impact investing that focuses on companies tackling extreme poverty.

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Investment strategy of Deep dive investors I

Deep dive investors focus on businesses in developing countries, often providing financial support to early-stage ventures and promoting sustainable growth.

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Impact measurement by Deep dive investors I

Deep dive investors I aim to measure and report on the positive impact of their investments. This includes assessing the number of people positively impacted and the extent of financial benefits they gain.

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Deep dive investors II

Deep dive investors II focus on companies working to create a more sustainable food system.

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Investment strategy of Deep dive investors II

Deep dive investors II often invest in early-stage ventures within the food sector, supporting their growth and scaling their solutions.

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Impact measurement by Deep dive investors II :

Deep dive investors II are committed to measuring the impact on the food system, encompassing areas such as reducing food waste, promoting sustainable farming practices, and improving food access.

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Types of Impact Investors

Impact investors can be either for-profit or non-profit organizations.

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For-profit oriented business model

A business model that prioritizes generating profits over social or environmental impact.

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Mission Drift Risk

The likelihood that a company's focus on profit will overshadow its social or environmental mission.

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Additionality of Capital

The additional positive effects that impact funds bring to a sector beyond what traditional investments would achieve.

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Markets are Competitive

The idea that markets are efficient and good entrepreneurs can find funding even without impact-focused investments.

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Concessionary Returns

Providing lower returns to investors in exchange for a positive social or environmental impact.

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Overlooked but Underfunded

Investing in sectors that are both overlooked and underfunded, offering a unique value proposition for impact funds.

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Sector Expertise

The ability to understand and leverage the specific needs and challenges of a particular sector.

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Impact from Sector Expertise

Impact from investments can be attributed to the expertise of the fund manager rather than simply providing capital.

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Impact Focus Investment

Investing in companies with a strong social or environmental impact alongside financial returns. Examples include The Rise Funds, TPG Rise Climate, and the Evercare Health Fund.

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Growth Stage Investment Strategy

Investing in growth-stage companies that are mission-driven and have high potential. These investors provide capital, business guidance, and a global network.

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Impact Multiple of Money (IMM)

A methodology used to assess potential social and environmental impact. The higher the IMM score, the greater the positive impact an investment is expected to have.

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Hasiru Dala Business Model

A business model that integrates informal waste pickers into the formal waste management system in India, creating a positive environmental impact while providing a livelihood for workers.

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Planted Business Model

A plant-based meat alternative company focused on sustainability and delicious flavors.

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Profitability Aligned with Impact

Targeting companies that demonstrate a strong alignment between their business model and social/environmental impact.

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Targeted Sector Investment

Investing in companies that have a significant impact on a specific sector, creating positive changes in that area.

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For-Purpose, Not-For-Loss

Companies that are focused on generating positive social and environmental impact alongside financial returns. They aim to create a sustainable and impactful business.

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Mission Drift

Occurs when a mission-driven startup prioritizes profit generation over its original social or environmental goals, often leading to a shift in focus.

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Finding Good Entrepreneurs

Investing in high-potential, overlooked entrepreneurs can yield significant returns and impact, but it's crucial to find the right balance.

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The Conundrum

The dilemma faced by impact investors who must consider the trade-off between financial returns, impact, and the resources needed to achieve it.

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Company Impact vs Investor Contribution

A framework that analyzes impact investing by considering both company impact (positive outcomes generated by the investment) and investor contribution (the investor's role in the investment).

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Impact Efficient Frontier

Describes the relationship between impact and financial returns in impact investing, highlighting the goal of achieving the highest social impact for a given level of financial return.

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Impact Measurement and Management

A systematic approach to measuring and managing the social and environmental impact of investments, aiming to track and report on the positive outcomes achieved.

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Expert Resources as Concessionary Return

Providing significant resources, like expertise, can sometimes become a concessionary return, requiring greater financial compensation or reducing the potential return for the investors.

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Impact Uncertainty

The difficulty in accurately predicting the real-world effects of an investment before it happens, making it hard to gauge its true impact.

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Measuring Impact

The idea that sometimes, measuring the actual results of an investment can be harder than expected, or the data might be unreliable, making it difficult to understand its true impact.

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Trade-off between Measurability and Impact

A situation where getting detailed and precise measurements of an investment's impact might make it harder to achieve the overall positive change you're aiming for, creating a trade-off between precision and real-world results.

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Impact Magnitude

The overall positive change or difference an investment is meant to bring about in the world, including both direct and indirect effects.

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Theory of Change

A framework that helps investors understand how their money creates positive change by outlining the steps and connections between their actions and the desired outcome.

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Impact Claim

A detailed explanation of how an investment is expected to lead to positive social or environmental outcomes, often including measurable goals and metrics.

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Ex-Post Impact Analysis

The process of gathering data and evidence after an investment to assess its actual impact, often used for accountability and learning.

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Ex-Ante Impact Estimation

Estimating the potential impact of an investment before it happens, used to guide investment decisions and understand potential benefits.

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Study Notes

Private Equity and Additionality of Capital

  • Private equity often focuses on industries like health tech, education tech, agri-tech, and real estate
  • It's relatively straightforward to claim positive impact in these sectors
  • The core question is whether the impact is driven by the investment itself or other factors (like company characteristics, sector expertise)
  • Efficient markets may already support entrepreneurs, so additional capital isn't always needed

Additionality of Capital

  • Additionality of capital hinges on the limit of arbitrage/inefficiency
  • Ideal investments are overlooked but underfunded
  • Sufficient vs. necessary support
  • Markets can be competitive

Investor Impact vs. Sector Expertise

  • Investor impact is easier to claim with sector expertise than with simple capital investment
  • Strong markets and good entrepreneurs may already secure funding without extra capital
  • However, the impact claim is more meaningful if paired with credible mission, expertise, resource provision from the investor

Mission Drift

  • A common concern
  • Start-ups may shift their mission from social impact to profit maximization over time
  • Often associated with founder replacement
  • PE investors can help mitigate mission drift by actively engaging with the company

The Conundrum of Impact Measurement

  • Impact requires sacrifices (e.g., lower returns, greater cost) to achieve impact; donation is an extreme form
  • Measuring impact directly is not always easy or guaranteed
  • Measuring impact ex-post (after the investment) is different from measuring its potential ex-ante (before)

Impact Measurement and Management (IMM)

  • IMM is a practice that is still evolving
  • There is no single accepted accounting standard for measuring impact
  • Investors often want ex-post documentation of impact for accountability
  • However, credible ex-ante estimates (before investment) are needed for investment decisions

Second-Order Effects

  • Not all businesses benefit as intended; many fail
  • Nevertheless, investments can create overall sector-wide development, even if individual investments fail to hit their original goals and targets
  • Investor appetite for investment in areas like alternative proteins can benefit the sector overall

Assignment (Potential presentation topic)

  • The slides should cover an investment vehicle (fund, company, etc.) that makes impact claims
  • Key aspects: vehicle name, impact claims, mechanisms, theory of change, reporting, potential, recommendations
  • A list of potential investment vehicles is likely accessible.

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Related Documents

Private Equity and Additionality of Capital 2024 PDF

Description

This quiz explores the nuances of private equity investments, particularly in sectors like health tech, education tech, and real estate. It discusses whether the impact stems from the investment itself or other market factors, while also examining the role of sector expertise in demonstrating meaningful investor impact. Test your understanding of these critical concepts in private equity.

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