Impact investing is experiencing spectacular growth, as the concept keeps on capturing the attention of global investors. The Global Impact Investing Network (GIIN) estimates the current size of the impact investing market at $1.164 trillion. However, while so many find inspiration in making an impact, there is still a great deal of confusion, both among the investors and the startups that seek capital. This lack of certainty concentrates on the very subtle but significant difference between impact investing as a great financial instrument and a philanthropic tool. But in reality, it can be both, which is why it is essential to approach impact investing with consciousness and understanding of anything from the overall purpose of the investment strategy to unintentional negative impact.
Venture philanthropy vs impact investing: what is the difference?
Several aspects contribute to the confusion around impact investing. For starters, some investors believe that there is a clear distinction between investing in for-profit and donating funds to philanthropic causes. But according to Sapna Shah of the Global Impact Investing Network, the binary between investing and philanthropy is a false one. The contrast between traditional grant-making and investing with impact is primarily about the amount of engagement from the investor’s side, as well as the level of commitment and transparency from the financed enterprises.