If you’re starting or launching a startup, or if you’re merely driven by curiosity, you might have noticed the hype around driving impact and providing solutions in the investor and startup ecosystem. This is with good reason. Investors want to feel confident that they will receive a return on their investment, and the only thing that almost guarantees that is a business that responds to a demand.
So, if your tech startup can bring about a solution to a societal issue, such as food security, access to clean water, education, or any other solution that contributes to goals like the Sustainable Development Goals, you will attract investors.
Here, we will highlight why impact-driven startups attract investors and how they benefit from such businesses.
1. Purpose-Led Businesses Reduce Risk
The difference between impact and purpose-driven businesses, compared to businesses that are solely profit-driven, is that they solve a problem. These may include healthcare, education, food, and other essential factors that should ideally be accessible rights; it creates a perpetual demand, even during economic downturns or slow seasons.
For example, during the peak of the COVID-19 pandemic, think of the businesses that manufactured masks and sanitisers, as it was a non-negotiable need at the time. A more sustainable example could be a startup that aims to provide borehole solutions for water security challenges.
2. Access to Diverse Capital Streams
Impact businesses often qualify for a wider range of funding than traditional startups. The funders they attract typically include:
- Development finance institutions (DFIs)
- Non-dilutive grants
- Impact-focused venture capital
- Government support programmes
Startups that provide inclusive, in-demand solutions are often backed by entities like the SAB Foundation or AfriLabs. These institutions are actively looking for scalable startups that align with their mandates.
3. Impact-Driven Startups Align With ESG Investing Trends
Impact-driven startups attract investors due to their focus on what matters in their environmental, social, and governance approach. These startups identify and prioritise factors that affect financial growth and long-term sustainability.
Integrating ESG into core business decisions, such as product development, allows ESG to become a seamless business process rather than an obligation.
For example, a fintech startup would prioritise data security due to how to directly impacts the customer, their trust in the business, and their obligation to security. This approach displays a commitment to sustainability, which is what investors are looking for.
4. Long-Term Scalability
Because of the reliance the market has on products offered by impact-driven businesses, the likelihood of sustainability and long-term scalability is high.
When startups pitch their products to investors, it’s crucial to show investors why the market needs this product and how it can have a long-lasting impact. When investors believe in the scalability of a product, it serves as a direct reflection of the return on investment.
Because startups don’t have much financial history, their power is in the concept and proof of demand. Thus, startups need to conduct research and collect data for the business to demonstrate who and what the solution their offering is for.
5. Access to Communities
Depending on the impact and solution offered by startups, they might have access to niche communities that big brands typically can not access. So, being involved with these startups gives them access to that.
Underserved communities can offer the advantage of a loyal user base. For instance, consider townships and their supermarkets. A startup aiming to offer affordable delivery solutions to townships could provide investors with access to this market.
Future-Proof Your Startup by Driving Impact
Providing effective and long-lasting solutions allows startups to attract investors and achieve sustainable growth. The reasons that drive investors towards startups vary from the reduced risk perceived by investors to accessing diverse capital streams, scalability, and more.
If you plan on starting a startup, the above-mentioned factors can help you build a company that not only achieves financial success but also drives meaningful, lasting positive change. This, in turn, will attract the investment vital for your long-term success.
If you want more tips on how to start a successful business, read our article on 6 tips to calculate your startup funding needs.
