July 6, 2020

Raising from impact investors - who qualifies, what are the major benefits and how to reach out to impact investors, by Preethy Padman.

Raising from impact investors - who qualifies, what are the major benefits and how to reach out to impact investors, by Preethy Padman.

In this episode of Fundraising Radio, Preethy Padman an impact investment Partner at SV2 and a member of Portfolia explains who are impact investors, what impact investing even means and who should try to take this route. Preethy also explains how to reach out to the right impact investors and what are the major benefits of working with them. 

Apply for funding at SV2: https://www.sv2.org/

Portfolia: https://www.portfolia.co/

In this episode of Fundraising Radio, Preethy Padman an impact investment Partner at SV2 and a member of Portfolia explains who are impact investors, what impact investing even means and who should try to take this route. Preethy also explains how to reach out to the right impact investors and what are the major benefits of working with them. 

Apply for funding at SV2: https://www.sv2.org/

Portfolia: https://www.portfolia.co/


Transcript

This is fundraising radio entities, a guest speaker with investor ad portfolio, and the head off plan for product marketing at fresh words. 

And this episode will mainly talk about impact investing, who are these people how to reach out to investors and what's the major benefit of working with them versus working with general angels? 

So, last he called by giving us some background on yourself, and on your current role at freshworks, thank you. Constant and it's a pleasure to be here. 

So I've been in the US for about twenty years, and I've moved from engineering career to business side. 

You know, moved into product management product, marketing roles and recently have been in director to VP level roles for marketing and sales. 

So my career has been in a couple of large organizations and Cisco and Dell, and in five years ago, I moved into the startup award and and I've been in three different companies are freshworks. 

My role is to run product marketing for two areas. The fresh books platform, and the fresh color product besides that. As you mentioned, I'm also an angel investor. 

One is through portfolio focused on women around the companies as well as se two, which is Silicon Valley social venture fund was just the impact investment that I need. 

Got it, and we'll go to the impact investing just a little bit later on my first question would be actually, why did you decide to move from those big corporations like Intel and Cisco to the startup world? 

Yeah, 

a Cisco and Dell actually, 

and I moved to this because, 

you know, 

I've always been very entrepreneurial and even within big companies I've always navigated to projects that were just being formed and I've been involved in some new ventures or new 

initiatives at the companies. I've worked at, 

and I've really been excited about startups I did have to take care of all my integration and all that things like green card and everything and that is when I became more flexible. 

And, as soon as I could, I took the opportunity to join Nutanix, which was like, an intermediary, exciting place company and I was able to help them scale. 

You can actually in startup see your impact creating the ten X gain that the fees and investors talk about. So, you can actually see that happening in front of your eyes and that's exciting. 

Right that is really, really exciting. And that's probably the major major major reason for why so many people want to jump into startups up. But when you start investing, in terms of, in time, when in time do you start investing? 
Not too long ago. Actually, I'm a pretty new investor I've been in investing less than two years. 
I started October twenty eighteen with the small investment in portfolio, as part of their fintech fund, which was focused on businesses that are focused on women's health. 

And so, I invested in that along with several other angels in that and then I also looked at se, two, which is the impact fund and I invested some money there. That's my initial, forty two investing, got it. 

So, let's talk about impact investing. Now. What is that? What does impact investing.
So,
not too long ago,
it was social entrepreneurs who came about when people who were focused on,
making a difference to the society are focused on generating social and environmental impact, along with financial return. 

So, in fact, investors are those, that funding to set social entrepreneur companies. And organizations, right? And so if they speak to our primary focus is not. I mean, it's still among the top three focus. Don't get me wrong. 

Financial return is important, but we start with the return on learning and social impact into the community and then financial return is the third. Right? So that is our be evaluating companies got it. 

So, one of the questions that one of the big questions that I have here is who can qualify as someone who makes an impact because, you know, probably every single company claims that trying to make the world a better place. 

How, how, how can you understand if the company is actually literally making the world a better place and having a good impact in it? 

That's a great question and I can share some insight on how we go about looking at it. And I also give some examples from other impact investing firms that I have come to the wall. 

There is something called the global goals, sustainable development that was created by world leaders. 

You can check it out and global goals dot, or G, 

and there are about seventeen goals that were decided by the leaders as well as goals for us to achieve over the next few years by excited in twenty fifteen for the next ten, 

fifteen years. 

What are we going to achieve eliminating poverty? Eliminating hunger, help improving World Health and things like that right? 

So those are all some very high level goals that we have set as a, as the work together with the leaders. 

And so, as a company, if you are making a difference in any of those global goals, then there's a high chance that impact investors will be interested in, you. 
Got it and was teaching investing, so both that portfolio portfolio, and as an angel investor, which they 
just do, like to invest in.
So it is pretty much seed stage because angel itself is and one thing that I've seen my investments, some of them are Pre revenue.
Some of them are with revenue and so I tend to like, you know, a bit but look at the team. Right? 

And so, obviously, we talk a little more about it on what are some of the evaluation factors but in terms of the stage, it would be primarily very early stage of the company. Nice got it. So, now, let's take a look at the base. 

I mean, let's take a look at how you take a look at the pitch deck. So when you're reviewing the beach deck that you just got from a founder, what are the things that you're looking at as an impact investor? 

Certainly, the impact itself is very high high in the order of evaluation, especially against some of our key investment areas right? 

Like, in a few seats that we have invested in education, we have invested in environment and several other areas of impact. 

So that would be a huge reason for us to consider a company and the team itself to have a strong team with the track record. 

And also the ability to to deliver and execute. And also with some companies, they have been further along. 

So,
in the case of companies that have been able to generate revenues and income, we make sure that it sounds like,
you know,
these are making sure that the financials are really just like,
if things add up so that to make sure.
And finally, having the differentiation, right?
Having the differentiation and market opportunity,
even in an impact scenario,
you'd be surprised surprised,
actually,
that there's so many companies that are looking at building the social impact, the social impact. 

And only when I started impact investing, I just recognized this huge board of companies and investors that was not aware before, which was more traditional investing that I was looking at. 
Right so, speaking of traditional investing, how is impact investing mainly different from the regular angel investment for for the founders. 

So when the founder is making a decision, if they want to go out to angel investors or impact investors, what's the major benefit of the impact investor? 

So the difference in terms of how they would Congress would benefit from impacting this. Yes. So I think the first first thing, I would say, in any investor, right? 

Or any investment that entrepreneurs are seeking is to make sure that there is a fit, right? It doesn't mean that you go and get investment from this big VC form or big impact. 

Investment fund is better. It's the right fit for the entrepreneur. 

You need to find the, the impact investment, or of traditional, find an investor, who will be ready to help you writer who'd be ready to answer your questions it needs to be smart money. Right? Not just putting money in there. 

And then investor does not have any time to guide the entrepreneur in my mind, I believe that entrepreneurs can seek investors if in fact,
if their company is producing impact and in one of those global goals,
then then, 

you know, 

they're very much highly likely to get funds from impact funds versus they may not attract as much funding from traditional vc's who are focused more on financial return as the criteria. 

Right? So so only entrepreneur knows best on what direction that they want to take the company. And so they have to find not just the right investment form, but the right investor who can then guide them through it. 

Right, absolutely. And speaking of finding the investor, how should the founders seat for those impact investing? Where can they find them? 

Yes, so there are interestingly several ways by which you can find impact investors. There are traditional impact funds,
like se,
two was started as a for impact investment fund by Lori aliga, 

Andreasen and small country, 

sons, 

wife and twenty years over twenty years ago. 

And then about two hundred or so partners that are socially focused that have come together for us to be too. Right? So, like that, if you, if you Google, you find so many other impact funds. 

I have personally come across the Miller center across rice fund, which are all bringing together, several different entrepreneurs and disease who are impact focused. 
I would also say that there are certain family foundations that are doing impact, investing as you may have heard of Gates Foundation. Right? That is a well known foundation. 

And and then, but we may not have heard of media network right? Which is from the paper and founder. 

And so there are several other entrepreneurs and PCs who also have a social side to the investing. 

And so those are different ways by which somebody could look for investment forms and then connect with those, those companies on LinkedIn or to events that are impact investment conferences. 

Those will be another way by which you can actually meet multiple impact investment companies and get to hear about. 

Yeah, it is through our partners, it's a very close ecosystem. That's how all investments are to my knowledge, be traditional our impact. Right? 

Our impact focused partners bring most of the deals. I have personally introduced a few ideas. I know that several other partners who are we more longer involved in this? 

We do, then we have brought a lot of deals or sometimes we get deals referred by other impact groups. So we recently got entrepreneur, come our way, because they were already racing with another group, and they heard about us right? 

So we do get referrals to other impact groups, right? Yeah, that says a really close community. You're completely right on that. So, let's talk about the dynamic now. 

That's a lot of investors are just seeing and waiting for, you know, things to clear out and move. Many of them. Don't invest in new companies and just making sure that their portfolio companies stay alive. How is it? 

Impact investment are you actually actively deploying capital into new companies or are you more focusing on your current portfolio companies? Yeah, that's a great question. So, interestingly, the, the did happen. 

I only in April May timeframe, you know, 

a lot of companies and funds took a pause to look at their current portfolio companies or portfolio companies and look at what additional help the companies will need and we did the same. 

And so we ended up in a, for me supporting an existing company that we have called needs list and we did a grant for them for doing quarterly. We also invested in a scene what? 

Which is another fund actually, that focus on demand and minority businesses. So, we invested in them that was April than me, but in June we have now turned around this month. We started hearing pictures from social entrepreneurs and July. We'll continue with the same way. 

So I would call it more like a small and the whole year. It has, it's not now it's become a new normal. Everybody I can see is turning back to regular business as usual. Right right. That's sure that's true. 

Things are getting better now and still some founders do struggle to find the investors who are actually deploying capital. So, what's your advice to them in terms of find the people who are actually. 
Capable of writing check right now. Yeah. Yeah. I actually have a couple of things on that. One is to stay strong and be creative in the fundraising. 

I know some companies that have applied for small business loans and that has helped them type through this rough patch. 

Even if it is less than hundred K, it'll be worth getting that small business loans to type of loans. And another thing is not to give up. Right? 

I recently read this article this week on a company called easy knock it's resident your platform right? Not impact. 

About a different type of platform, and they raised twenty million and the CEO was actually suffering from quoted himself during the fundraising process. And I was so inspired to see how he did not give up. 

He actually did not allow that call with to get the better of him. So, my thought my whole advises that stay strong, find creative ways and reach out to a social entrepreneur. 

If you're a social entrepreneur, reach out to speak to another impact investors right. To revise and I want to move on move back to the topic that we've discussed shortly already, which is the beach that we've discussed. 

Would you like to see on the page deck now? Let's talk. What? You do. Not like to see on the pitch deck. So, where are the three major red flags for you? 

Red flags, 

so I would like to certainly, 

you know, 

in terms of if the financials where not clear, 

or if suppose the recent company, 

the evaluating if, 

if there's a ramp up to now, 

which is like, 

you know, 

a gradual and then X and expected as how we typically startup was growing and suddenly there's a huge spike. 

Without the accurate reason, or possible reason by, which you could actually account for that growth. If it was a spreadsheet spreadsheet exercise, as you would call it, then that is a red flag, right? 

Because the company has put a put that particular projection in there to make to make sure they get an investment. 

But if it is not something that they can actually deliver on, then that will be a big red flag, then the other red flag would be in terms of product itself. Right? 
You know, in terms of if if though we typically get the right experts in the room to evaluate the 
product, because not all of us might have experience across all the different areas. 
So, we tend to also get product experts to come come and comment on. Is that technology even possible you know, is it? It has an impact in having other companies, do the same and actually good unlimited number of companies. Right? 

Because then you have validation. That other people are also in the market, and they are actually having success. Right? So, but if you're just the only company doing it, and then there's a little more hesitation, whether it's the right investment. 

Right? That's a good point. And I want to move back to the first point that you mentioned, which is financial projections. Can you elaborate a little bit? So what exactly serves as a red flag? I didn't quite catch that. 

So I was talking about suppose if a company has grown from, like,
you know,
fifty thousand, 

two, 

hundred thousand to million, 

and suddenly, 

the from, 

from now, 

to the next year, 

or the projection goes to one and a half million in three million, 

there is a clear reason why the company that was growing at the rate, 

it was the last three and three years and in the next three years is how is it going to be different? 

That is not clear. Then, there's the doubt on the financial right is, is a company just putting in certain numbers on a spreadsheet to get the funding? Right right. 

That happens pretty frequently to be honest. But let's talk about the valiation a little bit. 

So, I mentioned that impact investment is a little bit different in terms of a company evolution but how, how do you actually evaluate the company? 

So, do we just follow the standards preceded stages around one million stages around three to five million validation. So forth, or do you have some other metrics? 

So, we actually have very simple metrics in terms of people you mean, for people who can apply to the fund, right? 

Yes, yeah, 
so,
in fact, 

we have even a document online on our Web page that clearly outlines we are looking for companies that are racing on the up to a four million it could be seed or even some cases, 

even CDC level.
And and so the se, two itself has a maximum of hundred in investing. 

That's the maximum for each company of you have written checks for twenty five, fifty, etcetera and in terms of valuation. I don't think we have a set criteria on valuation. 

But in terms of where we certainly required that, the company be a US registered company, you know, for us to make an investment right and loves U. S based investors to that. 

So, even now during synthetic, when everyone's doing everything remotely, the illegals are still the same. So make sure you're good on that. So we're moving on to probably last question of today's episode, which is a call to action. 

So, what's that one thing that you would like the listener to do? As soon as the episode is over. Absolutely, I would say that, you know, just go to se, two dot four g. 

S and B and the number two g and you can fill out the contact form and mentioned you heard about us on fundraising radio. 

And so you can ask for us to apply for a funding round, or apply to pitch in our next session. 

And if the audience, the listener is an investor potential investor, we welcome you to join us the contribution. Our amounts are start as low as four to six. K. 

and so you can come and become a guest in one of our impact investment circles, where you can come and listen to some of the pictures and see how how we actually go about within that investment. 

That's a decent call to action. So, I'll definitely include the link to your website in the description. So, if someone did not hear that go onto description and click the link there so we'll wrap it up here. 

Thanks a lot briefly for telling us about the impact investing. I think that was a really helpful episode for anyone in this field. So thanks a lot for that and stay safe. 

Thank you constant and it was a pleasure.