“Impact” has become a key term within the African investment ecosystem, with the impression of being “impactful” deemed increasingly important to VC firms when discussing their ethos. But what exactly is “impact investing”, and what forms does it take on the continent?

In episode 14 of Disrupt Africa’s “The month in VC” podcast series, released in partnership with Atlantica Ventures and Goodwell Investments, we caught up with leading Africa-focused investors to unpack what “impact” actually means, how important it is to have it, and whether impact can ever outweigh profit when it comes to VC benchmarking in Africa.

Madica is a sector-agnostic investment programme that deliberately invests in underserved founders, be that related to gender, sector, or nation, and then supports these founders with mentorship and training for a period of 18 months afterwards. But for all the good that Madica does for its portfolio companies, Emmanuel Adegboye, who heads it up, says it is not an “impact” investor per se.

“We don’t consider ourselves as impact investors in the traditional sense of the word “impact”. We look for fundamentally good businesses that are venture-backable. Hopefully the amount of additional capital that we are able to support them in attracting, that actually has a significant impact on the overall climate on the continent, but we don’t necessarily consider ourselves impact investors in our traditional sense because we invest with a very strong commercial lens like every other VC would,” he said.

Adegboye, then, suggests Madica is not an impact investor by the “traditional definition”, but yet it does have impact. It sounds like there is a question to be asked here, then – what is the traditional definition of an impact investor? Wim van der Beek is founder and managing partner at Goodwell Investments, which proactively describes itself as an impact firm. He says it is about investing in businesses that have a positive impact on people’s daily lives.

“Our investment thesis is entirely centered around the daily lives of the end users of the businesses that we invest in. At the end of the day it is not something you can just add on to an investment strategy – it is in our philosophy. It is either an integral part of an investment strategy or it’s not, it’s not something you can just add on. It’s not a side effect,” said van der Beek.

But what about the old adage that any investment in an African startup is by definition an impact investment?

“It’s a truism in the sense that, yes, every investment has an impact,” van der Beek said. “The question is how much impact does it have, and is it a positive or a negative one. I think the dimension of the impact of an investment is important – we shouldn’t try to just put that in a box, saying impact investing is about having impact, and therefore other forms of investing which are not impact investing don’t care about the impact. Every investment has an impact, whether it’s labelled impact investing or not, and I think it’s important for every investor to actually consider the impact of the investment they’re making.”

Impact can also come from the work an investor does with a startup post-investment, said Adegboye.

“One thing that we don’t often talk about is the additional support that we provide to the startups that we invest in, on top of the commercial investments that we make. And we don’t count that as part of our investments,” he said. “We think of that almost as a public good, if you will, because we recognise that we’re investing in ecosystems that are probably less advanced, and there is a lot of effort that needs to go into building those ecosystems.”

But van der Beek says the idea that impact investors are more active within their portfolio companies is a generalisation. Some are, and some aren’t.

“The term “impact investing” is a blanket term that covers so many different types of investments, and so many different types of investors that I think it’s hard to just use that one blanket term to describe only one particular approach of investing,” he said. 

“If I look at some of the investors who are also invested with us, yes, some of them really have that very hands-on approach, and they bring that hands-on approach because of the drive that they have to actually contribute to the social mission, or the social impact, or the environmental impact that these investments can have. But on the other hand, there’s also a huge variety of very driven investors who don’t necessarily have that label of “impact investor”, but are just very keen to make things work in the businesses that they invest in.”

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