Why and how the European Investment Fund backs impact VC, interview w. Anna Finizio (EIF) 🇪🇺
Impact Supporters Issue #33. Thanks for being here. If you have comments or feedback drop me a message.
Disclaimer from August Solliv: The views expressed are solely my own i.e. it’s my Sunday fun work 😉
Key insights:
Interview with Anna Finizio, Investment Manager at the EIF
The EIF’s key screening criteria for VC impact funds are 1. Team, 2. Strategy, 3. Track-record 4. Impact vision 5. Independent governance
Impact funds are increasingly specializing and generalist funds need to find an edge somehow
Some of the market gaps in social impact that the EIF is looking to fund: 1. Underserved countries within the EU, 2. Thesis-driven social funds addressing specific social challenges in the society, and 3. Social impact funds with a diversity strategy regarding founders and investment targets,
Top-performing impact VCs have a clear impact strategy, are problem-driven, and have the best mission-driven team
Greetings to 2k+ Impact Supporters! 🌍 It’s August Solliv 👋 Let’s dive into the role the European Investment Fund plays in impact VC (≈7 min reading time):
Agenda:
EIF screening criteria 📋
Characteristics of top-performers 🌟
EIF impact methodology 📊
Social vs environmental impact 🌍
Specialized funds 💼
Financing gaps 💸
Limits to the impact VC model 🚧
Mobilizing capital 💰
How to raise with the EIF 🚀
Meet Anna Finizio 👋
Anna Finizio is an investment manager at the European Investment Fund (EIF)🌟 Anna is part of the Greentech and Social Impact Division at the EIF, which invests in impact VC funds as an LP. She primarily focuses on investing on the social side but also covers some climate funds.
Meet the European Investment Fund (EIF) 💼
The EIF is a European body that aims to improve access to capital to small businesses 🏢 The EIF in general doesn’t invest directly in companies but rather in intermediaries through equity and guarantees. The EIF deployed €14.9bn in 2023 alone - where €5.6bn were equity investments (EIF, 2024).
The EIF’s screening criteria in the impact equity space📋
The EIF has different mandates, but in general, the criteria that are key for the assessment of an impact VC are:
Team with the necessary complementary and relevant skillset
Strategy which is defined clear in all its aspect and filling specific market gaps
Track-record demonstrating the ability to execute the strategy
Genuine impact vision and intentionality to create impact in the society
Independence of the investment management team
Within impact, the EIF is looking at all sectors. In Green Tech, they look at different challenges such as decarbonization, climate adaptation, blue economy, biodiversity etc. 🌍 In Social Impact, they look at both generalist and sector-specific funds focused on topics such as education, wellness, health, diversity and social inclusion at large.
Characteristics of top-performers 🌟
Anna says it is hard to have a unique set of characteristics for top performers for impact players; given the maturity of the impact investment industry, it is still too early to have a definitive view on what these characteristics are.
However, Anna believes that these are the funds that have the highest chances to perform:
Impact funds that are thesis-/problem-driven
Funds with a clear strategy fitting a market gap
Funds with a clear vision for what impact they want to achieve and a defined impact framework
Funds with teams with relevant investment and sectorial expertise
EIF impact methodology 📊
The EIF promotes its impact methodology for all the funds it invests in. Specifically, Fund managers set impact KPIs for each start-up in their portfolio which are then tracked over time. The carried interest will be linked to the achievement of the Impact KPIs 📊 The EIF believes that their impact methodology should be a reflection of the funds’ strategy and generate accountability across all funds’ stakeholders. They promote the impact carry model as they believe it is a great tool to create alignment on both the financial results and impact results.
Social vs environmental impact 🌍
At the EIF, under the impact investing umbrella, there are two pillars: Social Impact (where Anna sits) and Green Tech 🌱
Green Tech is experiencing a significant increase in pipeline, as climate tech solutions become a high priority on the agendas of both public and private players. Social impact funds are also maturing; not only the pipeline is expanding, but they also see pioneering social impact players gaining more traction and visibility.
The market is witnessing the first demonstrations of performance 🎓, and in the coming years, Anna expects to see more examples that highlight social impact investing as an attractive option for investors. However, this doesn’t mean she foresees portfolios full of unicorns; rather, companies that have created both financial and social value i.e. what the industry commonly refers to as “zebras”
Specialized funds 💼
In both climate and social impact, Anna observes an increase in impact funds with a more specialized focus. On the social side, specialized funds concentrate on education, diversity, and financial inclusion. Regarding climate, funds may address various challenges related to food, energy, the blue economy, water, and more 💧
However, the market is not so specialized that the EIF no longer invests in generalists. This depends on the funds’ strategies and the market gaps they aim to fill. Anna believes that the EIF will continue to invest in generalist funds based on market maturity and deal flow availability.
Financing gaps 💸
Firstly, Anna argues that there are still too few impact VC funds today when you compare them to the size of the challenges and market opportunities. Here are some of the specific areas that the EIF is interested in social impact:
Underserved countries within the EU
Thesis-driven social funds i.e. funds identifying the social challenges in specific geographies addressing ambitious social thematics and finding solutions for these
Social funds with a diversity strategy focused on female founders and investing in diversity tech solutions
Limits to the impact VC model 🚧
Anna explains that the impact VC model is fitting for certain types of investments, certain start-ups, and certain returns, but not necessarily all. Anna believes that the finance community should become more creative in their financing models to be able to cater to other types of impact companies. She is personally interested in the hybrid models of financing where debt, grant, and equity interplay to have a more scalable impact.
Mobilizing capital 💰
Mobilizing capital is a key part of the EIF’s work 💰 In 2023, they deployed €14.9bn but mobilized an expected investment of €134.6bn. Here are some of Anna’s points specific to the impact VC market:
Impact is still a niche area for investments. Anna believes we need to persuade more LPs (incl. institutional investors, corporates, family offices, foundations) to invest in impact by show casing the experience of successful GPs in this sector.
Anna believes that to stay relevant, impact investors need to find new ways of defining value where financial returns and impact returns are not as separated
The impact VC market still needs more transparency so all reporting and accounting initiatives are highly valuable 📈 In the long run, Anna believes it will help mobilize more capital
Here is the EIF’s split of mobilized capital in 2023:
Source: EIF annual report 2023
How to raise with the EIF 🚀
Anna suggests that impact VCs should have defined their strategy well when reaching out to the EIF 🎯 That includes having thought deeply about geography, investment stage, sectors, and types of companies - but also portfolio construction and access to dealflow.
The team needs to demonstrate that they are addressing a market gap and prove that they are the right people to fill that gap.
Thanks for reading this week’s newsletter! Let me know what you think of this article and who else I should interview in this series - either in the comments section or in my DMs. Please subscribe to stay updated on articles about everything related to impact VC - and share with friends and colleagues. See you next week for another issue! 👋
Links to articles/data mentioned:
Very interesting, thank you 👏