Angels With A Cause

Angel investing provides capital to start-up businesses, often when banks and venture capitalists won’t. Impact investing seeks to solve social or environmental problems while generating financial returns. When the two types of investments meet, heavenly things can happen.

“The intersection of angel investing and impact investing is very fertile territory,” says Tom Balderston, managing principal of SustainVC, with offices in Philadelphia; Concord, Mass.; and Durham, N.C. “There are some registered investment advisors who are on the forefront. There are others who are coming along slowly, because they’re starting to get pressure from their clients and they figure they’d better learn about it.”

Impact and traditional angel investing are similar in most ways. The distinction is that the impact version of angel investing focuses on social or environmental causes and formally measures the outcome.

SustainVC manages the Patient Capital Collaborative series of funds, which invest in companies that apply for funding through Investors’ Circle, the nation’s oldest early-stage impact investing network. Balderston, who serves on the board of Investors’ Circle, says the organization includes both successful entrepreneurs and wealth inheritors who want to make a difference with their resources.

Like regular angel groups, Investors’ Circle sponsors events where entrepreneurs pitch for funding. But companies presenting to Investors’ Circle are also evaluated through the B Impact Assessment platform for measuring and benchmarking impact, which features the Global Impact Investing Ratings System (GIIRS) survey. GIIRS assesses the social and environmental impact of companies and funds with a ratings and analytics approach similar to Morningstar’s investment rankings.

Impact angels also seek strong performance because profitability is likely the best route to sustainability. “Only sustainable and growing businesses can expect to make a difference in the world. We look for opportunities where entrepreneurs can harness the power of the market to make positive change,” says Balderston.

BigBelly Solar is one of the opportunities Balderston has discovered. The Newton, Mass.-based maker of solar-powered waste and recycling stations has “grown nicely” since Balderston first provided financing as one of the early angel investors. The company has deployed thousands of its compactors worldwide.

Boston Heart Diagnostics, which provides blood tests that assess the risk of cardiovascular disease, is one of the Patient Capital Collaborative funds’ success stories. This business just made the Forbes 2014 Most Promising Companies list.

In 2012, over 268,000 angel investors put almost $23 billion into more than 67,000 start-ups in the U.S., according to the Center for Venture Research at the University of New Hampshire. The center says investments for the first half of 2013 increased 5.2% over the first half of 2012. Nationwide, angel activity is increasing, with more high-value deals closed in 2013 than during the previous year, according to the Halo Report, published by the Angel Resource Institute, Silicon Valley Bank and CB Insights.

While exact numbers are hard to come by, experts say more of these billions are flowing to impact-oriented investments. Investors’ Circle, for example, is one of the 10 most active U.S. angel groups, according to the Halo Report.

Investors’ Circle experienced a 390% increase in investment in 2012 over the previous year. Between 2012 and April 2014, members invested nearly $24 million. Since its founding in 1992, Investors’ Circle has provided more than $180 million, plus $4 billion in follow-on investments, to over 275 enterprises working to improve education, health, communities and the environment.