Giving Compass' Take:

• Impact search funds are useful tools that help investors source, mentor, and partner with entrepreneurs.

• How can more donors utilize this tool? What are the barriers to finding and securing high-caliber entrepreneurs and quality investments?

• Here are three ways to engage in impact investing. 

The field of impact investing is growing rapidly with nearly $114 billion of total impact assets currently under management. As the sector continues grows, the need for new and innovative impact investment products will also increase. Investors have an opportunity to more deeply transform companies and industries for social and environmental benefit by introducing an entirely new impact asset class: Impact search funds.

The search fund model allows investors to source, mentor, and partner with high-caliber entrepreneurs who ultimately will be responsible for operating the acquired companies. Investors are afforded an extended period for due diligence on the search entrepreneur before a significant capital commitment is required.

The potential benefits of impact search funds are clear. But if these funds are to become a useful impact-investing tool going forward, we have our work cut out for us. We must:

  • Develop a new impact investment class by identifying sectors where the initial search fund concept could be applied and structuring initial investment opportunities, and create deal flow pipelines for impact capital deployment and exit strategies.
  • Create new career tracks and opportunities to attract more talented impact entrepreneurs.
  • Leverage well-established resources within the community to support impact search funds and the next generation of impact entrepreneurs.
  • Integrate existing search fund coursework and research into social enterprise centers and impact-focused initiatives at top business schools.

Read the full article by Darren Miao about search funds on Stanford Social Innovation Review.