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Assessing the market opportunity for a fund of funds in the European impact investment ecosystem
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Resumo(s)
The demand for impact investments has significantly increased in the EU over the last decade
as businesses and public authorities seek solutions to address social and environmental
challenges. While the interest in more sustainable investments is growing, investment capital
for impact is still rather low compared to traditional investments due to the perception of a
higher risk profile and lower returns. This paper responds to these concerns by providing
empirical evidence about the market and performance of Impact VC in Europe. Furthermore,
the development of a European Impact FoF is assessed to close the financing gap and make
impact investing more attractive to risk-averse investors. A financial model was developed
based on empirical findings and industry practices to answer the research question. The findings
reveal the market for Impact VC is large enough to build a FoF. Furthermore, different
investment strategies are being evaluated and challenged with existing research on FoF
portfolio design. The paper concludes that fund asset allocation, number of portfolio funds, and
average ticket sizes are crucial factors to increase the FoF’s returns while a diversification
strategy does not certainly result higher returns than a concentration strategy. Lastly, the
researcher suggests the development of an early-stage concentrated PEFoF to maximize returns.
Descrição
Palavras-chave
Impact Venture capital Fund of funds Impact investing Market analysis Financial model