Impact investors play a crucial role in funding businesses that drive economic growth, create jobs, and promote sustainable development in emerging markets. Impact investors in emerging markets typically include development finance institutions (DFIs), venture capital funds, and private equity firms, all aiming to generate financial returns alongside social or environmental benefits by investing in enterprises that align with their impact-driven mandates.
I spent almost a decade working in the legal team of British International Investment plc (BII, formerly CDC Group plc), and since becoming a legal consultant, I have worked with Sweden’s Swedfund and The Netherlands’ FMO. In each of these roles, I have collaborated closely with other multilateral, regional and bilateral DFIs and privately-owned impact investors, developing a deep understanding of what they look for in potential investees. If you’re seeking investment from an impact investor, here are the key characteristics they typically look for in potential investees.
Strong Financial Viability and Growth Potential
DFIs and impact funds prioritize businesses with sustainable financial models, ensuring they can generate consistent returns while achieving long-term impact. They assess:
- Revenue stability and profitability – Is the business financially sound or on track for growth?
- Scalability – Can the business expand and drive broader economic development?
- Effective capital allocation – How well are funds managed to maximize efficiency?
Clear Development and Sustainability Impact
A core mandate of DFIs and impact funds is fostering positive change in target markets. Depending on a particular institution’s focus, investees may need to demonstrate:
- Job creation – Generating employment opportunities, particularly in underserved regions.
- Sustainability – Commitment to ESG principles (Environmental, Social, and Governance), reducing environmental impact, and ethical business practices.
- Sector relevance – Alignment with priority industries such as renewable energy, infrastructure, financial inclusion, and agribusiness.
Robust Governance and Compliance Framework
DFIs and impact funds seek investees with strong governance structures that ensure transparency and mitigate risk. Key expectations include:
- Sound corporate governance – Clear leadership, accountability, and ethical decision-making.
- Regulatory compliance – Adherence to local and international laws, including anti-corruption measures.
- Risk management – Strategies to mitigate financial, operational, and reputational risks.
Commitment to Diversity and Social Inclusion
Many DFIs and impact funds prioritize businesses that promote gender equality, financial inclusion, and diversity. Companies demonstrating the following may be able to tap into dedicated funding pools set aside for these purposes:
- Inclusive business models – Expanding access to markets for marginalized groups.
- Workforce diversity – Hiring policies that reflect social responsibility.
- Empowerment initiatives – Programs supporting women and underrepresented communities. These may include the 2X Challenge for participating institutions.
Capacity for Innovation and Market Disruption
Innovative businesses often attract DFI and impact fund investment, particularly those introducing new technologies, business models, or solutions that address market inefficiencies, such as:
- Digitization and fintech solutions – Enhancing financial access for underserved populations.
- Impact-driven business models – Solving pressing global challenges through technology.
- Scalable innovations – Solutions that drive measurable improvements across industries.
Ability to Leverage Additional Investment
DFIs often seek businesses that can mobilize additional private sector investment, ensuring their funding acts as a catalyst for broader capital flows. This includes:
- Co-financing opportunities – Partnerships with banks, venture funds, or institutional investors.
- Long-term financial sustainability – A clear strategy to attract follow-on investments.
- Partnership potential – Collaborations with governments and stakeholders to maximize impact.
You may not yet meet all these criteria, but demonstrating a commitment to working with impact investors to achieve mandated standards, particularly in ESG, business integrity, and inclusion, is essential. Businesses that proactively align with these principles will enhance their chances of securing investment from DFIs and impact funds.
As you pursue DFI or impact fund investment, the loan or investment agreements will outline ongoing compliance obligations that will be critical to continued funding. Smit Advisory provides strategic guidance on ESG and business integrity commitments and can help to negotiate favourable terms, ensuring you understand their implications and effectively integrate them into your operations.
