Impact angel investors have a valuable role to play in early-stage impact investing. Although large firms and institutional investors may appear to lead the sector, angels are often the first to recognize, research, and fund promising new businesses with social and environmental impact goals.
What Is an Impact Angel Investor?
Traditionally, angel investors are accredited investors who identify small businesses with growth potential and use their personal wealth to invest in them at very early stages, typically through an equity stake or debt conversion.
An investment from an angel can anchor, or substitute for, a friends-and-family round prior to a venture capital investment. Unlike venture capitalists, which pool money from institutions and wealthy investors into their firms, impact angel investors invest their own money—and also assume the lion’s share of risk.
Impact angel investors fill a critical gap in impact investing: the one between a social entrepreneur’s idea and its suitability for a formal first round of venture capital or other impact investing vehicle.
Because angels target new enterprises, they can serve dual roles as both investors and mentors, bringing hands-on expertise and guidance along with a financial investment. Impact angel investors often align their investments with their expertise or passions, such as environmental sustainability, the economic revitalization of an impoverished region, or underrepresented founders.
Impact angel investors fill a critical gap in impact investing.
Who Are Impact Angel Investors?
Some angels are independent actors. Sari Miller, a New York–based impact angel investor, has been investing in early-stage social enterprises and impact funds since 2007, when she was among the pre-seed investors in Leapfrog. That early eye paid off—Leapfrog is now a multibillion-dollar impact fund headquartered in Australia.
Other impact angel investors build networks based on shared interests or expertise in sectors, geography, or social impact mission. One of the earliest angel networks, Social Venture Circle, became a ground-floor investor in leading social businesses like Ben & Jerry’s, KIND, and Honest Tea. Networks like Dazzle Angels in South Africa and Pipeline Angels in the United States have a specific focus on women-led social businesses, particularly women from underrepresented or marginalized backgrounds.
Angel networks serve two purposes: they share dealflow to de-risk investment opportunities through the option of pooling network capital, and they conduct due diligence on companies that often becomes the baseline for their growth trajectory. Due diligence for an angel investment varies by the size and scope of the investment. As part of their due diligence, impact angel investors engage in:
- The experiential, meeting the team in person.
- The analytical, assessing the company’s health across its finances, governance, intellectual property, and key elements like sales/marketing and product manufacturing.
- The impact itself, understanding what the social or environmental impact is, who benefits, and how it is or will be measured.
With their focus on early-stage funds and companies, angel investors are among the biggest risk-takers in the field, making their role a crucial springboard for the future of impact investing.