BC Business
Vancouver's Alfred & Co. helps guide early-stage social enterprises.
The idea of using capital to generate positive social and environmental change has gained significant momentum in the global investment community. But even though impact investors are typically motivated by a desire to help value-aligned companies scale, many businesses are just interested in using impact as a greenwashing strategy.
“It’s really easy to capture the emotional side of investors,” says Alfred Wong, angel investor and managing director of Alfred & Co., a boutique management consulting firm in Vancouver that mentors and funds social impact startups. “For many first-time investors, especially those getting into the impact investing space, it’s really important to try to separate the emotion out of it.”
Wong claims that his own entrepreneurial journey and background in investment banking, coupled with his family’s involvement in supporting various environmental causes in Hong Kong, motivated him to help young impact companies scale through Alfred & Co. And in his experience, there are some key questions to ask if you want to identify red flags in a business pitch.
Sometimes investors place too much value on the social cause instead of the business model. For Wong, it’s imperative to assess whether the business itself is scalable.
“In many cases, the impact that a company is trying to make might be very small,” he says. While a model might be making a huge difference for, say, 10 people, an investor needs to evaluate whether the model is sustainable enough to support 10,000 or 100,000, and then potentially be applied to other provinces and countries. “Sustainable impact goes hand in hand with sustainable business growth, but it has to be reasonable business growth, right?”
Wong recommends quizzing founders on what nonprofit organizations are currently doing in the space and what they as a private company will do to make more impact. “Because if an impact investor was really figuring out what their investment is going to do, and if that is going to make an impact, then donation is also a perfectly viable pathway to impact social change,” he explains.
If science or data is involved in creating the rationale for a social enterprise, it’s important for investors to understand the logic behind it. At least that’s what Wong tries to do, because he thinks it’s tied to greenwashing. For example, many companies making “innovative” kitchen and tabletop appliances try to convince consumers of the product’s ability to reduce carbon footprints, food waste, etc. “That being said, the science behind that doesn’t support it,” says Wong.
So even if it’s outside an investor’s expertise, it’s still good to try understanding the science behind it. “It prevents you from making a choice of investing into companies that are simply just greenwashing and actually not making impact,” Wong maintains.