Accelerator A business accelerator is intended to promote rapid growth of a start-up company. The time frame is usually 3 to 6 months to address operational, strategic, and organizational challenges that a young business may face in transitioning to a mature company. It usually includes mentorship and educational components.
Additionality The additional impact achieved by the presence of an impact investor.
Angel investor Angel investors (also referred to as seed investors) normally provide funding during the earlier development stages of a business where there is less certainty of success.
Assets Money, stock, bonds, real estate or other holdings of an organisation, individual or company.
Asset class A category of investment, defined by its main characteristics of risk, liquidity and return. Major asset classes are cash, fixed income, public equity, private equity and real asset.
– fixed income An asset class, where returns are received at regular intervals and at predictable levels. The most common type of fixed income security is the bond. Some investors include loans and private debt in this category.
– public equity An asset class where individuals and/or organizations can invest in a publicly listed company by buying ownership in shares or stock of that company.
– private equity An asset class where money is invested into a private company, or the privatization of a company. Most investors aim to invest into a company, take a majority stake, improve the company and then exit their investment at a large profit.
B-Corporation B Corps are for-profit companies certified by the nonprofit B Lab to meet rigorous standards of social and environmental performance, accountability, and transparency.
Benefit corporation A new type of legal structure for businesses to create a solid foundation for long term mission alignment and value creation.
Blended value A conceptual framework for business that considers all the economic, social and environmental aspects of an organisation’s performance.
Bond A formal contract to repay borrowed money with interest at fixed intervals. Like a loan, the holder of the bond is the lender, the issuer or seller of the bond is the borrower, and the coupon is the interest. The seller of the bond agrees to repay the principal amount of the loan at a specified time (maturity). See Social Impact Bond, Development Impact Bond or Green Bond.
Crowdfunding The process of raising capital from a large number of individuals to finance a project or venture that may include start-up company funding, inventions development and civic projects. Need to distinguish between donations and investments.
Convertible debt A loan that is convertible into equity on pre-agreed terms.
Convertible grant A grant that is converted into equity in the event of the (commercial) success of an enterprise.
Co-operative An association of persons, who have voluntarily come together to achieve a common economic goal through the formation of a democratically controlled business organization. They make equitable contributions to the capital required and accept a fair share of the risks and benefits of the venture.
Corporate social responsibility Corporate social responsibility is the responsibility of an organisation for the impacts of its decisions and activities on society and the environment, through transparent and ethical behaviour.
Cornerstone investor The principal investor in a fund or project whose commitment to invest gives confidence to others to invest.
Corpus The original gift and ongoing principal that forms the asset base from which a foundation or trust operates.
Debt An amount of money borrowed by one party from another. It is used by many corporations and individuals as a method of making large purchases that they could not afford otherwise.
Dividends Proceeds paid by the company to an investor as a return on an original investment. Dividends can be paid either in cash or in kind, i.e. additional shares of stock.
Development impact bond An adaptation of social impact bonds, development impact bonds channel money from investors to local public and private service providers in developing countries. If set results are achieved, government and/or donors repay the investors alongside a financial return that is linked to performance.
Due diligence The investigative and analytical process that precedes a commitment to invest. The purpose is to determine the attractiveness, risks and all issues relating to a transaction with a potential investee company.
Endowment A capital fund, usually invested in perpetuity, to provide income for grantmaking purposes (also see Corpus).
Enterpreneurship The ability to convert an idea or a prototype into a business that can sustain itself on internally generated cash flow.
Evergreen fund An evergreen fund is a system of funding a start-up enterprise in small amounts over a long period of time. They tend to be lower risk arrangements for those providing capital.
Exit/Exit strategy A moment when an investor gets rid of their stake in a company and therefore makes a profit or loss on the money they invested. It can happen by them selling their share to another investor, another firm, or by the company listing on the public stock exchange.
Family office A professional organisation dedicated to managing the investments and trusts of very wealthy families.
Fiduciary duty Refers to a relationship in which one person has a responsibility of care for the assets or rights of another person or entity. Directors, trustees and managers of foundations and endowments owe fiduciary duties to the organizations they oversee, similar to the duties of directors at for-profit companies.
First loss capital Refers to socially and environmentally-driven credit enhancement provided by an investor or grant-maker who agrees to bear first losses in an investment in order to catalyse the participation of co-investors that otherwise would not have entered the deal.
Foundation In philanthropic terms, it is usually used to refer to a trust designed to make grants to charities or to carry out charitable purposes. See Private Ancillary Fund (PAF).
Fund A collective investment scheme that provides a way of investing money alongside other investors with similar objectives. Individual investors are allowed access to a wider range of investments than they would be able to access alone and also reduces the costs of investing through economies of scale. Funds are managed by fund managers for a management fee on behalf of investors.
Fund of Funds (FoF) A fund that invests in other funds, rather than directly in companies.
Fund advisor Company or companies that are given primary responsibility for managing a fund.
Fund manager The individual(s) responsible for overall fund strategy, as well as the buying and selling decisions relating to securities in a fund’s portfolio.
Fundraising Fundraising is the practice of seeking funds for the support of a particular organisation, individual or cause. Often confused as the same thing, philanthropy is the act of giving while fundraising is the act of asking.
Grant A conditional or unconditional payment to a non-profit organisation or social enterprise for a specific project to further the organisation’s goals and fulfil its mission, with no expectation of a financial return.
Green bond A bond issued to raise finance for climate-change solutions, such as clean energy, energy efficiency or climate-change adaptation.
High net worth (HNW) individual Individual whose investible assets exceed a given amount. In Australia, HNW individuals are categorised as those controlling net wealth of $30 million or more.
Hybrid investment Traditionally hybrid investments refer to investments that combine elements of equity and debt. In Impact Investing, it refers to investments that combine elements of grants and investments.
Impact investing Impact investments are defined as investments that set out to achieve positive social and environmental impact, alongside a financial return, and measure the achievement of both.
Impact The longer-term, deeper change resulting from outcomes.
Impact-first investment Investment made with the primary aim of generating social or environmental good.
Investment readiness The process of developing and preparing the resources a organisation/company needs to identify, apply for and secure investment or a loan.
Incubator An organisation or a unit within a business that helps start-ups to develop by offering mentorship, physical office space and basic business services.
Intermediary An organization that raises funds from investors, including individuals and organizations, and re-lends these funds to other individuals and organizations or offers intermediation services between other parties. Services that can be provided by intermediaries include: introducing parties to the deal; gathering evidence and producing feasible options; facilitating negotiations between parties; raising investor capital; establishing a special purpose vehicle; and managing performance.
Layered capital/structure Investment structures that blend different types of capital with different risk-return requirements and motivations.
Lead investor (deal lead) The investor who helps the entrepreneur get all other investors involved and often take the lead on doing the due diligence and negotiating the valuation.
Leverage The use of borrowed capital, to increase the potential return of an investment.
Liquidity The degree to which assets are held in cash or in a form that can easily and immediately be converted into money.
Matching loan A loan that is provided only if additional capital is raised, and typically on the same terms as such additional capital.
Market return The return that can be expected from a traditional investment.
Mezzanine Loan Loan that combines features of equity and secured debt.
Micro-finance A form of financial services (loans, insurance, deposits) provided to low-income individuals, or to groups who would otherwise have no other means of gaining access to such services.
Mission lock A legal restriction on the ability of the owners to change or abandon the social mission of the business.
Mission-related investments Investments that broadly support a foundation’s programmatic goals, but do not count toward a foundation’s charitable-distribution requirements.
Patient capital Loans or equity investments offered on a long-term basis (typically 5 years or longer) and on soft terms (e.g. capital/interest repayment holidays and at zero or sub-market interest rates).
Pay for Success/Performance Practice of paying providers of public services based wholly or partly on the social results (outcomes) that are achieved, as opposed to the common practice of paying for the services delivered. (see Social Impact Bond)
Philanthropy The planned and structured giving of time, information, goods and services, voice and influence, as well as money, to improve the wellbeing of humanity and the community.
Probono Generally refers to the provision of professional services voluntarily and free of charge.
Program-related investment (PRI) These investments provide capital at below-market terms or guarantees to non-profit or for-profit enterprises whose efforts advance the investing foundation’s mission.
Real assets Investments into identifiable and tangible assets whose value is derived from physical properties. Includes investments in real estate, forestry, land and agriculture.
Renewable energy Derived from natural processes that are replenished from renewable resources, including electricity and heat generated from solar, wind, ocean, hydropower, biomass, geothermal resources, and hydrogen.
Responsible investing The practice of considering environmental, social, and governance factors when making investment decisions. Approaches include negative screening, shareholder activism, positive screening, and impact investing.
Retail investor Investors that do not meet the threshold test as a wholesale investor (see Wholesale investor)
Seed capital/investment Financing/capital provided to research, assess and develop an initial concept before a business has reached the start-up phase.
Seeding a fund Providing the operational capital necessary to develop the fund strategy, and market the fund to investors in order to raise capital.
Shared value Strategy focused on creating economic value in a way that also creates value for society
Social enterprise An organisation with innovative solutions set out to solving social and environmental problems. Social enterprises can take the form of non-profit, for-profit, and hybrid businesses.
Social entrepreneur A person who recognizes a social problem and uses innovative, entrepreneurial methods to create, manage and measure a venture for social change.
Social Impact Bonds (SIBs, also known as social benefit bond) A form of performance-based contract, typically held with a government, which commits to pay for significant improvements in social outcomes.
Social impact measurement A form of measurement that provides benchmarks and mechanisms to asses, monitor and track the social impact of an investment.
Social-Purpose real estate Financing that facilitates the acquisition, construction, or tenure of land and buildings by social-purpose organisation and underserved communities.
Start-up A company that is in the first stage of its operations. These companies are often seeded with capital in its early stages as they attempt to capitalize on developing a product or service for which they believe there is a demand, or a problem that needs solving.
Sustainable development Development that meets present needs without compromising the ability of future generations to meet their own needs. It assumes the conservation of the natural assets for future growth and development.
Sweat equity Ownership in a business or initiative granted in return for labour (instead of a financial contribution)
Total portfolio approach The commitment to align 100% of a wealth owner’s assets with his/her values over time.
Trust A trust is a fund or property legally held or administered by a trustee for the benefit of others. There are many different types of trust, not all of which are for the public benefit. In philanthropic terms, a charitable trust is the legal vehicle used to hold and invest money or property which is disbursed for the public benefit to charitable causes and organisations.
Triple-Bottom-Line Incorporating social, financial, and environmental criteria into business/investment decision-making.
Venture capital (VC) Capital invested by investors into start-up companies with a potential to grow.
Venture philanthropy Venture philanthropy is the application of venture capital principles and practices, such as long-term investment and capacity building, to not-for-profit organisations. Venture philanthropy assists nonprofit organisations in the plan, launch and management of new programs or social purpose enterprises.
Wholesaler investor Classification type of investor who falls into either professional or sophisticated investor categories. To be classified as a sophisticated investor the investor must either (a) have net assets of at least $2.5 million or gross income for each of the last two financial years of at least $250,000 (as appears on a certificate given by a qualified accountant which is no more than six months old); or (b) must pay a minimum subscription amount of $500,000 for the securities being offered. To be classified as a professional investor, the investor must either be a financial services licensee or have or control gross assets of at least $10 million. (see Retail investor)
This glossary was originally published by Impact Investing Australia, and collated using the following resources:
Catalysing Wealth For Change – Julia Balandina Jaquier