A Direct Impact Investing transaction (a 'Direct Investment') typically involves an investment by a private investor (whether an Individual, Fund, Family Office, Foundation, or Development Finance Institution) (the 'Impact Investor') directly into a private, mission-aligned business (the 'Company').These investments are risky, as they generally involve the purchase of illiquid, non-public securities, and are heavily dependent on the management team for impact performance.
The Impact Investor provides a loan or loan-related credit support (e.g. guarantees), or acquires equity securities of the company (typically a minority stake). In either case, the Impact Investor and will look to protect and preserve its investment upside, both from a financial and mission perspective. In these transactions, the Impact Investor is not looking to control the Company or its operations, but rather to support its mission by helping further its commercial activity. Confirming sound commercial fundamentals and mission alignment, protecting stakeholder interests, and building an efficient, scalable, reportable, and enforceable investment structure is integral to long term success.