Social impact venture capital investing: an explorative study

Abstract

ABSTRACT In this paper, we look at venture capital funds that invest in enterprises striving to achieve a positive societal impact (SIVCs). We observe that SIVCs are likely to pursue two different investment strategies. On the one hand, they select companies with negative profitability results but interesting growth patterns. On the other hand, they do not disregard more established companies with profits but a reduced prospect of growth at the time of the investment. We then assess the impact that these SIVCs have generated on invested firms: while we do not observe significant improvements in the sales figures, all the models show that total assets have been positively affected by the new equity raised. However, when we disentangle between short- and long-term effects, our analysis reveals that the effect of SIVCs on total assets is concentrated on the first years after the receipt of capital, while it disappears in the following years. A positive and significant effect of SIVCs on sales is instead found in the long run. The overall evidence seems to support the view that SIVCs favor the growth and transformation of target firms towards more capital intensive and scalable businesses.