Why Impact Venture Funds Under-Perform

The heightened focus on ESG has sparked the growth of impact venture funds, providing a fresh capital avenue for social enterprises.

Usually managed by large organizations and nonprofits, they differ from standard VCs in numerous ways, optimizing for social and environmental goals as well as financial returns chief among them.

However, navigating venture is challenging, a reality that’s dawning on many impact venture funds.

According to Cambridge Associates, over the 21 years to 2020, the typical impact venture fund generated a return of 10.22%, a little better than the S&P500, but with a lot more risk and a lot less liquidity.

It gets worse.

Bottom quartile funds returned just 2.43%.

Venture is hard.

And that’s because most startups are bound to fail — no matter how good their idea, business model, product, or team is.

In fact, according to the US Bureau of Labor Statistics, 90% of startups fail.

75% of startups, lucky or good enough to raise seed capital, don’t get to Series A.