Policy makers play a key role in fostering impact investing and entrepreneurship. The document proposes a three-phase plan for policy makers: 1) Emergence phase - establish stability and support impact entrepreneurs and R&D; 2) Beginning phase - design policies to direct capital to impact opportunities and launch pilot funds; 3) Development phase - launch different fund types and policies to foster stability and measure social/financial return. Public funds can catalyze private investment and expertise at each phase to support the growth of the impact investing industry over the long term.

1. 1
IMPACT FINANCING FOR IMPACT ENTREPRENEURSHIP
A Plan for Policy makers to Foster Impact Investing
Saltini Tommaso*
*Tommaso Saltini, Università Cattolica del Sacro Cuore – ALTIS, Via San Vittore, 18, 20123
Milano, Italy – email: tommaso.saltini@unicatt.it
7th EMAB Conference, TRACK 6 – Competitiveness, Development and Sustainability
Abstract
The research aims at understanding how policy makers and public institutions can interact
with different investors’ categories in order to design regulations and innovative investments
funds. The scope of these instruments is to encourage impact entrepreneurs to start up
sustainable businesses focused on finding solutions in order to face needs and problems
affecting society.
The paper proposes a phased consequential plan, summing up priorities to be carried out by
policy makers in order to catalyze impact capital for impact entrepreneurship. The plan
presents consequential activities to be implemented by policy makers, instruments to set in
place and actors to get involved. Different structures of impact capital funds, designed to
catalyze both private and public capital, are also presented. Public capital can be crucial to
encourage and catalyse both local and international investors as well as to bring in technical
and financial expertise. Setting up public-private funds, both as co-investors and as guarantor,
the public actor acts as a catalyst for first-time impact capital investors, creating the
conditions and confidence for subsequent operations through demonstration effects.
Overall, the paper identifies key issues and instruments in order to pursue both social impact
and financial results, thereby fostering a comprehensive development. Furthermore, the paper
brings out the fact there is a growing set of investors categories and entrepreneurs that are
willing and able to create both social and financial value.
Keywords:
Entrepreneurship, Impact Capital, Venture Capital, Venture Philanthropy, Sustainable
Development, Policy maker.

2. 2
Introduction and Literature Review
This research aims at understanding how policy makers and public institutions can interact
with traditional investors in order to design regulations and innovative investments funds. The
scope of these instruments is to encourage impact entrepreneurs to start up sustainable
businesses focused on finding solutions in order to face needs and problems affecting society.
According to the most recent literature, impact investing has the potential to unlock
significant sums of private investment capital to complement public resources and
philanthropy in addressing global challenges (Bugg-Levine A., 2013; Clark C., Emerson J.,
Thornley B, 2013; Clark C., Kleissner L., 2013, Johnson K., Lee H., 2013; Saltuk Y., 2011;
JP Morgan Report, 2010). Studies and reports published by The Global Impact Investing
Network have been taken into consideration as well (www.thegiin.org). Impact investments
are identified as investments made into companies, organizations, and funds with the intention
of generating social and environmental impact alongside a financial return (Saltuk Y., Bouri
A., Mudaliar A., Pease M., 2013; O’Donohoe N., Leijonhufvud C., Saltuk Y. 2010; Bugg-
Levine A., Emerson J. 2011, Rangan V.K., Appleby S., Moon L. 2011). Both public capital
and private capital converge in impact investing as well as venture philanthropy organizations
are doing (Kohn H., Karamchandani A., Katz R., 2012, Thornley B., Wood D., Grace K.,
Sullivant S. 2011). Venture philanthropy organizations are also innovating their approach to
investing in both profit and non-profit entities, providing them with both financial and
nonfinancial support in order to increase their societal impact (EVPA Publication 2012).
Nowadays, the venture philanthropy approach includes the use of the entire spectrum of
financing instruments (grants, equity, debt, etc.) and pays particular attention to the ultimate
objective of achieving societal impact (OECD Development Centre, 2014; Balbo L, Mortell
D, Ostlander P, 2008; Cummings Metz A., Hehenberger L., 2010). Impact investments are
carried out mainly by impact capital funds, but both venture philanthropy organizations and
profit driven venture capital are increasingly committed to investments focused on social and
environmental impact (Saltuk Y. 2011; Richter K. H., 2011). Impact capital funds are
operating with the same technical features of venture capital ones, providing professional
equity co-invested with the entrepreneur to fund an early stage venture, and providing seed or
start-up financing (Black B., Gilson R., 1998; Bygrave W.D., Timmons J.A. 1992). The key
characteristics of venture philanthropy funds as well as venture capital and impact capital
funds are high engagement, tailored financing, multi-year support, non-financial support,
involvement of networks, organizational capacity building and performance measurement
(Buckland L., Hehenberger L., Hay M., 2013; Grossman A., Appleby S., Reimers C., 2013).

3. 3
Venture philanthropy, impact capital and venture capital funds differ in terms of priority
given to social return and financial return. While venture capital funds are exclusively focused
on financial return, impact capital funds are committed to impact investments (Credit Suisse,
2012; Morino M., 2012). These investments may generate a financial return, but the societal
impact comes first. It is a so-called impact first strategy. Grant funding carried out by venture
philanthropy funds, on the other hand, involves the provision of non-repayable donations to
the social purpose organization supported. This is the case of an impact only strategy
(Grossman A., Appleby S., Reimers C., 2013; Credit Suisse and the Schwab Foundation for
Social Entrepreneurship, 2012; Godeke S., Pomares R., 2009).
Literature related to venture capital industry development has also been taken into
consideration (Black and Gilson, 1998; Gompers P., Lerner J., 1998, 1999; Gilson 2003;
Landstroem H, 2007). Furthermore, the paper is carried out based on potential lessons learned
from other countries in setting up venture capital instruments focused on developing a
specific region or industry [Israel (Avnimelech 2008; Avnimelech and Teubal 2003; 2004a;
2004b;), Germany (Becker and Hellmann 2005), Italy (Finlombarda 2002, 2003)] drawing
important conclusions for emerging countries. Previous work has stressed the importance of a
proper policy framework and supporting programs for fostering venture capital industry
development (Avnimelech 2008; OECD 2000, 2004, 2006; Saltini 2006, 2013; Bottazzi L.,
Da Rin M., Hellmann T., 2008). However, this paper does not address the literature and the
theoretical papers dealing with the venture capital industry but focuses instead on the
interrelation that exists with the impact investing prospective. The results and contribution
offered are strongly driven from the empirical analyses carried out in the selected countries of
the Mediterranean Region and Europe.
Methodology and Objectives
The considerations reported are based on the experience of special funds set up in a number of
countries putting together both public and private resources. Information has been collected
also looking at European investments funds investing in the Mediterranean region, i.e.,
countries around the Mediterranean Sea with the inclusion of Jordan. Moreover, empirical
country analyses have been carried out in the following countries: Egypt, Jordan, Tunisia,
Palestine, and Israel. Five junior researchers spent time over three years (November 2006,
February 2010) along with a senior researcher (from 2006 until 2013) meeting key
stakeholders, grouped in the three main categories: investors and fund managers;
entrepreneurs and industry associations; and officers of public institutions and international
organizations.

4. 4
The empirical research was supported and carried out in collaboration with the United
Nations Industrial Development Organization (UNIDO) field offices in Cairo, Tunis and
Amman and from the headquarter based in Vienna. Empirical analysis was also carried out in
the Lombardy Region of Italy, interacting particularly with policy makers, investors and
philanthropists.
The following categories of actors were interviewed and proposals drawn with their support:
regional investors, incubators, accelerators and technology parks, entrepreneurs from investee
companies, investors, philanthropists, officers from public institutions and international
organizations (multilateral organizations for development – MODs, development financial
institutions DFIs). International regional conferences in Dubai, London, Bethlehem, Tel Aviv,
Amman and Milan, in the period 2006-2010, were also attended and proved to be useful for
collecting significant information, and data and feedback from stakeholders.
Country empirical analyses have also been carried out spending long periods in the field
researching in close cooperation and getting engaged with local and international stakeholders
networks (Saltini 2006; 2009a; 2009b; 2010; 2013).
The first objective of this paper is to summarize, proposing a phased consequential plan,
priorities to be carried out by policy makers in order to catalyze impact capital for impact
entrepreneurship. The plan presents consequential activities to be implemented by policy
makers, instruments to set in place and actors to get involved.
The second objective is to outline different structures of impact capital funds that aim at
leveraging resources from different partners, investing both private and public capital.
Consistently, the paper aims at drawing policy-makers attention to the emerging markets of
the Mediterranean region as well sharing practical input to plan potential cross-border
initiatives. Priorities and fund structures outlined have been developed using case studies,
literature reviews and empirical analyses carried out at country level in the Mediterranean
region.
The paper underlines the importance of coordination among different stakeholders to set up
the right policy to create preliminary conditions for launching innovative financial
instruments and investment models for sound and sustainable development affecting
positively environment and society. Several impact capital actors' categories need to act
simultaneously in setting up innovative funds willing and able to ensure a positive and
effective impact.
Considerable research remains to be done on impact investing policy and on practical
investment schemes that can be set up, also with governments’ contributions, to catalyze
impact investors.

5. 5
A Plan for Policy makers to Foster Impact Investing
Governments setting proper policies play a crucial role for directing potential investors
(public national and multilateral institutions, investment funds, foundations, individuals) into
investments which have a social and environmental impact. The role a government chooses to
play may be as a direct participant as co-investors in the market, or influencing through
regulations (Thornley B., Wood D., Grace K., Sullivant S. 2011).
Policy makers must play an important role to ensure impact financing for impact
entrepreneurship. A complete set of policies must be set in place geared toward the local and
regional conditions that continuously enable the following of changes in circumstances and
market evolution (Gompers P., Lerner J., 1998, 1999, 2001). Programs should focus on
confronting specific country system failures and aim at leveraging positive conditions present
in the local context. A critical factor is policy makers’ capabilities that should be able to set
priorities and translate them into programs and policies. Hence assembling skilled teams of
policy makers, academic experts, and specialized professionals, is mandatory in order to
design the appropriate policy to catalyse impact financing (Rangan V.K., Appleby S., Moon
L. (2011). To create a venture capital industry significant efforts and coordination among
different actors are required (Gilson R.2003). As learned from empirical analyses, two critical
factors must drive policy maker attention: long-term timing and strategic markets
development. Policies that support impact investing aim at creating investment ecosystems
with a long-term prospective. Public resources must be committed to develop strategic
markets and industrial sectors, so leading other sources of private capital, coming
spontaneously while protected by policy objective.
Policy makers must pay attention to allow preliminary conditions to emerge in order to
catalyse impact capital investors and afterwards they must design regulations and invest
public resources to start up and foster the beginning phase. Past successful experiences, and
failures of European and American policy makers attempting to set up the venture capital
funds to foster high-tech industry during the 80s and 90s, help to understand how important it
is to create a positive environment (Becker R., Hellmann T., 2005; Florida R. and Smith D.F.,
1993).
The design of a comprehensive policy framework represents a key issue for setting up a new
impact capital industry, particularly for countries where social problems are spreading and
where political turmoil is a threat. Empirical analyses carried out in the Mediterranean region
confirm the importance of the government role to design good policy (Saltini 2006, 2009a,
2009b, 2010).

6. 6
The Israeli and some European country experiences, both successful and unsuccessful, also
support this evidence (Avnimelech 2008; Avnimelech and Teubal 2004a, 2004b; Finlombarda
2002, 2003; OECD 2000, 2004, 2006).
A phased plan is here proposed to foster impact investing for impact entrepreneurship,
particularly in emerging markets. Key players (such as government bodies, development
financial institutions, multilateral development organizations, universities, R&D centres,
multinational enterprises, philanthropic funds and NGOs as well as private investors) need to
act simultaneously in setting up special programs and policies to encourage the emergence of
impact capital funds aiming at improving economic development ensuring positive impact on
society.
A long-term economic development strategy should be adopted in order to phase the
emergence, the beginning and the development of the impact capital industry in a
specific region or country. Governments play a special role throughout the three-phased
approach proposed. The policy makers can either influence impact capital development or
play a direct role directing capital and participating with different level of involvement in
setting up supporting programs and impact funds.
Governments along with universities and, in emerging markets as well, multilateral
organizations for development and NGOs, have a significant role in pursuing the preliminary
objectives of the emergence phase. Economic stability, reached through a sound investments
policy framework, is a key factor to catalyse investors. However, impact capital, both from
the investors and entrepreneurs side, is a people-intensive business. Technical assistance is
crucial, improving training offer and cultural awareness, and is a way to contribute to the
development of impact business models (Bugg-Levine A., 2013). Conditions to generate
impact and make a contribution are always to be able to learned, as well as investment
passion and creativity in solving problems. In this phase, it is important to improve the ability
to take the initiative, and to foster the desire, particularly in the young generations, to do
business to find effective solutions.
To pursue and reach economic sustainability it is necessary to move away from the logic of
exploitation and short-term financial speculation. It is necessary to create new financial
entities that work with new spirit to developed long-term strategies, creating value innovating
products and optimizing production through process innovations.

7. 7
In the beginning phase, the first objective is to support impact entrepreneurs to design and
validate business models (Kohn H., Karamchandani A., Katz R., 2012). Extremely
challenging but particularly relevant in emerging markets is to focus upon supporting R&D
activities, the enhancement of innovation capabilities, and the stimulation of entrepreneurship
culture. Therefore, governments should commit resources to enhance R&D programs and
projects, in order to create new products and services for launching innovative impact
businesses and for innovating traditional industries as well. A second objective must be to
design policies directing capital more toward impact opportunities (Thornley B., Wood D.,
Grace K., Sullivant S. 2011). This can happen by launching supporting programs and pilot
funds, coordinating public and private capital, invested with the principal aim of generating
other impact funds. In this phase, key actors are the impact investors, both impact first and
financial first investors (Monitor Institute, 2009; Richter K. H., 2011). Coordinating actors
and integrating the different investing instruments is also crucial to ensure long-term
sustainability for both impact entrepreneurs and impact funds investing in small and growing
businesses.
In the development and consolidation phase it is important to launch a different typology of
impact funds and to elaborate policy to foster their stability and capacity to implement long-
term investment strategies. Attention must be paid to assure both social and financial return
and to design a methodology to measure them. The design of proper development policies can
increase the amount of impact capital. Policies dealing with investments rules and policies
that provide co-investment increase the supply of impact investing capital by catalysing
private investors, through risk sharing with governments (Kohler J, Kreiner T, Sawhney J,
2011). When an equity investor is investing in small risky businesses, the involvement in the
business development process of capacity development organizations, such as NGOs, MODs,
DFIs or any other technical assistance organizations with specific industry expertise, is also
appreciated.
In order to improve the exit opportunities for investors, policy makers must regulate properly
also the merger and acquisitions market, in particular by improving transparency and financial
information credibility (Hill K. 2007).
During the consolidation phase crises can arise. In this case, priority should be given to
assuring a minimum level of activity in start-ups, targeting innovation. During critical times
government involvement and forms of direct financial support can be a determining factor in
the industry’s survival and therefore help to overcome the crisis and reach a stronger
consolidation status (Gilson R. 2003; Karaomerlioglu D.C., Jacobsson S. 2000).

8. 8
PHASE 1 – EMERGENCE
Objectives Activities Actors involved Instruments
Good Governance and
Economic Stability
Ensuring economic stability, setting up investment
regulations, labour and contract laws, taxes, regulations,
intellectual property system, and policy for innovation.
Governments Policy framework
Human Capital Promoting entrepreneurial culture and increasing
awareness of innovative financial instruments for impact.
Fostering passion and creativity in solving problems.
The educational system needs to be improved and the
linkage tightened between research and industry.
Governments,
Universities,
MODs,
NGOs.
Trainings, courses,
Scholarships,
Executive
Programs.
Capacity Building Facilitating understanding about the value of looking for
“impact” as entrepreneurs and as investors.
Campaigns and training to stimulate awareness and
demand for impact.
Networking to share success stories and failures.
Governments
Universities
Students
Entrepreneurs
Investors
Summer Schools,
trainings, courses
Research and
publications.
Events.
PHASE 2 – BEGINNING
Objectives Activities Actors involved Instruments
Design and Validate
Business Model
Designing and setting up training and coaching to turn
business ideas into business models, business models into
business plans.
Subsidize supporting programs to get civil society
stakeholders involved.
Improving programs and projects to create a suitable
environment for R&D, innovation and technology applied
to impact business model and in traditional sectors as well.
Grant programs for impact start-ups.
Promoting business incubator and tech park for impact.
Governments,
Impact
Entrepreneurs
NGOs
Business Angels
MODs
Grants
Supporting
programs,
Mentoring
programs,
Incubator,
Tech park.
Directing Capital Subsidize supporting programs investing public resources
Co-investments.
Supporting programs financed by public and private capital
with the ultimate goal of fostering focus on impact.
Introducing tax relief to support impact investors and
technology transfer for impact business model.
Improving regulations to better frame funds structures and
operations.
Setting up impact funds coordinating government direct
participation and private capital.
Governments,
Venture
Philanthropy
Org.,
Foundations,
Individuals,
DFIs.
Supporting
Programs,
Guarantees,
Tax Incentives,
Pilot IMPACT
FUNDS
Setting up special funds as pilot initiatives to develop
strategic markets and industries.
Networking and
Coordination
Improving investors’ attitude and mind-set toward impact
investing.
Foster networking and partnerships among private and
public actors in order to widen spectrum of exits.
Supporting the establishment of a national impact
investors/actors association. Bridging the gap between
investors and entrepreneurs.
Encourage investors and managers to be committed to
impact capital mission and values.
Promote good practices to catalyse national and
international impact investors.
Governments,
Impact
Entrepreneurs,
Impact investors,
Ind. Associations
DFIs, MODs.
National and
Promotional
impact actors
committees
Roundtables
Conferences

9. 9
PHASE 3 – DEVELOPMENT & CONSOLIDATION
Objectives Activities Actors involved Instruments
Social Return
&
Financial Return
Promoting multiple use of investing instruments.
Consolidate and enrich policy framework increasing the
number of public and private co-investment funds.
Promote good practices to catalyse national and
international impact investors.
Scale impact funds scheme of success.
Scale impact business model of success.
Assisting target companies to improve internal capacities
and offering managers and entrepreneurs strategic advice
to ensure both social and financial impact.
Impact
Entrepreneurs,
Local and
international
impact investors.
IMPACT FUNDS
(soft loan, quasi-
equity, equity)
M&A Market Creating the emergence of conditions for alternative exit
opportunities for impact investors, supporting
consolidation and facilitating M&A operations.
Improving transparency of market information and
financial information credibility.
Governments,
Investors
Networks,
Industry
Associations.
Regulations
Information
Sharing
Corporate
Governance
Source: own elaboration
DFIs – Development Financial Institutions
MODs – Multilateral Organizations for Development
MNEs – Multinational Enterprises
NGOs – Non-Governmental Organizations
The overall objective of the proposed phased plan for policy makers to foster impact
capital for impact entrepreneurship is to improve access to financial resources and catalyse
impact financing. Impact entrepreneurs must be supported to get access to grants as well to
debt and equity instruments. They must also be helped to understand if and when they need
capital, as well as to understand terms for transition from one form of source of financing to
another.
What appears to be crucial is that policies and programs should not create dependence on aid
and grants, from private philanthropy and government programs. In the long term, any
business, whether social or profit focused, should be scaled and provide returns to its
investors.
Impact Funds, between Public and Private
Government institutions, along with development financial institutions, multilateral
development organizations and NGOs, can facilitate the setting up of innovative impact
capital funds, with participation by both private and public capital. These funds are the key
instruments of the development phase of the proposed plan for policy makers. However,
actors’ awareness must be pursued during the emergence phase. Different actors must be
brought together in order to design common strategies, draft regulations and commit
resources.

10. 10
Impact capital funds, leveraging public and private capital, must be launched during the
beginning phase. Impact funds, which leverage public and private resources and know-how,
must have a well-focused mission to invest in industries that are crucial for the country’s
development and should also be geared to develop depressed strategic sectors. These
instruments thus have the final goal of setting up new companies and supporting growth of
micro-small enterprises operating in underdeveloped regions. Different funds should be set up
according to geography, industry, human capital group (youth, women, etc.), and country
priorities (Kohler J, Kreiner T, Sawhney J, 2011; Godeke S., Pomares R., 2009).Therefore,
public capital can be crucial to encourage and catalyse both local and international investors
as well as to bring in technical and financial expertise. Public actors can reduce the risk of
investing for impact, not only in depressed regions and in rational industries with steady
growth, but also in the beginning phase of the impact industry development. This phase is still
characterized by an incomplete policy framework and by the absence of certain investors’
categories, actors’ know-how and financial instruments in the market. The public actor acts as
a catalyst for first-time impact capital investors, creating the conditions and confidence for
subsequent operations through demonstration effects (Bouri A., Mudaliar A., GIIN, 2013).
Public involvement to foster the development of a new impact capital industry is desired but it
is important to recall that the government as facilitator and investor should have the ultimate
goal of creating self-sustainable markets rather than creating conditions for dependency. After
target goal achievement, public actors are expected to timely remove their presence.
Pressuring governments to take action as facilitators and investors also presents considerable
risk, as this involvement could become too intrusive, thereby stifling real development. Risk
of distortions is high and must be avoided. With particular reference to experiences analyzed
in Israel, Italy, Germany and Turkey (EIF 2011; Avnimelech G., M. Teubal 2003;
Finlombarda 2002, 2003; Becker R., Hellmann T., 2005) as well as with reference to the
empirical analysis carried out in the Mediterranean region, funds schemes are proposed to be
developed by mutual involvement of public and private players. Funds structures proposed
should be properly adapted to address country and region specific weaknesses and challenges.
Public-private, fund of funds
A fund of funds can be set up as a national, international, and public-private partnership. A
fund of funds is considered in this paper as a co-investor in other impact capital funds. The
fund may also use part of the capital allotment to directly invest and co-invest in enterprises
(Ramsinghani M., 2011; Strachman D. A., 2009; Bygrave W.D., Timmons J.A., 1992).

11. 11
Private Investors
Fund of Funds
Company
Government / DFIs
Impact Fund
Impact Fund
Impact Fund
Company
Company
Company
Direct Investments
Direct Investments
Public-private fund of funds is a financial tool that has been used with good incisiveness in
several developed countries, to support venture capital funds focused on seed and early
investment stages. The fund structure proposed refer to Yozma Fund in Israel, to ERP-EIF
Dachfonds and LfA-EIF Facility in Germany, and iVCi in Turkey. (EIF 2011; Avnimelech,
G., M. Teubal, 2004, and Israel Venture Association, www.iva.co.il).
A fund of funds is based on an agreement signed by parties that commit capital to invest in
venture capital whose target is strictly related to the principles and priorities jointly indicated
by the investors involved. Public-private fund of funds represent a good instrument to make
use of public resources due to its multiplying positive effect of mobilizing and directing
private funds to priority areas and strategic industries. This instrument is particularly useful to
boost impact funds to invest in start ups and to help scaling business model with impact. A
fund of funds structure is attractive to institutional investors, as it creates a portfolio approach
that spreads the investment risk. The fund of funds approach also enables the government to
support the growth of the key market and industry without distorting or competing with other
investors categories active in the country.
Figure 1. Public private, fund of funds.
Public actors involved such as the ministry of industry, universities, research institutions, etc.)
co-invest in private initiatives. The public actor in charge underwrites shares of fund of funds’
capital (share A) together with public and private institutional investors (share B).
The fund regulations establish ex ante that the public actor in charge underwrites shares of the
fund that have different rights than the shares underwritten by institutional investors and by
other private investors that invest in daughter funds in which the fund of funds co-invests.
Shares A have a limitation on the maximum return in terms of IRR (Internal Rate of Return).
A development financial institution can also act as co-investor in a fund of funds instead of
the government and thereby represents the public interest in the partnership.

12. 12
Capital Guaranteed
Impact Fund
Investors
Guarantee
Capital
Guarantee Fee
Profit Participation
Capital
Impact Fund
Regional Focus
Company
Impact Fund
Industry Focus
Company Company Company
Guarantor
Company
Direct Investments
Capital guaranteed impact fund
A capital guaranteed impact fund is an equity fund set up for raising private capital through a
management company, whereby the capital is guaranteed by a public entity (ministry, central
bank, development agencies in case of emerging markets and development countries, etc.).
The guarantor works adjacent to an impact fund, encouraging private investors investing
either in other impact funds with a regional or industry focus or investing directly in impact
enterprises, reducing the risk of losing the invested capital. The fund is managed by
independent qualified managers and financed with private capital. The investments are
guaranteed by a public entity, which has as its objective the increasing development of new,
promising micro and small impact enterprises and strategic industries.
The fund firms and their managers are requested to follow specific guidelines dictated by the
governments or related public institutions. So, the funds are provided to foster all those sector
and economic activities that are considered priority objectives.
Figure 2. Capital guaranteed impact fund.
The impact fund is guaranteed by a governmental institution (guarantor) committing itself to
repurchase a percentage of the participation (net of dividends) if the value of the latter, after a
certain period of time (7-10 years) is evaluated lower than the original investment on the basis
of predefined mechanisms. Acting as guarantor, the public actor can foster sustainable
development without an immediate disbursement. The public actor will receive a guarantee
fee from the fund and it will benefit from profit sharing. Furthermore, it will play an active
role appointing some board members and exercising a veto right for investments exceeding a
pre-established amount. Reducing the risk to invest on small business model focus on impact
solutions, the guarantor spurs investors and so catalyzes local and foreign capital resources.

13. 13
Government
Company
IMPACT FUND
Company Company
MOD
UN agencies/NGOs
Capital Advisor/Grant
Indipendent Management
Investors
Capital
Three partners impact fund
The proposed scheme should be consist of three partners: government or international public
institution such as a regional development financial institution, private investors and
multilateral development organizations or non-governmental organizations. The use of a three
partners impact fund is a recommended structure for developing countries with high risk
factors and where the financial system is weak.
Figure 3. Public private, fund of funds.
In the proposed scheme, government plays an active role as investor and in controlling the
impact capital fund. Nevertheless, an independent and reputable management team must run
the fund. Management is the key factor for any successful venture capital firm and
particularly for an initiative driven by public money (Bygrave W.D., Timmons J.A., 1992;
Gompers P., Lerner J., 1998).
A crucial role in setting up an impact fund, where the government is leading as investor, can
be played by a third partner, represented by a multilateral development organization or by a
non-governmental organization.
This category of actors, usually due to internal regulation constraints, cannot act as investors
but only as facilitators investing grants capital.
Multilateral organizations for development, such as UN agencies and international NGOs, are
willing to sustain government driven initiatives for industrial development. These
stakeholders can therefore play an important role in the reduction of agency administrative
costs, which are higher than usual when the impact fund is committed to invest in micro and
small businesses. Intensive mentoring and monitoring activities need to be offered to foster
the numerous companies in the portfolio. As well as making this important contribution, the
benefit would consist in selecting a good flow of deals, by pointing out type and size of
promising suitable investors.

14. 14
NATION 1
CapitalCapital
Company
Impact Fund
Industry Focus
Company Company Company
NATION 2
An international and reputable actor, such as a UN agency, is a significant plus in securing the
new fund nature and for highlighting the strong idealism for development of the institutional
public investor which will commit financial public resources.
Bi-national Fund
A bi-national fund is established when two nations pledge a predetermined sum for the pursuit
of common objectives. A direct participation of public institutions or ministries is foreseen.
An agreement which defines the content of the project, its objectives, and activities to be
carried out, is jointly prepared by the authorities and officers involved.
Figure 4. Bi-national Fund.
A similar initiative can be also be promoted by other parties, especially those preferably
belonging to a specific region with common development objectives and where businesses
and political interaction positively characterize country relations. A board of directors is
appointed by the two governments, and is independent in its decision-making.
The bi-national fund represents a good instrument to streamline R&D projects, as well as to
foster knowledge and capabilities sharing. This instrument has been specifically used by the
Israeli government in the last few decades to consolidate relationships with historical friendly
nations such as U.S. and Canada, as well as to explore new possibilities with nations such as
Korea and Singapore.
For emerging countries, this instrument could represent a concrete support to improve overall
economic and trade relations within key country partners. A bi-national fund is a good vehicle
to favor synergies between companies from the two nations and facilitate technology transfer.
Results and Contributions
The paper proposes a phased plan for policy makers in order to encourage long-term and
strategic planning to foster impact capital for impact entrepreneurship.

15. 15
Concrete impact capital schemes bringing together public and private actors were also
elaborated and recommended to catalyse new resources.
The first empirical confirmation, coming from experiences and information collected in the
field, is about the importance of bringing together social impact and financial return. These
two factors are crucial for personal, corporate and society success.
Policy and investment strategy cannot be geared only toward the good of either the individual
or a single community, but indeed to the common good for the entire collectivity. Policy
makers have a key role in influencing stakeholders through laws and regulations set up to
catalyse impact investors and supporting impact entrepreneurs.
The research underlines the fact that governments can provide direct and indirect financial
support fostering investments in low-income communities and toward depressed industries
and markets. When private capital seeks social and environmental benefits, there is an
opportunity for governments to design partnerships and set up innovative funds.
The emergence and development of the impact capital industry will improve the matching
between pure investors and philanthropist, as well as private and public actors.
Pursuing impact is a means, not only to prevent improper exploitation but also a good way to
foster human creativity, industry potentiality and nation development. The paper brings out
the fact that there is a growing set of investors categories and entrepreneurs that are willing
and able to create both social and financial value. Giving importance and attention to the
single person, the future, the environment, and to the importance of giving a contribution for
the “others” around us, have an increasing value for a sound business development. The
intention to generate impact must not be considered incompatible with the effective capacity
to generate profit. In the society, challenges and needs are changing, but the need of
partnership and to develop long-term strategy as well as need to face the difficulties the new
generation are facing is consistent.
The paper proposes practical action at policy level and concrete investment schemes that can
enable countries to become more competitive in attracting investments, overcoming barriers
and maximising the impact of both local and international investors.
The research clarifies the importance of bringing all actors categories closer to working for
impact. Players that play a key role are not only investors and entrepreneurs, but also all those
stakeholders that can facilitate operations and preliminary conditions emergence such as
governments, multilateral organizations for development, development financial institutions,
universities, industry associations and specialized professionals.

16. 16
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