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Why and How To Think About Social Impact Investing In Food

Many food consumers are starting to expect social responsibility from food companies, voting with their dollars to buy products from companies that reflect their values or at least try to minimize harm to the environment and people. Often, to make an informed decision about the social responsibility of the food company, consumers are demanding transparency about ingredients and ingredient sourcing as well as all the environmental and social impacts of and on all of the actors in the supply chain. Many investors are also signaling that they want to align themselves with brands and food companies that act responsibly and in some cases with a specific social impact in mind.

Having investors and consumers in alignment around issues of social impact and responsibility is a great boon for the growing cadre of food entrepreneurs interested in making a difference through their businesses. However, from a business perspective, social impact isn’t as important as having a viable business model. Food entrepreneurs, when speaking to investors, should to clearly communicate the business model of their company, which means talking about how their business will make money and on what time horizon. This doesn’t mean that food entrepreneurs should hide their social mission or desired impact from investors or anyone else, but rather that they should contextualize their social goals as part of the larger business strategy. For example, when discussing business’ competition, if social impact helps the business stand out in their product category, that is important because it provides one point of differentiation that, when combined with other differentiators, can make the company defensibly unique and thus, more financially viable.

Also importantly, food entrepreneurs should define what they mean by “impact.” Traditional business goals like new customer acquisition metrics, profitability, positive cash flow and percent of market share all have defined measurements and presentations. The formula for net income – i.e. profitability – shouldn’t change depending on who the business is talking to, even if the time horizon for profitability is different for different food business models and thus, needs to be emphasized when talking about the model.

Social impact is often a more complex thing to measure, due in part to conflicting definitions and measurement methodologies. For example, a food brand’s claim to “support sustainable farming practices” could mean supporting regenerative agriculture practices regardless of scale. Or, it could mean purchasing directly from small, family farms in the local community. Social impact funders, whether they use grants, loans or equity investments or a combination will want this definition of impact to be as clear as possible. And, they likely will expect the people they fund to report on the social returns of their activities in regular intervals and standard formats, just like the business’ financial returns.

We help our food entrepreneur clients find a way to achieve their desired impact within the context of a viable business model that meets their target consumer’s real or perceived needs and aligns with the goals of their funders. Because food businesses need to be financially sustainable to achieve their goals, including impact goals, understanding their business model and aligning their efforts behind the model is the best way for these businesses to achieve their impact goals. No money, no impact.

And now, our roundup of the best food and beverage finance news, events and resources from around the web…

Food and Beverage Business Models

Business Model Insights

Raising Capital

Raising Capital

Grocery Store Shopping

CPG/National Brands

Grocery Store Produce Section

Market Trends

 Regenerative Agriculture

Farming and AgTech

Mergers and Acquisitions



Industry Events

Categories: Insights Newsletter