Why can’t impact investors love money?

Impact investing sits in a sometimes-uneasy space between capitalism and altruism. But what if impact investors more openly celebrated financial returns, or admitted this was a priority for them? Kylie Frazer, founding partner at Flying Fox Ventures, challenges this, asking: “Why can’t impact investors love money?”

Impact investing is about directing capital toward ventures that generate measurable social or environmental benefits alongside financial returns.

But the tension often lies in how those priorities are balanced.

The sector has grown rapidly, with approaches ranging from institutional ESG (Environmental, social, and governance) strategies to private equity investments.

For some, impact investing still carries a perception of being ‘softer’ or less rigorous than traditional investing. Others see it as a tool to address urgent challenges like climate change, inequality, and global health.

Impact vs returns

Frazer, alongside Sally Hill, the general manager of Tripple, appeared on a panel at Assembly 2024: A VC Catalyst Conference in Melbourne this week, which was run by The Wade Institute and LaunchVic. 

The discussion firmly centered on impact investing and explored whether purpose and profitability need to be inherently at odds.

Frazer made the case that a more pragmatic, profit-driven approach to impact investing isn’t a bad thing, owning the fact that she prioritises returns.

“I come at it from a more economic and capitalist lens, rather than just an impact lens,” Frazer said.

“I believe that the biggest financial opportunities stem from some of the biggest societal challenges that we face. We need to solve some of these big challenges, climate change, for example, but that excites me because I see the dollar signs.”

Frazer’s perspective also acknowledges the role of narrative in impact investing. She admits that part of her role is knowing how to sell the story.

“It just depends on how you define impact. To me, impact and purpose are linked quite closely. As long as the impact that you’re unlocking is connected to a purpose that’s meaningful to you, then, in my book, that’s impact,” Frazer said

“I’m not an expert in the other end of stuff, but in terms of how to spin an impact story… I’m your girl.”

The impact of Heaps Normal

Flying Fox’s investment in the popular non-alcoholic beer brand Heaps Normal was highlighted as an example.

Heaps Normal has been driven by wanting to change drinking culture, with its co-founder saying it “cannon-balled” into the purpose pool when launching.

And it took off. Back in 2021, it raised $8.5 million in Series A. Since then, it has become a staple in Australian bars and pubs.

But Flying Fox’s investment decision wasn’t based primarily on societal good. Instead, it was driven by the hard-nosed business fundamentals that make Heaps Normal a standout player in a fast-growing market.

“We believed in the growth of a new category. We believed the beer tasted good. We believed that the founders knew how to sell, and we believed that they had cornered distribution in a novel way, in an industry that is very heavy with newcomers having disproportionate distribution strength,” Frazer explained.

As a kicker, Flying Fox loved that Heaps Normal wouldn’t be hit with WET tax – the 29% levy imposed on wine, sake, and other beverages containing more than 1.15% ethyl alcohol by volume.

Hill also praised Heaps Normal and the way it has helped shift the drinking culture in Australia. But for Frazer, that was an added extra.

“Sure, it’s a bonus if non-alcoholic beer becomes more normalised, then there’ll be fewer people suffering the effects of excessive alcohol consumption,” she said.

What impact actually means

Meanwhile, Sally Hill offered a more cautious take on impact investing, urging greater clarity about what qualifies as impactful.

“Purpose is an interesting word. Every single company has a purpose… some have an impact that is harmful,” Hill said.

Hill emphasised the importance of distinguishing between companies with real impact and those simply riding the wave of purpose-driven branding.

“A certain company’s product or impact might not be what the world needs right now.

She went on to explain that Tripple evaluates investments based on measurable, positive outcomes in areas like climate change and inequality.

“We look at it like any other investor would. We’re looking at the market size, we’re looking at the founders, we’re looking at the problem solution,” Hill said.

“But we are also doing an impact assessment on the company as the first hurdle when it comes across our desk.”

Hill also touched on whether impact should be built into a startup’s DNA from the beginning – to give it a positive north star – or focused on later.

She pointed to Canva as an example of the latter – the idea being that as businesses achieve scale they can make a bigger impact.

Does impact investing need a rebrand?

Frazer pointed to the power of blended capital models as a way to tackle large-scale societal challenges. By combining equity, grants, and other funding sources, these models offer the flexibility to support high-risk, high-impact ventures that might not attract traditional venture capital.

“Blended capital lets us solve big problems with the right mix of equity and grants,” Frazer said, citing climate tech as a key sector benefiting from this approach.

This method allows investors to nurture startups through early development phases while still aiming for significant financial returns.
Frazer believes that the impact investing sector is “due for a rebrand.”

The term “impact investing” is often misunderstood, creating the false perception that addressing societal challenges must come at the expense of financial returns.

Instead, perhaps there is a need to reframe the narrative, highlighting how significant financial opportunities can arise from solving some of the world’s most pressing problems.

“It’s a hot time to be in climate tech,” Frazer said, referencing the wave of public sentiment and regulatory shifts driving demand for solutions in sectors like renewable energy, sustainable agriculture, and green transportation. These areas represent not just societal needs but also some of the largest financial opportunities of the next decade.

Never miss a story: sign up to SmartCompany’s free daily newsletter and find our best stories on LinkedIn.