Don’t Let Your Impact Exit When You Do

In 2012, a small Mexican company called Natgas launched with the mission to increase vehicular natural gas use across the country. Its founder, Josue Hernandez, aimed to convert public buses and taxicabs to natural gas, and develop and operate a network of natural gas fueling stations. Hernandez recognised the benefits of natural gas: it is up to 40% less environmentally harmful than traditional gasoline, and provides up to 55% savings for customers. Fast forward two years. To help grow its operations, Natgas received a combined mezzanine loan and equity investment from Adobe Capital, a fund manager focused on impactful early-stage enterprises in Latin America. For Adobe, investing in Natgas provided an excellent opportunity to generate positive environmental and social impact.
In 2017, Adobe exited Natgas having achieved financial returns of 22% IRR and helped Natgas convert 2,500 vehicles and reduce CO2 emissions by 136 tons. Adobe provides an excellent example of how impact investors – that is, investors seeking social and environmental impact alongside financial returns – can exit in a timely way that meets liquidity objectives while also ensuring sustainable impact.
More than 80% of impact investors believe that they have a responsibility to try to ensure continuity of impact after exit. In other words, impact investors must consider how to exit in a way that does not jeopardise the positive impact they’ve catalysed and the business’s future impact trajectory.
A new report from the Global Impact Investing Network (GIIN), Lasting Impact: The Need for Responsible Exits, explores how impact investors like Adobe, and the 30 others interviewed for this research, are making this happen.
One way to ensure impact after exiting an investment is by deliberately seeking investment opportunities where the company founder is dedicated to a social or environmental mission, or where impact is embedded in their business model. Other strategies include planning for responsible exits by including clauses on impact in legal documents and investing with mission-aligned co-investors. Investors can also structure investments to best serve the needs of the company and support its ability to create impact; for example, Adobe’s mezzanine financing tied repayment to Natgas’ revenues, allowing the investor to benefit from strong performance while enabling the company to adapt payments to the variable cash inflows of a small and growing business. Some investors also work with management to instill positive governance practices that will be sustained beyond the life of the investment. Most seek to exit at a time when the business is best prepared for sustained success, and select buyers that can help maintain the company’s positive impact. Investors attempt to mitigate risks to impact continuity not just at exit, but throughout all stages of the investment life cycle.Balancing impact goals with liquidity requirements is a central consideration for impact investors. Impact investors consistently cite “a lack of suitable exit options” as a top challenge, according to the GIIN’s last three Annual Investor Surveys. We hope this new report will help investors consider proven strategies for exit, and avoid risks to impact continuity post-exit.
Back to the story of Natgas and Adobe. Adobe Capital planned for a responsible exit from the beginning: it structured its investment with mezzanine financing, which it believed would best enable Natgas to grow sustainably. It also invested alongside another investor that shared its social and environmental mission.

Impact investors consistently cite “a lack of suitable exit options” as a top challenge

Adobe Capital considered exiting once Natgas was at a stable stage in its growth, and where it would benefit from capital and resources beyond what Adobe could provide. The buyer that Adobe sold its shares to was aligned with Natgas’ mission and well-equipped to help the company scale its operations and pursue its mission.
For impact investors, impact does not end at exit. They are motivated to avoid potential risks to the impact of their investee companies by working to exit responsibly. They know that a responsible exit can amplify their impact by setting up their investee company to continue benefitting communities or the environment for years to come.
We must recognise, however, the reality that the amount of available capital tackling urgent social and environmental problems – such as poverty, gender inequality, or climate change – is nowhere near matching the scale of the needs of people and the planet. Much more investment capital is needed, now. We must work even harder to overcome barriers to investment, especially the complexities around exit options.
To that end, the GIIN urges impact investors to consider the full range of effective exit strategies available and to explore whether deploying some of these options could further strengthen your ability to balance both liquidity and sustainable impact objectives.
For investors not yet engaged in impact investing, we hope this report will increase your confidence about exit options, provide tangible strategies for managing the process, and inspire you to begin putting your capital to work with impact investments.

Abhilash Mudaliar has been Director of Research at The Global Impact Investing Network for more than five years, where he seeks to grow the evidence base for impact investing and conduct research into making impact investments more effective.