On a mission to get funds: the demand for venture capital of impact oriented ventures

This working paper examines the demand side of impact oriented ventures’ financing for two key sources of equity: Traditional (TVC) and Social Impact Venture Capital (SIVC). Because of their dual mission to generate social or environmental impact alongside financial returns, we posit that impact-oriented ventures have stronger need for external financing. However, they might refrain to associate with investors who do not share their intention to generate impact, such as TVC, fearing mission drift. Instead, that impact-oriented ventures might prefer investors who also share impact objectives, such as SIVC. To test our hypotheses, we conduct a survey on European start-ups, collecting valid responses from 946 ventures—35.1% of which are impact oriented. Preliminary results indicate that impact oriented ventures exhibit higher overall needs for external finance compared to their commercial counterparts, and they have a strong preference for SIVC rather than TVC financing. Our results shed new light on the results of previous studies that found that impact-oriented ventures are less likely to secure TVC: it is not only because of a lower attractivity of these companies towards TVCs, but also because of a lower demand.