Annarie Lyles got started in impact investing after a midlife crisis. In 2010, overwhelmed by news about environmental issues like climate change and the sixth extinction, she knew she had to do something.
That crisis compelled Annarie to join Rachel’s Network and to experiment with seeding investments in hopeful, early stage companies that prevent pollution and disease, improve energy efficiency, and aid agricultural sustainability. Today, she also serves on the boards of Rachel’s Network, As You Sow, and a local land stewardship organization, as well as leading the governance council of a family enterprise involved in water and environmental contracting.
We asked Annarie what she’s learned during her years as an impact investor.
You’ve been involved in several funder/investor networks like Social Venture Circle (formerly Investor’s Circle) and Rachel’s Network. Why do you think it’s important for funders to work together?
Environmental and social problems are wickedly hard to solve and it’s hard to predict what will work years from now, so I have tried to create a portfolio of bets. Dividing resources across a portfolio, for most of us, means we need to co-fund. Thus, impact making is a team sport. Flocking with people that share passions is downright fun and sustaining during spells of funder fatigue, which are almost inevitable during the years it takes to make change or grow a business.
Investing for impact can be risky, and even riskier for those who don’t know what they are doing. Groups like Social Venture Circle and Rachel’s Network offer educational programming; some have professional sponsors that can bring legal, accounting or other advice to the table. More experienced group members frequently mentor newer ones.
Funder groups also pool diverse expertise for due diligence, notice different issues, divvy-up time-consuming tasks, and help their members invest with more discipline and success. When investors team up, they spare entrepreneurs from repeating due-diligence with each potential investor. This helps founders because time is one of the scarcest start-up resources.
Anonymity is an additional impetus to invest with others. Only a fraction of ventures that seek capital actually get funded. Requests for help from needy entrepreneurs can feel overwhelming. Organized investor groups have processes to accept and screen applications. Members can easily refer interesting deals. Pitches are to the group and, up to the time they write a check, individual members may choose whether to identify themselves. During due-diligence and negotiations, it can be helpful to channel tough and awkward conversations through a less-personal team. After all, most seed-investors don’t want to start out as the “bad guy” in a relationship that could well last a decade.
Do you approach grantmaking and investing differently?
Like effective philanthropists, impact investors often have a problem they want to solve. They support entrepreneurs who intend to generate beneficial outcomes, in addition to jobs and profits. Because seed-investing is high-risk, angel investors typically aim to build a portfolio of at least a dozen deals. They need to be long-term thinkers, willing to wait patiently, perhaps a decade, for financial returns. Fortunately, the psychic returns of positive impact tend to start flowing almost immediately!
What criteria do you use to evaluate a potential project?
This is a topic worthy of whole books and courses! I only look at projects that fit my investment focus on “healthy living systems.” After that, one typically wants to see a great jockey on a good horse, in other words, an excellent team of entrepreneurs with a great idea. Also, I like to co-invest with a trusted colleague who will get involved at the board level, or get involved myself.
You served as president of Investors’ Circle Philadelphia for three years. What did you learn from that experience?
Even though our group might deploy several million dollars in a year, we seldom had the resources to be the sole or lead investor. We needed to network with other investor groups. It is a joy to learn from each other and from the entrepreneurs we try to help.
Rachel’s Network, an organization you serve as a board member, recently divested its reserve fund from fossil fuels. How did that come about?
Rachel’s Network ran webinars and learning circles around impact investing in the 2000s, before this was a big “thing.” Some members helped found the Divest-Invest movement or have100% aligned their foundation investments. Members expressed interest in moving away from dirty banks and funds, at the very least. In 2015, when the organization refreshed its vision, there was a mandate to think more broadly about impact investing.
Rachel’s Network has, through prudent management, built up a modest reserve fund. We first tried moving some of the organizations’ reserves into a fund of public equities that were screened for sustainability. However, the management fees were high and there weren’t attractive fixed income (cash) products. We started looking for other options and eventually decided to partner with Amalgamated’s Aria Funds, which are fossil-free and screen on issues such as inclusion and gender equity. The process of shifting was super interesting in a couple ways:
- Few environmental nonprofits seem to be making this sort of mission-aligned investing shift, perhaps because ideas of what it means to be a financial steward are polarized. Does fiduciary duty mean all assets should be deployed in the service of the mission, including as an activist impact investor, or does prudence mean incurring the lowest fees and highest returns?
- Available investment products for tax-exempt organizations seem mostly aimed at communities of faith. Although environmental groups may not like sin-stocks and bonds, such as guns and tobacco, our focus is on the more globally existential issues of climate change, pollution, and extinctions.
What projects/initiatives are you most excited about right now?
Increasingly, business owners are aspiring to be more of a force for good, and there is a movement to think about stakeholder value rather than narrow investor interests. It is inspiring to to spend time with entrepreneurs via Social Venture Circle. who are trying to design businesses for the greater good,
I’m enamored with the work of groups like As You Sow, which organizes shareholders and fund-holders to help them understand what they own, vote their shares, and engage via shareholder resolutions. When a big business changes a practice, like shifting away from irresponsible use of antibiotics in meat production (a project Rachel’s Network co-funded with As You Sow), it can be tremendously impactful! And, it is fun to engage in one’s rights as an owner.
What advice would you offer to those just getting started in impact investing?
First, take baby steps! Test the waters by moving a small portion of your funds, say 1%. For example, opening an account with a discount brokerage and buying a little bit of stock yourself, is a terrific way to learn.
Second, join a group that shares your interest. Third, find a financial advisor that “gets” you. Or point your current advisor to helpful tools like Invest Your Values by As You Sow – financial advisors work for you and by helping to educate them, you can will make ripples that will help other clients.