Maximizing impact: key lessons learned from our predecessor fund, ESIIF.
by Dr. Markus Freiburg & Christina Moehrle (FASE)
A few weeks ago, a group of investors decided to go against the tide by deciding to become “unapologetically impact-first”. Incubated by The ImPact, a community of high-net-worth families, they raised more than USD 60 million to date to generate “the highest risk-adjusted impact possible, rather than the highest risk-adjusted financial returns”. As a corporation, they say, they have the “flexibility and fluency” to make investments and go after maximum impact. This is a move to be applauded – and it also hits a nerve when we look back at our own impact-first endeavors.
As the initiators of the European Social Innovation and Impact Fund (ESIIF), FASE set out in 2021 to bring a true innovation to the market by creating a closed-end fund that strives to create maximum impact for the European ecosystem. Armed with a guarantee mechanism provided by the European Investment Fund and set up as a passively managed matching fund, we wanted to offer an impact-risk-return profile appetizing enough to mobilize those investors who care most about much-needed social innovation – rather than eyeing (above) market-rate returns. Yet the fundraising, although successful in the end, was painstakingly slow.
Fast forward to 2026, with the ESIIF fully invested, and we’re in the fundraising kitchen again. We don’t have the freedom to cook from a corporate balance sheet like the wealthy group mentioned above. Also, it’s a turbulent ride to create something truly catalytic in times of the “big crunch”, a 30% decline in impact investments, and a shock freeze that quite some players in the impact-first segment seem to suffer from. Still, our successor fund, named “European Catalytic Impact Investing Fund II” (ECIIF II), comes with a highly promising appetite from anchor investors, and some juicy power-ups that we squeezed from our earlier experiences. Curious how our new catalytic recipe works? Here is what we learned:
(1) Don’t underestimate the power of guarantees
They don’t sound like the fanciest and most innovative ingredient, but public guarantees can go a long way to derisk a portfolio and catalyze private sector investment. Again and again, the InvestEU guarantee, provided by the European Union to support the social economy, proved to be anything but boring and a real game-changer in our fundraising discussions. Rightfully so: As witnessed with the predecessor ESIIF, investors can still realize a cash multiple of close to 1x on portfolio companies even if there are write-offs. Having such a risk limit creates a double win: Impact-first actors, such as foundations and family offices, receive clarity on their risk exposure, and the rest of the portfolio companies are under much less pressure to outperform.
(2) Spice up the tools in your impact investing toolbox
With the ESIIF, we initiated the first impact mezzanine funds in Europe powered by this guarantee. And FASE brought many years of experience advising impact ventures on how to cook with mezzanine capital. This may sound unusual in a world where many still think in 3D: equity, debt, or grants. Yet subordinated loans, revenue share agreements, or convertible instruments can be a powerful move on a venture’s growth journey. Just put yourself in the shoes of an entrepreneur: no change in ownership, no exit pressures, and repayments tied to actual revenues? Sounds compelling. From the perspective of fund investors, convertible instruments are also a great opportunity: They allow them to participate in the upside potential of an impact venture. Take (1) and (2) together and you have a recipe for catalytic impact – but there is more to it:
(3) Let the tickets grow so you can grow your upside
Which fund manager doesn’t know how bittersweet it can be when you can’t continue investing in a great impact venture that has performed wonderfully, just because your ticket sizes are too small? Knowing that these ventures will continue to generate great impact is a nice consolation prize, but participating in the upside is so much better. For the ECIIF II, we learned our lesson and built in larger ticket sizes. This will allow us to join follow-on rounds and avoid painful dilution. As a result, our fund investors will be able to witness both impact and financial returns come to fruition and see their patience pay off. What could be tastier?
(4) Make sure to harness the manager’s full expertise
Maybe it was because FASE had never managed a fund before, maybe because we wanted to keep fund costs at a minimum: Back in 2021, we decided to take a passive management approach with our predecessor fund ESIIF and “just” match the terms defined by direct investors in a given portfolio company. A mistake in retrospect? Not at all. It allowed us to learn and evolve and helped us sharpen our understanding of what FASE has to offer.
Today, we are proud to see that the vital fund pipeline came from our work as an impact finance advisor. And we have so much more to offer to the ECIIF II: our full expertise from more than a decade as the leading impact finance advisor across Europe and our unparalleled network of co-investors. For the future of the European social innovation ecosystem, collaboration is the name of the game. Thus, we recently joined forces with Chi Impact Capital to act as investment advisors to the ECIIF II together and combine our highly complementary skillsets for maximum impact.
As Albert Einstein famously said: “The only mistake in life is a lesson not learned”. So if you’d like to discuss how we can transform these lessons to create a thriving impact middle market in Europe, reach out to us!