Working Paper: NBER ID: w26582
Authors: Brad M. Barber; Adair Morse; Ayako Yasuda
Abstract: We document that investors derive nonpecuniary utility from investing in dual-objective VC funds, thus sacrificing returns. Impact funds earn 4.7 percentage points (ppts) lower IRRs ex post than traditional VC funds. In random utility/willingness-to-pay (WTP) models investors accept 2.5-3.7 ppts lower IRRs ex ante for impact funds. The positive WTP result is robust to fund access rationing and investor heterogeneity in fund expected returns. Development organizations, foundations, financial institutions, public pensions, Europeans, and UNPRI signatories have high WTP. Investors with mission objectives and/or facing political pressure exhibit high WTP; those subject to legal restrictions (e.g., ERISA) exhibit low WTP.
Keywords: impact investing; venture capital; willingness to pay; nonpecuniary benefits
JEL Codes: A13; G11; G23; G24; G41; Z1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| impact fund designation (G23) | investment choices (G11) |
| investors forego expected financial returns (G19) | expectation of impact (D84) |
| WTP for impact characteristic (R41) | IRR for impact funds (G23) |
| political or regulatory pressure (G18) | positive WTP for impact (F69) |
| investor type (G24) | WTP for impact (F69) |