Do good or make money? Impact investing asks, 'Why not both?'

Do good or make money? Impact investing asks, 'Why not both?'

Korea is seeing a dramatic rise in funding for startups that tackle societal challenges while still delivering competitive returns.

“Can that really make money?”

For years, that was the question facing Lee Ji-su, CEO of Batoners, as she sought funding for her AI sign language technology. Batoners develops technology to reduce communication barriers between people with and without hearing impairments.

“People with hearing impairments make up only about 1 percent of the population, so the market itself is small,” Lee said. “No matter how good the technology is, it has been difficult to secure funding not only from investors but also through government programs.”

That is where impact investing — a type of investing that focuses on social issues — came in.

After receiving funding to support its overseas expansion, Batoners was selected for the Ministry of SMEs and Startups’ Tech Incubator Program for Startups. The company now supplies sign language interpretation and education solutions to metro stations and schools for the deaf in Indonesia. In Canada, the company is developing a sign language interpreter to help people with hearing impairments communicate during hospital visits.

“Impact investing helps fill the early-stage funding gap so companies can develop technologies that society needs,” Lee said.

Impact investing is neither a donation made without expecting anything in return nor an investment focused solely on maximizing profits. The goal is to solve social problems while also generating financial returns and measuring social impact.

“Even if another investment could generate a 5 percent return, an impact investor may be satisfied with 2 to 3 percent if the investment also creates social value,” Park Chang-gyun, a senior research fellow at the Korea Capital Market Institute (KCMI), said.

The number of impact funds in Korea rose from seven in 2004 to 301 in 2024, according to the KCMI on Monday.

Assets under management by those funds surged more than 66-fold over the same 20-year period, from 100 billion won ($74 million) to 6.65 trillion won.

The same trend is playing out globally: The worldwide impact investing market expanded from about $60 billion in 2014 to $418 billion in 2024, a nearly sevenfold jump in just a decade, according to the Global Impact Investing Network.

The growing pool of impact capital is also flowing into areas that conventional investors have often overlooked because the markets are small or commercialization is difficult.

One example is Kim Seong-yeol, CEO of Physiorobotics, who spent more than a decade researching scoliosis rehabilitation technology at university hospitals and universities. After receiving impact investment earlier this year, the company expanded into AI rehabilitation robots.

“I didn’t start this company to chase money,” Kim said. “I believed someone had to do this. What is the point of years of research if you can’t actually make the technology and get it to the patients who need it?”

Impact investing does not necessarily mean earning less.

Impact funds set benchmark return targets more than 1 percentage point below those of conventional funds. However, there was no clear difference in actual investment performance among funds that had already been liquidated, according to an analysis by KCMI.

The internal rate of return (IRR) calculated by Qnesty, a nonprofit impact investment and startup acceleration organization, for the 89 companies it had invested in through the first quarter of this year stood at 15.6 percent. The average IRR for all venture funds that completed both investment and exits last year was 7.5 percent, according to the SME Ministry.

“Impact investing is not simply about putting money into vaguely ‘good’ companies,” Lee Soon-yeol, CEO of Qnesty, said. “To solve the root of a problem, [the companies] have to become a viable business. If the business cannot grow, it cannot continue solving the problem.”

SeedN, a company that makes temperature-control software that automatically adjusts heating and cooling in buildings, received 300 million won from Qnesty in its early growth stages. The company later secured follow-on investment and expanded its business.

SeedN now uses more than 5 billion data points from buildings and equipment at roughly 3,000 sites to reduce energy waste and carbon emissions.

“Every company has a different time when it can really shine,” Choi Hyun-woong, CEO of SeedN, said. “What gave us the initial push was that they recognized the problem we were trying to solve and the social value we were creating, not just our immediate growth potential. Doing good while also making a lot of money is a harder mission than it is for an ordinary company.”

Helping people who are often overlooked by the traditional financial system is another area of impact investing.

One example is CrePASS, a company that uses nonfinancial data to assess the repayment ability of people with limited financial histories who are often sidelined by conventional credit scoring systems. The company attracted about 7 billion won in follow-on funding after receiving early-stage impact investment.

“You can take on a challenge in the early stage with just 100 million to 200 million won,” Kim Min-jung, CEO of CrePASS, said. “But at some point, you reach a stage where you need 10 or 20 times that amount. We also need a ladder that can bridge that gap.”

The institutional foundation for channeling more money into impact investing is also expanding.

The Framework Act on the Social and Solidarity Economy, which passed the National Assembly last month, institutionalized social and solidarity finance and established a legal basis for support through investment, loans and guarantees.

“I hope more private-sector players in Korea will think about the role capital can play not only in generating financial returns but also in making society more sustainable,” Lee of Qnesty said. “Charity that helps hungry people go less hungry and cold people feel less cold is important. But if you want to solve the underlying problem, you have to combine that effort with technology or business. We need channels that allow corporate social contribution funds and money raised by fund-raising organizations to flow into impact investing.”

BY PARK HYUN-JU [lee.jiwon10@joongang.co.kr]

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.