Published by
Impact Square
Asia
Impact Square addresses Asia's impact investment ecosystem challenges through our First Investor strategy. We welcome any collaboration opportunities for fund formation in the Asian region.
Last update: October 05, 2023
Despite rapid growth, Asia's impact investment market cannot fully realize its potential due to structural challenges facing early-stage impact startups.
Impact enterprises in Asia face significantly higher closure rates than traditional startups. In Korea, the 5-year startup survival rate stands at just 33.8%, ranking 26th among 28 OECD countries, while other major Asian nations like Indonesia and Vietnam experience startup failure rates of up to 80% - all falling well below the OECD average of 45.4%. More concerning is that 83% of Asian impact startups shut down within three years. These high failure rates result from operational complexity caused by dual objectives of creating impact while ensuring profitability, intricate value chain structures, and challenges in monetizing business models that target low-income populations. Environmental impact startups are particularly vulnerable due to lengthy development cycles from technology creation to commercialization and substantial initial capital requirements.
The biggest hurdle for impact enterprises is securing their first investor. Pre-seed funding success rates are merely 2-3%, while seed funding success rates remain extremely low at 4.5%. This occurs because impact enterprises require longer investment recovery periods than traditional VCs expect, who typically seek quick returns within 3-5 years. Moreover, the complexity and uncertainty of impact measurement encourage investors to avoid risks. As a result, startups cannot bridge the 'Death Valley' from idea to prototype development, with 60% failing between pre-seed and Series A stages. Consequently, promising impact enterprises with innovative solutions to social and environmental challenges are being lost due to insufficient funding.
The impact investment ecosystem's fundamental issue is the lack of standardized methodologies for measuring social and environmental value. Investors encounter three major measurement problems: fragmented measurement frameworks, difficulty comparing results, and challenges verifying impact data. This problem is especially acute in Asia, where Western-developed impact measurement methodologies have not been adequately researched or implemented, leaving a shortage of locally appropriate measurement standards and systems. The challenge intensifies at early stages, where evaluating future potential becomes difficult without accumulated impact data. Each impact enterprise uses different measurement indicators and methodologies, making it challenging for investors to objectively compare or benchmark portfolio company performance. These measurement and verification difficulties delay investment decisions, ultimately creating a vicious cycle that makes fundraising even more challenging for impact enterprises.
Impact Square has been active in ESG consulting, business development, and impact measurement since 2010, and since 2020 has established a unique position in Asia's early-stage impact investment market through fund formation. We have developed and implemented a systematic approach to address the triple challenges facing Asia's impact investment ecosystem: high failure rates, structural barriers in early-stage fundraising, and the absence of impact measurement standards.
Impact Square manages $19M across 5 funds (2 government-backed and 3 private funds), serving as the first investor in 60-70% of our portfolio companies. This strategy goes beyond simple investment—it's our core approach to directly tackle the First Money Problem plaguing Asia's impact investment ecosystem. We actively embrace the early-stage uncertainties that traditional investors avoid, stepping in as first investors for impact enterprises in a market where pre-seed funding success rates are just 2-3%, helping them cross the 'Death Valley.'
Current Fund Portfolio:
Fund 1 (2 government-backed funds): $11M / Active since 2020
Fund 2 (3 private funds): $8M / Active since 2021
Investment Stage: Pre-seed to Pre-Series A
Ticket size: $35k - $700k per company
Sector Focus: 40% Environment, 30% Income Generation, 30% Accessibility/Education/Healthcare
Geographic Coverage: Korea, Vietnam, Indonesia, Japan, Singapore, and other Asian markets
Portfolio Size: Approximately 70 companies to date
Impact Square serves as a comprehensive partner, addressing the multi-layered challenges facing Asian impact enterprises beyond traditional funding.
Investment and Financial Support:
Specialized early-stage startup due diligence expertise
Venture capital and financial modeling assistance
Asia-focused investment discovery and network development
Operations and Business Development:
Operational efficiency improvements for complex value-chain impact enterprises
Local market insights and entry strategy development
Business opportunity creation through government and private sector networks
Impact Measurement and Verification:
Home to Korea's first impact measurement research institute
Development of Asia-specific impact measurement methodologies
ESG analysis and standardization support
To systematically address the structural challenges identified in Asia's impact investment ecosystem, Impact Square plans to launch a new fund dedicated to supporting early-stage Asian impact startups.
Fund Structure and Strategy:
Focus Area: Pre-seed to Pre-Series A companies
Geographic Scope: Korea, Vietnam, Indonesia, Japan, Singapore, and other key Asian markets
Ticket size: $15k - $350k per company
Portfolio Target: 20-25 companies over 3-4 years
Our Competitive Advantages:
Government Network Access: Strong relationships with Korean government and private funding sources ensure stable capital foundation
Localized Due Diligence: Deep cultural understanding and established local networks enable thorough evaluation across Asian markets
Impact Measurement Leadership: Korea's first impact measurement research institute provides specialized standards and methodologies for the region
Cross-Border Connectivity: Expanding regional presence through Indonesia JV (launching 2025) and strategic partnerships in Japan and Singapore
Impact Square has demonstrated the effectiveness of our innovative investment model in addressing Asia's structural challenges through five years of operational experience. Our systematic approach to the triple challenges—high failure rates, First Money Problem, and impact measurement difficulties—is delivering measurable results.
Dramatically Improved Portfolio Survival Rates: Our portfolio companies maintain a closure rate below 10%, significantly outperforming Korea's typical startup survival statistics.
Successful Follow-on Investment Bridge: We lead Korean impact investors in follow-on investment connection rates after our initial investment, effectively serving as a pre-seed launchpad. As our funds reach their 5th vintage year, we're seeing our first exits, with most portfolio companies demonstrating steady value growth.
Sustainable Financial Returns: We've achieved stable IRR of approximately 10%, proving economic viability despite impact investments' longer recovery periods. This validates the Patient Capital approach with real-world evidence.
Impact Square has created a comprehensive support framework beyond traditional funding through strategic accelerator partnerships. Our collaborative program development addresses the complex value chains and operational challenges that impact enterprises face, forming the backbone of our expanding Asian network.
Corporate-Government Collaboration in Korea: We work with leading Korean corporations and government agencies through structured acceleration programs that systematically support impact startup growth.
Vietnam ICAS Program: Our Impact Challenge at SEA program provides tailored support for local Vietnamese impact startups.
Decade-Plus B Corp Certification: We've maintained B Corp status annually since 2014, demonstrating consistent commitment to impact creation and measurable performance.
Global Impact Standards Leadership: As Korea's Social Value International network manager and longest-running SVI participant, we're recognized as a leading Asian impact institution.
Ecosystem Development Leadership: Since 2014, we've served as community builder for Seoul's Social Venture Valley, playing a pivotal role in developing Korea's social venture ecosystem and contributing substantially to Asia's impact investment infrastructure.
We publish annual impact reports for all new portfolio companies, providing practical solutions to the measurement challenges outlined earlier—fragmented frameworks, comparison difficulties, and data verification issues. This represents pioneering work in impact measurement methodology research and application across Asia.
Leveraging our accumulated acceleration expertise, we've developed proprietary AI acceleration and impact measurement tools that dramatically improve portfolio management efficiency. This innovative approach transcends traditional investment management limitations and positions us at the forefront of Asia's impact investment digital transformation.