What is impact investing?

A definition of impact investing

We believe the GIIN's definition captures it best:

Impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.

All about intent

Based on the GIIN's definition, it is therefore primarily about intent. Founders and management teams must have the creation of impact as one of the primary purposes of their organisation. Similarly, investors should be considering investments into those companies, at least partially because of the impact potential.

Is intent enough?

This still leaves a very broad universe of possible investments that meet this bar for impact investing. In this playbook we assume that impact investors are investing for the optimal amount of impact possible through a given investment. It's important to note that this doesn't mean at a tradeoff with financial returns. In many cases, impact can act as source of additional value that enhances a startup's value.

What is impact investing in the VC context?

In the context of venture investing, to achieve optimal impact means deploying the biggest lever that a startup has, to create impact with its business model. This is because startup business models tend to enable huge scale with meaningful impact associated with it.

A definition of impact investing in VC

In terms of definitions, an impact investment in the VC space can be defined as:

Investments made with the intention to generate optimal positive, measurable, social and environmental impact alongside a financial return. This is achieved by investing in startups whose purpose is to contribute to solutions that create positive change – and over time enables and evidences strong impact performance through proportionate impact practice.

See examples of impact startup case studies here.

The focus of this playbook

Therefore, in this playbook, we focus exclusively on impactful business models as we believe this is often the largest lever to create impact for scaling startups. We touch briefly on operations impact and point to excellent resources that are being built elsewhere.