Why impact matters to VCs

Impact matters to venture managers for a number of reasons:

1. The best businesses will increasingly be impact businesses – There are a number of mechanisms how this plays out:

   1. Impact-driven companies attract and retain the best talent

   2. Building an impactful company can help to mitigate different types of risk

   3. Impactful products also generate interesting customer dynamics, as consumers increasingly value impact, which can lead to increased customer retention, increased market size, alternative revenue streams and others

   4. Regulatory trends are creating exciting opportunities for impactful companies – some are quite direct (eg carbon markets) while others are more subtle (eg regulation on interest caps and price walking has seen ethical lenders and insurers do better than their competition)

2. Attracting and winning the best entrepreneurs – Entrepreneurs are increasingly looking to build impactful businesses. Atomico data suggests 15-20% of European startups are impact-focused, a 33% increase over the last five years. These founders will want investors who can help them realise their full ambitions. For example, one investment made by Eka Ventures wanted a statement of Eka's impact intent included in the legal documents. Investors will want to appeal to this growing segment of startups, to continue to have access to the best dealflow. Demonstrating impact credentials as a VC can be one way to appeal to this group.

3. LPs are increasingly caring more about impact – Recognising the importance of impact, as well as the change in asset owners' preferences, LPs are also moving towards impact investing. Of 63 investors who contributed to the The Capital Behind Venture report by Mountside Ventures, about a quarter were explicitly looking to invest in impact venture as a sector, and two thirds said impact was preferred. Groups such as Pension For Purpose and the Responsible Investment Network - Universities have emerged to help institutional investors come together to learn about impact. See writeup of a recent roundtable BSC held with LPs interested in impact.

4. Regulation is increasingly nudging VCs towards impact – Incoming legislation including the EU's Sustainable Finance Disclosure Regulations (SFDR) and the UK's Sustainable Disclosure Regulations (SDR) are making the impact market more sophisticated, helping capital flow to more impactful propositions. This creates an impetus for VCs to increasingly consider impact.