An impact thesis is similar to an investment thesis, in that the same core questions apply, but with a focus on impact alongside financial returns:
What overarching impact goals are you looking to achieve, and why?
What business models are you investing in? What change does that create, and for which customers and end-usersor the environment?
Why are you investing in these business models (how do they drive returns and create impact)?
How will you execute on this? Eg what are your impact assessment process, your impact criteria, impact measurement framework etc?
A popular framework, often used by impact investors, is the Theory of Change. This captures the answers to some of these questions in a logical way, and helps to articulate/uncover critical assumptions that are being made about why a given outcome will be achieved. Many impact-minded investors and entrepreneurs will be familiar with the Theory of Change language, and so it’s a good place to start.
Below are some thoughts on what a good thesis looks like for different types of investor. This is offered as guidance, for you to figure out what works for you and your stakeholders.
For very early social impact investors (i.e. talent investors, accelerators and pre-seed investors)
In these cases, business models can be very fluid, and investors tend to need very broad mandates for their investment model to work. Therefore, it’s difficult to articulate a focused goal for an impact thesis (ie we want to achieve X outcome). We've found it’s more useful to focus on the types of business model that will be invested in and supported, as a proxy for what impact may occur:
A definition of what an impact startup is to the fund (it often helps to structure this along an established framework like IMP, eg which stakeholders are being targeted, how underserved are they, what outcomes are expected to materialise and with how much change).
How many impact startups they hope to back with investment, and the proportion of the fund that this will be.
How many impact startups they hope to see graduate to subsequent funding rounds.
How the manager plans to achieve these outcomes (ie how will you source, win and support these companies).
Note, this applies only to social impact, as environmental-focused funds have been able to make narrower theses work. For environmental funds, we suggest looking at the ‘thematic investors’ section below.
Generalist investors
Generalists are often focused on some themes, but these can be very broad, making setting specific targets challenging. We therefore think taking the above approach for early-stage investors can be useful, as well as articulating:
An articulation of which thematic areas the fund is focusing on, and why (using evidence to justify the impact need).
How the manager plans to achieve these outcomes, ie which business models the fund is looking to invest in to achieve these outcomes, and why (based on evidence).
How impact relates to all investments. Too often, generalists focus only on impact in their ‘impact pockets’ and settle for ESG in the remaining portfolio. Thus ignoring their overall impact. By understanding the entire portfolio from an impact lens, generalists will be able to better embed the impact thinking throughout their process and portfolio.
For thematic investors who are looking to achieve specific outcomes
An articulation of which thematic areas the fund is focusing on, and why (using evidence to justify the impact need).
Which outcomes the fund is looking to achieve and for whom (eg meaningfully improve quality of life for X group, CO2 reduction, etc).
Impact targets where possible (eg X improvement in Y health outcome or Z tonnes of carbon mitigated).
How the manager plans to achieve these outcomes, ie which business models the fund is looking to invest in to achieve these outcomes, and why (based on evidence).
For investors targeting systemic change/outcomes
A representation of the system, the key actors, conditions within the system and problematic systems outcomes (often depicted as a systems change map).
The key leverage points within the system that are opportunities for creating change.
How the fund plans to influence these leverage points.
