Assessing impact depends on the stage of investment, as more datapoints become available as a company matures. We’ve included some thoughts on what might be relevant at different stages below. It’s important to note that many investors also include ESG assessments as part of this process. While important, we do not cover this here, as there are other resources that do an excellent job of this already. A couple of general frameworks that would be useful to consult are:
Theory of Change – This helps to map out the logical steps that need to occur between a problem and the solution to ensure that impact is created
For talent investors/accelerators
At this stage, the business model is still very fluid, and so the focus is predominantly on the founders:
Assess founding team values
Do the team show values aligned with impact (eg empathy, integrity, rigour)?
Assess founding team's motivation for starting the business
Is the motivation for starting the business at least in part to solve a social or environmental problem?
Where has this motivation come from; is it lived experience personally or professionally, or is it from a passion for solving the problem?
Assess founding team's impact intent
Can the team articulate a clear vision for what impact success looks like (ie we want to improve X by Y for Z group)?
BSC has been working with its portfolio to develop indicators in early-stage businesses that might point to future impact potential. While it's work in progress, it might serve as inspiration for others:
To what extent did the founder discuss the mission/problem/solution (MPS) during initial meetings and conversation with investors.
Is the MPS addressed in the pitch deck or written DD material?
What is their impact talent at the moment/in the roadmap for hiring, ie deep expertise in the problem or lived experience?
Has the founder tried to validate/measure impact in any way (eg user interviews, early surveys, partnerships with academics)?
Does the founder understand the impact risks?
Has an impact commitment been explicitly referenced in the company’s articles of association (or similar)?
Is the company intending to formalise legally its impact commitment, eg by registering as a B-Corp or similar?
Does the company have a published impact thesis, or is one being worked on?
Is the MPS referenced on the company's website?
Have the founder or team referenced the MPS in the media (eg social media, LinkedIn, in interviews, in fundraising announcements or other features)?
Can the founding team articulate trade-offs or risks in how they think about impact and/or growth (eg a lending company being cautious about vulnerable populations that it serves, or offsetting companies inadvertently increasing emissions by providing a cheaper alternative to business model changes)?
Is there evidence that the MPS has been used to attract customers (eg MPS referenced in an RFP or similar) or in hiring talent (eg MPS referenced on job spec)?
For seed investors
At this stage, a product will begin to emerge, and so in addition to the above (applied to the company as well as the founders), investors should assess:
Does the product have a clear use case that delivers impact?
How additional is this impact? This is linked to the uniqueness of the value proposition and defendability against incumbents/competitors, and so is a valuable commercial question as well.
Can the founders deliver on the use case (execution/scientific/technical risk)?
Is there a path to financial sustainability with this use case? If the answer is no, then at some point the startup may be forced to pivot away from this model.
What other factors need to be true for the impact use case to hold (eg does it require specific customer behaviour)?
For series A investors
At this point, product market fit may be within reach, and there should be a clear product, use case and target customer. This means that in addition to the above, series A investors can ask questions about:
Which specific outcomes are being targeted?
For social outcomes:
For which customer segments and their relative levels of need?
What is the 'per user' impact expected (in other words how much will this product move the needle on the outcome being targeted)?
How many people are likely to benefit from the product? This is different from the number of end-users. For example, in some cases users may need to engage with a product for a certain number of months to see benefit.
What is the additional (ie net of alternatives) per use/per transaction impact of the product?
What scale is expected to be reached?
What is the total expected environmental potential?
Specifically for environmental outcomes, many investors are using the EU Taxonomy to assess environmental impact, as it is linked to upcoming SFDR regulations.
For series B investors and beyond
At this point, a company should have decent traction with its product, which allows an assessment of impact that is being created vs being targeted. This means that investors and startups should be able to validate the above projections with data on actual impact achieved.
Examples
AENU's impact assessment methodology and criteria in short form and longer form blogs here and here
Planet A's impact assessment process is captured here, including a detailed white paper on its methodology, and a list of its Life Cycle Assessments can be found here
