# Table of Contents - [What is impact investing? | VC Impact Playbook](#what-is-impact-investing-vc-impact-playbook) - [What is impact and how is it created? | VC Impact Playbook](#what-is-impact-and-how-is-it-created-vc-impact-playbook) - [Download a PDF | VC Impact Playbook](#download-a-pdf-vc-impact-playbook) - [Are ESG and impact investing the same thing? | VC Impact Playbook](#are-esg-and-impact-investing-the-same-thing-vc-impact-playbook) - [Why impact matters to VCs | VC Impact Playbook](#why-impact-matters-to-vcs-vc-impact-playbook) - [Some impact startup case studies | VC Impact Playbook](#some-impact-startup-case-studies-vc-impact-playbook) - [Impact on environment | VC Impact Playbook](#impact-on-environment-vc-impact-playbook) - [Types of impact | VC Impact Playbook](#types-of-impact-vc-impact-playbook) - [Give us feedback! | VC Impact Playbook](#give-us-feedback-vc-impact-playbook) - [Impact on people | VC Impact Playbook](#impact-on-people-vc-impact-playbook) - [Contributors | VC Impact Playbook](#contributors-vc-impact-playbook) - [Impact evaluation | VC Impact Playbook](#impact-evaluation-vc-impact-playbook) - [Welcome! | VC Impact Playbook](#welcome-vc-impact-playbook) - [Firm/Fund impact strategy | VC Impact Playbook](#firm-fund-impact-strategy-vc-impact-playbook) - [Incentive structures | VC Impact Playbook](#incentive-structures-vc-impact-playbook) - [Impact resourcing | VC Impact Playbook](#impact-resourcing-vc-impact-playbook) - [Making impact investments | VC Impact Playbook](#making-impact-investments-vc-impact-playbook) - [Impact thesis | VC Impact Playbook](#impact-thesis-vc-impact-playbook) - [Impact learning and iteration | VC Impact Playbook](#impact-learning-and-iteration-vc-impact-playbook) - [Impact on systems | VC Impact Playbook](#impact-on-systems-vc-impact-playbook) - [Sourcing impact-driven deal flow | VC Impact Playbook](#sourcing-impact-driven-deal-flow-vc-impact-playbook) - [Overview | VC Impact Playbook](#overview-vc-impact-playbook) - [Managing impact investments | VC Impact Playbook](#managing-impact-investments-vc-impact-playbook) - [Impact reporting | VC Impact Playbook](#impact-reporting-vc-impact-playbook) - [Assessing impact risks | VC Impact Playbook](#assessing-impact-risks-vc-impact-playbook) - [Assessing impact returns | VC Impact Playbook](#assessing-impact-returns-vc-impact-playbook) - [SFDR Alignment | VC Impact Playbook](#sfdr-alignment-vc-impact-playbook) - [Assessing the links between impact and commercial value | VC Impact Playbook](#assessing-the-links-between-impact-and-commercial-value-vc-impact-playbook) - [Impact support to your portfolio | VC Impact Playbook](#impact-support-to-your-portfolio-vc-impact-playbook) - [Overview and external initiatives | VC Impact Playbook](#overview-and-external-initiatives-vc-impact-playbook) - [Embedding impact into IC decision-making | VC Impact Playbook](#embedding-impact-into-ic-decision-making-vc-impact-playbook) --- # What is impact investing? | VC Impact Playbook ### [](#a-definition-of-impact-investing) A definition of impact investing We believe the [GIIN's definition](https://thegiin.org/impact-investing/need-to-know/) 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) 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) 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](/vcplaybook/impact-fundamentals/why-impact-matters-to-vcs) that enhances a startup's value. ### [](#what-is-impact-investing-in-the-vc-context) 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) 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](/vcplaybook/impact-fundamentals/what-is-impact-investing/some-impact-startup-case-studies) . ### [](#the-focus-of-this-playbook) 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](/vcplaybook/investing-for-impactful-operations-esg/overview-and-external-initiatives) and point to excellent resources that are being built elsewhere. [PreviousWhat is impact and how is it created?](/vcplaybook/impact-fundamentals/what-is-impact-and-how-is-it-created) [NextSome impact startup case studies](/vcplaybook/impact-fundamentals/what-is-impact-investing/some-impact-startup-case-studies) Last updated 1 year ago Was this helpful? --- # What is impact and how is it created? | VC Impact Playbook [](#a-definition-of-impact) A definition of impact ------------------------------------------------------- The Impact Management Project (IMP) (now [Impact Frontiers](https://impactfrontiers.org/norms/five-dimensions-of-impact/) ) brought several stakeholders together to reach consensus on a definition of impact. We adopt that definition here: _Impact is a change in an outcome caused by an organisation. An impact can be positive or negative, intended or unintended. An outcome is the level of wellbeing experienced by a group of people, or the condition of the natural environment, as a result of an event or action._ There are two points worth pulling out from this definition: Negative impact is possible[](#negative-impact-is-possible) While impact-minded investors hope to create positive impact, it's **possible to create negative impact** both intentionally and unintentionally (eg increase emissions, erosions of user privacy). This means investors have to be mindful of their actions, and actively manage impact to reduce negative impacts and increase positive impact. This is particularly important in a venture context, where there is a lot of uncertainty about business model and product evolution over time, and how users will engage with a given product. Focus on outcomes[](#focus-on-outcomes) Impact is about **outcomes** **on people and/or the planet.** We can only be confident that impact is occurring when we can demonstrate the outcomes that are being generated for people and/or planet eg _'we've improved X number of people's lives in Y way'_ (see more on how to measure and managing impact in ['managing impact investments'](/vcplaybook/investing-in-impactful-business-models/managing-impact-investments) )_._ This is important because the history of social policy, international development and the third sector are littered with examples of unintended consequences arising from well-intentioned actions – from insecticide-treated malaria nets [being used as fishing tools inadvertently polluting the ocean](https://www.theguardian.com/environment/2018/jan/31/global-use-of-mosquito-nets-for-fishing-endangering-humans-and-wildlife) , to crime prevention programmes [increasing the likelihood of offending](https://www.college.police.uk/research/crime-reduction-toolkit/scared-straight?InterventionID=2) . We talk more about what it takes to create impact in the '[investing in impactful business models](/vcplaybook/investing-in-impactful-business-models/overview) ' section. There are several outcomes that can be targeted by businesses looking to have an impact. Two comprehensive lists are: 1. The UN's [Sustainable Development Goals (SDGs)](https://sdgs.un.org) 2. Big Society Capital and Good Finance's [Outcome Matrix](https://www.goodfinance.org.uk/measuring-social-impact/outcomes-matrix) It's important to be critical when choosing a particular framework, and ensure it is fit for purpose. For example, while many default to using the SDGs, we must be mindful that they originate from a sustainable development context and were focused on policymakers, and therefore are grounded in that reality. It might not be relevant for a fintech-focused venture fund in North America. There are many outcomes that are not captured, or insufficiently captured, by the SDGs. Even if one does find a framework that fits, it is not necessary to use the entire framework if it is not valuable to do so. The SDG indicators and targets is another good example. Again, these were developed for the policy context, and therefore often do not translate well to early-stage companies. There is no need to use the indicators and targets if this is the case (even if the fund can be aligned with SDGs conceptually), and a more fit-for-purpose measurement framework may have to be chosen or developed. [](#how-is-impact-created-in-a-business-setting) How is impact created in a business setting? -------------------------------------------------------------------------------------------------- There are **three sources** of impact within a company: 1. **Impactful business models** – ie creating impact through selling impactful products/services 2. **Impactful operations** – ie operational decisions made across the value chain that affect impact (analogous to ESG) and are applicable to any company, regardless of whether its business model is explicitly targeting impact 3. **Impactful profits** – ie the traditional model of creating impact for a firm: through philanthropy, CSR or cross-subsidising models Each of these approaches can enhance impact (ie each can create a positive and/or negative change in outcomes for people and/or planet), and so a good way for stakeholders to understand the complete impact of a business is to ask: _what impact is the startup creating across these three levers?_ [](#pathways-to-impact) Pathways to impact ----------------------------------------------- For a startup's products or services, there are two ways that impact is created: direct or indirect impact. **Direct impact** – Impact is created as a direct consequence of engaging with a product or service.  [Wagestream](https://wagestream.com/en/) is a good example here, engaging with its platform around financial wellbeing creates impact with each transaction. Similarly, [HIVED](https://www.hived.space/) is building a platform for emissions-free delivery. With each transaction, fewer emissions are put out into the world. **Indirect impact** – impact is enabled further down the value chain, often with a time lag. [](https://www.sophiagenetics.com) [SOPHiA GENETICS](https://www.sophiagenetics.com/) is one example. As a B2B model, impact isn’t created directly with each transaction, but the improved analysis and treatment-related insights the platform generates, allow medical institutions to enhance their impact. Similarly, [CarbonCure](https://www.carboncure.com) manufactures a technology for the concrete industry that introduces recycled CO₂ into fresh concrete to reduce its carbon footprint, without compromising performance. Each transaction does not directly create impact, but enables others to reduce their environmental footprint. With these models, impact is sometimes harder to guarantee and/or quantify. It's important to validate whether any claims of impact here are genuine, to avoid impact washing. Now that we understand what impact is, the next question that often comes up is: [what is impact investing?](/vcplaybook/impact-fundamentals/what-is-impact-investing) [PreviousGive us feedback!](/vcplaybook/give-us-feedback) [NextWhat is impact investing?](/vcplaybook/impact-fundamentals/what-is-impact-investing) Last updated 1 year ago Was this helpful? ![](https://impactvc.gitbook.io/~gitbook/image?url=https%3A%2F%2F2789415758-files.gitbook.io%2F%7E%2Ffiles%2Fv0%2Fb%2Fgitbook-x-prod.appspot.com%2Fo%2Fspaces%252FCGKWxLjK75ED4hY1rXJe%252Fuploads%252F9K0jUQD420Eu5av4uAuO%252FImpact%25202%2520-%2520b.png%3Falt%3Dmedia%26token%3D0183bd14-afa8-408d-bc96-6a3764c20319&width=768&dpr=4&quality=100&sign=a8ba5fec&sv=2) ![](https://impactvc.gitbook.io/~gitbook/image?url=https%3A%2F%2F2789415758-files.gitbook.io%2F%7E%2Ffiles%2Fv0%2Fb%2Fgitbook-x-prod.appspot.com%2Fo%2Fspaces%252FCGKWxLjK75ED4hY1rXJe%252Fuploads%252F4qYpwsdNH3mHmHY1Z1EM%252FImpact%25201%2520-%2520b.png%3Falt%3Dmedia%26token%3Da8c3812b-8312-417b-a9a0-75577b735148&width=768&dpr=4&quality=100&sign=768171b5&sv=2) --- # Download a PDF | VC Impact Playbook [PreviousContributors](/vcplaybook/contributors) [NextGive us feedback!](/vcplaybook/give-us-feedback) Last updated 1 year ago Was this helpful? You can access a condensed PDF copy of this playbook here: > [Download PDF](https://d27abb0e-2ee5-478e-a4c1-b59f0970b465.usrfiles.com/ugd/d27abb_ddceee79a95d41429c785da7f8aad4e2.pdf) We'll continue to update the online resource throughout the year, so check back here for the latest version. ![](https://impactvc.gitbook.io/~gitbook/image?url=https%3A%2F%2F2789415758-files.gitbook.io%2F%7E%2Ffiles%2Fv0%2Fb%2Fgitbook-x-prod.appspot.com%2Fo%2Fspaces%252FCGKWxLjK75ED4hY1rXJe%252Fuploads%252FPm0BYAtBn5q05M0lZA6T%252FScreenshot%25202023-01-27%2520at%252008.14.18.png%3Falt%3Dmedia%26token%3D7b8e448b-3cd3-47eb-88c8-7f5627c32717&width=768&dpr=4&quality=100&sign=e2cb5769&sv=2) --- # Are ESG and impact investing the same thing? | VC Impact Playbook [](#in-short-no) In short, no. ----------------------------------- Broadly speaking, investing with an ESG lens can be beneficial for people and planet, but it's a fundamentally different approach from investing with impact intent. The differences depend on how ESG and impact investing are defined (and there are several definitions of both!). In the context of this playbook, we [define impact investing in venture](/vcplaybook/impact-fundamentals/what-is-impact-investing) 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._ Most frameworks on ESG are not aiming to create **optimal** social and environmental benefits. Nor are they focused on businesses where the **core purpose** is solving a social or environmental problem. ESG is typically a risk-based approach used to assess material environmental, social and governance factors that could influence the bottom line. It can be applied to any business, regardless of impact intent. [](#additional-reading) Additional reading ----------------------------------------------- There is a lot that can be said on the topic; some additional references on this topic include: 1. [Impact and ESG in venture capital - getting the basics right and pushing forward](https://bigsocietycapital.com/latest/impact-and-esg-in-venture-capital-getting-the-basics-right-and-pushing-forward/) 2. [Rethinking how we measure companies on social and environmental impact](https://sloanreview.mit.edu/article/rethinking-how-we-measure-companies-on-social-and-environmental-impact/) 3. [ESG is not impact investing and impact investing is not ESG](https://ssir.org/articles/entry/esg_is_not_impact_investing_and_impact_investing_is_not_esg?utm_source=Enews&utm_medium=Email&utm_campaign=SSIR_Now) [PreviousSome impact startup case studies](/vcplaybook/impact-fundamentals/what-is-impact-investing/some-impact-startup-case-studies) [NextWhy impact matters to VCs](/vcplaybook/impact-fundamentals/why-impact-matters-to-vcs) Last updated 1 year ago Was this helpful? --- # Why impact matters to VCs | VC Impact Playbook 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](https://medium.com/impact-edge/impact-driven-startups-are-winning-the-war-for-talent-heres-how-you-can-do-it-too-1acdf891558f) 2. Building an impactful company can help to [mitigate different types of risk](https://bigsocietycapital.com/latest/how-impact-mitigates-startup-risk/) 3. Impactful products also generate interesting customer dynamics, as consumers increasingly value impact, which can lead to [increased customer retention](https://bigsocietycapital.com/latest/how-impact-can-increase-customer-retention/) , [increased market size](https://bigsocietycapital.com/latest/how-impact-driven-innovation-can-unlock-new-market-segments/) , [alternative revenue streams](https://bigsocietycapital.com/latest/unlocking-pathways-to-scale-and-impact-through-innovative-revenue-models/) and others 4. Regulatory trends are creating [exciting opportunities for impactful companies](https://bigsocietycapital.com/latest/four-ways-impact-acts-as-a-source-of-value-for-startups-and-investors/) – 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](https://stateofeuropeantech.com/chapter/better-ideas-better-companies/article/collective-mission/) 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_](https://www.capitalbehindventure.com/) 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](https://www.pensionsforpurpose.com/) and the [Responsible Investment Network - Universities](https://shareaction.org/investor-networks/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](https://bigsocietycapital.com/latest/limited-partners-growing-appetite-for-impact-in-venture-investing/) . 4. **Regulation is increasingly nudging VCs towards impact** – Incoming legislation including the EU's [Sustainable Finance Disclosure Regulations](https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/sustainability-related-disclosure-financial-services-sector_en) (SFDR) and the UK's [Sustainable Disclosure Regulations](https://www.fca.org.uk/publication/discussion/dp21-4.pdf) (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. [PreviousAre ESG and impact investing the same thing?](/vcplaybook/impact-fundamentals/what-is-impact-investing/are-esg-and-impact-investing-the-same-thing) [NextTypes of impact](/vcplaybook/impact-fundamentals/types-of-impact) Last updated 1 year ago Was this helpful? --- # Some impact startup case studies | VC Impact Playbook [PreviousWhat is impact investing?](/vcplaybook/impact-fundamentals/what-is-impact-investing) [NextAre ESG and impact investing the same thing?](/vcplaybook/impact-fundamentals/what-is-impact-investing/are-esg-and-impact-investing-the-same-thing) Last updated 1 year ago Was this helpful? Here are some published case studies of impact startups, which might help to colour how startups can achieve impact: Healthcare[](#healthcare) 1. [Second Nature - diabetes prevention through behavioural change](https://bigsocietycapital.com/impact-stories/second-nature/) 2. [DrDoctor - patient management platform for the NHS](https://bigsocietycapital.com/impact-stories/drdoctor/) 3. [Hometouch - live-in care for people with dementia](https://bigsocietycapital.com/impact-stories/hometouch/) 4. [Aparito - drug discovery platform](https://bigsocietycapital.com/impact-stories/aparito/) Financial Inclusion[](#financial-inclusion) 1. [Urban Jungle - affordable and accessible insurance](https://bigsocietycapital.com/impact-stories/urban-jungle/) 2. [Credit Kudos (acquired by Apple) - open banking for lending to borrowers with low/no credit data](https://bigsocietycapital.com/impact-stories/credit-kudos/) Future of Food[](#future-of-food) 1. [Foodsteps - emissions labelling on food](https://octopusventures.com/insights/b2b-software/our-investment-in-foodsteps/#:~:text=Foodsteps'%20solution%20promises%20to%20positively,huge%20environmental%20and%20social%20impact.) 2. [NextGen – plant-based food](https://www.aenu.com/wp-content/uploads/2022/11/Next-Gen-Case-Study.pdf) Circular Economy[](#circular-economy) 1. [Raylo - a more sustainable phone-ownership model](https://octopusventures.com/blog/our-investment-in-raylo/) 2. [HURR - rental model for fashion](https://octopusventures.com/blog/our-investment-in-hurr/) If you have any case studies you'd like featured here, please drop us a [note](mailto:nandreou@bigsocietycapital.com) . 🏥 💰 🍔 ♻️ --- # Impact on environment | VC Impact Playbook [](#using-imp-for-environmental-impact) Using IMP for environmental impact ------------------------------------------------------------------------------- The IMP framework discussed in the context of [impact on people](/vcplaybook/impact-fundamentals/types-of-impact/impact-on-people) is also relevant here. The dimensions below are all useful to think about in the context of environmental change: 1. What environmental challenges and outcomes are being targeted 2. How much change occurs (albeit perhaps without considering duration, which may be less relevant, thinking of environmental outcomes) 3. Additionality 4. Risks The one dimension that may be less relevant, is the 'who' dimension, as environmental change often has global impact, or even where localised, this is still over a large geographic area. [](#some-other-frameworks) Some other frameworks ----------------------------------------------------- A number of more specific environmental frameworks have been put together, to help stakeholders think about impact on the environment. Many of these have been mapped by Project Frame (see slide 5 [here](https://static1.squarespace.com/static/60ad8a055e6bea2a5324c117/t/62cccd1ff243187befd0ffa4/1657589024099/FINAL+PUBLICATION-Landscape+Assessment+07-2022+%281%29.pdf) ). Two not mentioned that are useful are: 1. [Planetary boundaries](https://en.wikipedia.org/wiki/Planetary_boundaries) 2. The 'ecological ceiling' within [doughnut economics](https://www.kateraworth.com/doughnut/) A useful framework to think about environmental outcomes is the [EU Taxonomy](https://finance.ec.europa.eu/sustainable-finance/tools-and-standards/eu-taxonomy-sustainable-activities_en) [](#a-useful-framework-to-think-about-environmental-outcomes-is-the-eu-taxonomy) The Taxonomy Regulation establishes six environmental objectives 1. Climate change mitigation 2. Climate change adaptation 3. The sustainable use and protection of water and marine resources 4. The transition to a circular economy 5. Pollution prevention and control 6. The protection and restoration of biodiversity and ecosystems [](#taking-a-holistic-approach-using-lcas) Taking a holistic approach using LCAs ------------------------------------------------------------------------------------- As you will note, most frameworks for assessing environmental impact, focus on footprint driven by operations, rather than impact created by the business model or product. In the absence of a consolidated framework in this area, we find it helpful to think of the [Life Cycle Analysis](https://medium.com/impact-edge/life-cycle-assessments-c9b7853062f9) approach (LCA). In other words, thinking about: 1. The different stages of a product's life cycle: 1. Resource extraction 2. Manufacturing 3. Distribution 4. Product use 5. Disposal/end of life 2. The different types of environmental impact that may occur across these: 1. Waste of natural resources (eg materials and water) 2. Wasteful bi-products including emissions and pollution 3. Impacts on biodiversity An analysis of the above would provide a comprehensive understanding of the environmental impacts of a given business model. For an example of this, have a look at Planet A's impact assessment process, captured [here](https://planet-a.com/science/) , including a detailed white paper on its [methodology](https://drive.google.com/file/d/1VtYpx5bxSr6TR3FlGqHMfne1Sa12dk0r/view) , and a list of its Life Cycle Assessments [here](https://protect-eu.mimecast.com/r/IS9uukFEXjKL2O6WBxJ8WENFFJT4hfxAA62-4LjppgancDg7S4F-QpvTGLdLkt0iWyIN4aiqoR-wsAOsLYotWu0MmngB0M4CW67bTvDQteVQ1zbNuFPvqrOx--566Q49IqzJSJKTOBa8-G53rhZ6XYjK_yjxvzIMhxespUJ6UADVvTWT8AJjUStjp0vjWCK_aXgj91dE0CYr1mdI2hyiTYqlgC9IhZEjOcToDAbL4NeaflTbzMaYEATZ61ZxAs3-a_H6p2-9aWUgnb3LeSZwlgTxGSvjz88ikQqjp8-dpQKzpuhxT2GKCo4nGOBMID_j_7IWX9EvNqQ8mkpPXqH0-d-E8q9T_-Mj8eQ_IjJ9O4pTDmnarZXXB9gMq62G2aL5DsaqWe2V2gEtI7QNtEL--9J7ytGFYHtNK5_07NQ5qXLErqlc4o2utahORYMNO7jjbgla-5cWInM5nUGqkLVMbOwK32KnCrez6Sf-m-C_8uoeDcl02PFV2rrlHWSAsIPnrqV0Y4-M75QnP8rus68QEIexJqpOEBSS_HQqm3adeSq-h74Wob-RuQrX0Cd1bEDyqp2Q7-zXa-KhYyS-UixJqtasSu5cKuv-2LQbhH4rHEq96ePjghZj3q1meFJeq1PFDU5hV2kwWy--K3kpAeff46x7T-JZ0LLcK8DINLUlv31E1W8RdZRXczKDHoXzKGjDNyVZsxZp6tFY5MDwjgfNCy6pvhlhkysuqGH8hI3Lkog3dQp1UAGKFSsFu9XEfJ_0QG4IoKf57JydVtfTEvW7tpEum3k_1GTZeyAh9Dinjf4bpGg4pW3YpGtKVaHkdFhYLuCxrqoRYR61xSVECd32kqxwfL0ztMs0Ix1TYjStQsAtmP8xJsuKjkHVd_iHrcR8XzAM9rreDZpDHdB7u9jhn85o5jbRNVd5pygSwIcc6M18qrtumhHfMJznY3At9DFc86ypddk1n7TPOC5PtnzC7TaJkOe7P3L0XOFR9RfpmzOG1GhTFGq7zOSzewYgmoXPkvUsW6Lzy0mLemnGQa7G3kjJTDX7wIJBOrQ9OZiwh6vjGsTZXaUoq5ciVIvbhkQ8fxTDvxvNfS576kJ4OkUaOi0MQ0ojduXuID4kuoIB3r0o9l_EaPm2iRXma_tjrzdKJMg23tzvWG_O1l8tsbiGfBySdV16H6mzwhnlhByGAV7WmrBrKPBuCMhn1M3Zs_REFFYhLwCQYKjjD65gebZsdm2agA160ip2se2MTusB2jXYbLEnFSepflRUUh9oPHbdGXgbqxuDchaNv5cyq9OHu6LOOt7wxDdcqxNXbH8sEvfoac0svKtzh1ziP6RE3-r1dZY32KwOyswYqFlet-Fkjs3jTLTI8u9GbiNAN-HzRBFbXUOTHq_laAiYVfVm9psF-Td9eHdEKon2aimqj3SScx-V8etKWXrDY_0UDSlZ9VkCBcSX402eOAoIX_mraEeuIQ1Ea2hoMHQfXY_a5ey_Nga8Fby_fPFH5B2LX5kBXbdLm_NBHICEMKpTxkdCuKJsJssVuJ8UsVjSud6LB8GyUOtzW8n1pTp76TiEzgIah4WI_puPBW0CGXFIDl5Q__BKGfqtSRPH6SfLorK0J6X5OhQGM2vUkiqle303oEZfpqP4zi2NmF0gQ8WQMGRlntohAmsf4xQziHWMIeTYsQiRDxHfRaQY9l37ciUQ4LjAEnpJ4AdWs46r6bkdInYTy9A9OGheOA-RILl4uVopeQ875coL3XTZNnvEubP62hmXgPM) . [PreviousImpact on people](/vcplaybook/impact-fundamentals/types-of-impact/impact-on-people) [NextImpact on systems](/vcplaybook/impact-fundamentals/types-of-impact/impact-on-systems) Last updated 1 year ago Was this helpful? --- # Types of impact | VC Impact Playbook Different organisations will have different aspirations in terms of the impact they want to have. At the highest level, this can be thought of across three overlapping areas: 1. [Impact on people](/vcplaybook/impact-fundamentals/types-of-impact/impact-on-people) 2. [Impact on the environment](/vcplaybook/impact-fundamentals/types-of-impact/impact-on-environment) 3. [Impact on systems](/vcplaybook/impact-fundamentals/types-of-impact/impact-on-systems) When we refer to impact in this playbook, we mean impact created by a startup that an investor has an investment in. It's worth noting that emerging frameworks are beginning to think about the impact that investors have. In other words, how could an investor enhance the amount of impact created by a startup, whether through networks, support, alternative forms of funding, who they back, etc. This is sometimes referred to as [investor contribution](https://impactfrontiers.org/norms/investor-contribution/) . [PreviousWhy impact matters to VCs](/vcplaybook/impact-fundamentals/why-impact-matters-to-vcs) [NextImpact on people](/vcplaybook/impact-fundamentals/types-of-impact/impact-on-people) Last updated 1 year ago Was this helpful? --- # Give us feedback! | VC Impact Playbook [PreviousDownload a PDF](/vcplaybook/download-a-pdf) [NextWhat is impact and how is it created?](/vcplaybook/impact-fundamentals/what-is-impact-and-how-is-it-created) Last updated 2 years ago Was this helpful? --- # Impact on people | VC Impact Playbook Many organisations will aim to improve people's lives. This leads to an important question of how we can understand and better analyse impact being created (eg if we want to compare two strategic choices or two investment options). Impact Frontiers provides a [useful framework](https://impactfrontiers.org/norms/five-dimensions-of-impact/) to break down impact on people into five dimensions. It's important to note that claims for impact against these dimensions need to be evidence-based (or, if based on aspirations, this should be made clear). Evidence might include third-party sources (academia, government etc) or it might include primary data collection from the venture or VC. Read more about impact measurement in the '[Managing Impact Investments](/vcplaybook/investing-in-impactful-business-models/managing-impact-investments) ' section. _Here is a_ [_template_](https://miro.com/app/board/uXjVOc_yWjo=/?invite_link_id=17457962429) _based on IMP, which may help you to assess your impact on people._ **What** changes occur to people's lives?[](#what-changes-occur-to-peoples-lives) It’s important to establish which outcomes are changing in people’s lives (including negative and unintended outcomes) and that these are considered material to the user. Not all outcomes are equal. At a high level this intuitively feels right, but getting into the details demonstrates this is really hard. For example, what is more impactful, treating anxiety or helping someone to buy their first home faster? Despite this complexity it's worth thinking about what outcomes are being targeted and which are more impactful. Sometimes the choice can be obvious. Taking cost as a proxy for impact, for [every $1 spent on vaccines, ~$60 of healthcare costs are saved down the line](https://informationisbeautiful.net/beautifulnews/8-vaccines-investment/) (and that is pre-pandemic).\[NB $ not £ used\] Some comprehensive frameworks to think about for social outcomes are the [UN's SDGs](https://sdgs.un.org/goals) and [Iris+.](https://iris.thegiin.org) **Who** is experiencing the changes?[](#who-is-experiencing-the-changes) A given change in outcomes, say a reduction in weight of 5kg, has different impact depending on who experiences it. Sticking with our weight loss example, for someone who is clinically obese, this is a good thing. For someone who is healthy, it's neither here nor there. For someone experiencing a weight-loss-related eating disorder (eg anorexia) this is negative. Therefore, it's important to think of a product's user groups and their underlying needs, to establish how much impact a product is having. There are broadly three buckets to consider, when thinking about who experiences the changes: 1. **Their degree of need.** For any given issue, there will be people who experience that problem to a higher or lesser degree. For example, the cost-of-living crisis will be experienced more painfully by those in the bottom decile of incomes, relative to those in the fifth decile. Similarly, those suffering from schizophrenia might have higher needs than those suffering from acute stress. 2. **How well served they are by incumbents.** Regardless of level of need, if an end-user or group is well served by the existing market, the potential for impact here is less. Underserved users might benefit from more accessible or affordable products, more effective products, or entirely new products where no-one was attempting to solve the problem previously. 3. **How vulnerable they are in a broader sense.** If users experience additional vulnerabilities separate from the specific issue in question, this can also increase the impact potential of serving them. These are somewhat case-specific but, for example, when serving people on low incomes, additional vulnerabilities can include being a single parent, having a disability, having severe health issues. **How much** change occurs?[](#how-much-change-occurs) This is a function of three levers: **how many** people (500 vs 5 million); **how deep** the change is (5% improvement vs 50%); **how long** the change is sustained (5 days vs 5 months). More impactful products will reach a greater number of people, move the needle further and create lasting change. **How additional** is the change?[](#how-additional-is-the-change) For something to be truly impactful, it needs to grow the impact pie, rather than displace previously occurring impact. For example, imagine an existing product to improve mental health. Then, a new product offering _exactly_ the same benefits becomes available for $5 a month cheaper. The additionality of the new proposition is to save users $5 a month, rather than creating positive outcomes on mental health (those would have been achieved anyway through the existing product). \[again $ used\] How **risky** is the change?[](#how-risky-is-the-change) As with any desired future outcome, risks modify the likelihood that those outcomes are achieved. [IMP lists nine impact risks](https://impactmanagementproject.com/impact-management/impact-management-norms/risk/) including execution risk (eg inability to build product), alignment risk (eg mission drift) and stakeholder risk (eg users using the product differently from how it was envisaged). Impact can therefore be thought of as a kind of multiplication of these factors (modified by risk): _Impact =_ _**what additional changes**_ _occur X_ _**who they additionally**_ _occur to X_ _**how much change there is**_ _\[__**how many**_ _**additional**_ _people X_ _**how deep the**_ _**additional**_ _change is and_ _**how long it is additionally**_ _maintained\]_ All else being equal, any improvement in any of these drivers will increase the amount of impact created. The difficulty is that trade-offs almost certainly exist. For example, it’s easy to imagine high-scale, low-depth products, or low-scale, high-depth products, but difficult to imagine high-scale, high-depth products. These trade-offs trigger some of the challenging questions that the impact sector is wrestling with: where to prioritise and why. Trying to break these trade-off frontiers is an exciting area for innovation in impact. For example, [research has shown](https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5897664/) that technology-enabled interventions can be effective for treating anxiety and depression. There is even some evidence ([see section on anxiety](https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5897664/) ) that the outcome improvements are on par with traditional outpatient care. This would mean that, by using technology, far more patients would be able to access the same degree of positive change. In other words, the **what** stays the same but the **how much** is dramatically increased. Of course, things are never that simple, as one can imagine that the **who** might suffer in this instance (assuming that smartphone-enabled technology is less likely to reach those in greatest financial/health need). [PreviousTypes of impact](/vcplaybook/impact-fundamentals/types-of-impact) [NextImpact on environment](/vcplaybook/impact-fundamentals/types-of-impact/impact-on-environment) Last updated 1 year ago Was this helpful? --- # Contributors | VC Impact Playbook [PreviousWelcome!](/vcplaybook) [NextDownload a PDF](/vcplaybook/download-a-pdf) Last updated 1 year ago Was this helpful? Building this playbook has been a collaborative effort led by [Nicholas Andreou](https://www.linkedin.com/in/nicholasandreou/) at [Big Society Capital](https://bigsocietycapital.com) with support from the following contributors: ImpactVC was incubated at Big Society Capital and made possible by donations from our founding sponsors: ![](https://impactvc.gitbook.io/~gitbook/image?url=https%3A%2F%2F2789415758-files.gitbook.io%2F%7E%2Ffiles%2Fv0%2Fb%2Fgitbook-x-prod.appspot.com%2Fo%2Fspaces%252FCGKWxLjK75ED4hY1rXJe%252Fuploads%252FHlzabRFyEPLv8VvgZFzR%252FBSC%2520%2526%2520Sponsors%2520cropped.png%3Falt%3Dmedia%26token%3Df00fa347-0ff3-4050-9470-94622769af9f&width=768&dpr=4&quality=100&sign=e358161a&sv=2) 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Rennison](https://www.linkedin.com/in/amy-rennison-409680106?miniProfileUrn=urn%3Ali%3Afs_miniProfile%3AACoAABrLskkBeZtX4mIw6JsCnWLZdKuIpUa-yAo&lipi=urn%3Ali%3Apage%3Ad_flagship3_search_srp_all%3Bvdx3vmFIQKSQ8w1t5xXB3A%3D%3D) [Gabbi Cahane](https://www.linkedin.com/in/gabbicahane?miniProfileUrn=urn%3Ali%3Afs_miniProfile%3AACoAAABlJrcBsvkH0GvB5Btq2aJFvmhN3njwdoc&lipi=urn%3Ali%3Apage%3Ad_flagship3_search_srp_all%3B0jixS52dQAy4BrWn8GNUnA%3D%3D) [Alicia Walker](https://www.linkedin.com/in/walkac/) [Anna Skarborg](https://www.linkedin.com/in/anna-skarborg-a1575320?miniProfileUrn=urn%3Ali%3Afs_miniProfile%3AACoAAARhwvEBLZx7KV3lppmxnt_mSEDCQgiXskk&lipi=urn%3Ali%3Apage%3Ad_flagship3_search_srp_all%3BhuBGYiqLRVeSEbbiZB5J3w%3D%3D) [Melina Sánchez Montañés](https://www.linkedin.com/in/melinasanchezmontanes?miniProfileUrn=urn%3Ali%3Afs_miniProfile%3AACoAAAlbAGwB_wpMgkLJlet-Lr1M-kiS72JmHbA&lipi=urn%3Ali%3Apage%3Ad_flagship3_search_srp_all%3BKB0FReEuQ5Gl81Dmuy59CA%3D%3D) [Rachel Carey](https://www.linkedin.com/in/rachel-carey-25143a33?miniProfileUrn=urn%3Ali%3Afs_miniProfile%3AACoAAAcBV90BhjDGZSHmTLapJjGpgzhPlGXGqHw&lipi=urn%3Ali%3Apage%3Ad_flagship3_search_srp_all%3B04lXVFlBQC22NNBiWNMF%2BA%3D%3D) [Rémi Said](https://www.linkedin.com/in/rémi-said-99953813/) [Evita Chiang Zanuso](https://www.linkedin.com/in/evita-chiang-zanuso-4799804?miniProfileUrn=urn%3Ali%3Afs_miniProfile%3AACoAAADa9p0BH1M5ExtUaQtCaeqAVkehjhrEWuo&lipi=urn%3Ali%3Apage%3Ad_flagship3_search_srp_all%3BMUB%2FiFCaSFKnSKK2mxZ7Vw%3D%3D) [Xun Ning Choong](https://www.linkedin.com/in/xnchoong?miniProfileUrn=urn%3Ali%3Afs_miniProfile%3AACoAAAX9WxoBH-lco0yDwJ1D6MTPOILZEkEmuyA&lipi=urn%3Ali%3Apage%3Ad_flagship3_search_srp_all%3BvIJYT3EiR8GlhygJ%2BMT23A%3D%3D) [Peter Hirsch](https://www.linkedin.com/in/peter-hirsch-14a26b47?miniProfileUrn=urn%3Ali%3Afs_miniProfile%3AACoAAAnTuQoBmrbt5wROCUtQKws2AdkWLBdk1FA&lipi=urn%3Ali%3Apage%3Ad_flagship3_search_srp_all%3BDnboBoe%2FRUSfyAyGbQrVmw%3D%3D) [Cristina Almeida](https://www.linkedin.com/in/cristinapa?miniProfileUrn=urn%3Ali%3Afs_miniProfile%3AACoAABY-dbcBw_mTkN9amMLRwz2VIQ74lFW_RfY&lipi=urn%3Ali%3Apage%3Ad_flagship3_search_srp_all%3BsbX27zL6Q0i6CJWazIIxDg%3D%3D) [Laura Noorani](https://www.linkedin.com/in/laura-noorani-3b1b1139/?originalSubdomain=uk) [Isha Sharma](https://www.linkedin.com/in/isha-sharma-7bb86377?miniProfileUrn=urn%3Ali%3Afs_miniProfile%3AACoAABBSjr8BYxEnPnUWM23V4XI4-Gc1uJeywHI&lipi=urn%3Ali%3Apage%3Ad_flagship3_search_srp_all%3BsUwAVKWYQEmBINgYLFq8DQ%3D%3D) [Susanna Potenza](https://www.linkedin.com/in/susanna-potenza-8a82377a?miniProfileUrn=urn%3Ali%3Afs_miniProfile%3AACoAABDDn0ABl3mTzX_Y5nI529huBsazVirXWyg&lipi=urn%3Ali%3Apage%3Ad_flagship3_search_srp_all%3B3epGrQTiRf%2BfXX9idGK90A%3D%3D) [Kate Mullord](https://www.linkedin.com/in/katemullord?miniProfileUrn=urn%3Ali%3Afs_miniProfile%3AACoAAAB2FZQBmlfxb_YG9eIcoQZ3RVAstmRxBp4&lipi=urn%3Ali%3Apage%3Ad_flagship3_search_srp_all%3Bz1HWG%2FXPRvWyLuGZsO8jvw%3D%3D) [Yasmin Venema](https://www.linkedin.com/in/yasmin-venema?miniProfileUrn=urn%3Ali%3Afs_miniProfile%3AACoAABHo_2MBlq7WQ9ofS9xETr-4iiir5uUzCu8&lipi=urn%3Ali%3Apage%3Ad_flagship3_search_srp_all%3Be2kh4duPSACo1wUgY%2BVoug%3D%3D) [Elisabeth Löwenbourg-Brzezinski](https://www.linkedin.com/in/e-loewbrz/) [Philipp Essl](https://www.linkedin.com/in/philipp-essl?miniProfileUrn=urn%3Ali%3Afs_miniProfile%3AACoAAAIdo9YBzX15XUBOXdpLvT5UnT5ReumMw5Q&lipi=urn%3Ali%3Apage%3Ad_flagship3_search_srp_all%3BGam47bpaTZWsXMnYEaa7ww%3D%3D) [Douglas Sloan](https://www.linkedin.com/in/douglassloan?miniProfileUrn=urn%3Ali%3Afs_miniProfile%3AACoAAAldtI0BrfflcPatoikCkpEYb0tdybuBvn0&lipi=urn%3Ali%3Apage%3Ad_flagship3_search_srp_all%3BLCjPjb3cQOeDBXOJL3glLA%3D%3D) [Hayley Hand](https://www.linkedin.com/in/hayley-hand-373b8322?miniProfileUrn=urn%3Ali%3Afs_miniProfile%3AACoAAATNAkcBv0sl3zPMcjJyqKBjp0ig_VkFkOU&lipi=urn%3Ali%3Apage%3Ad_flagship3_search_srp_all%3B1gPSbvLMS3G509uL3pA%2BmA%3D%3D) [Jeremy Rogers](https://www.linkedin.com/in/jeremy-rogers-44594a17?miniProfileUrn=urn%3Ali%3Afs_miniProfile%3AACoAAAOFZfUBhg3sc-gfHCurGYTSvUCSnNM8Cj0&lipi=urn%3Ali%3Apage%3Ad_flagship3_search_srp_all%3B%2B%2FlqJAQuQyyEgVG42oATjQ%3D%3D) [Emma Steele](https://www.linkedin.com/in/emma-steele-b7a98832?miniProfileUrn=urn%3Ali%3Afs_miniProfile%3AACoAAAboUI4B_AZ5D5eYv4rn995szyNRmgezz2I&lipi=urn%3Ali%3Apage%3Ad_flagship3_search_srp_all%3BtSCi5XgwRrSFd95l4Zw3Rw%3D%3D) [Lindsay Smart](https://www.linkedin.com/in/lindsay-smart-a7380040/) [Elodie Broad](https://www.linkedin.com/in/elodie-broad-668231a1?miniProfileUrn=urn%3Ali%3Afs_miniProfile%3AACoAABWRpXAB4YYtFKAXGHe8C0zlz7rd5qbgelQ&lipi=urn%3Ali%3Apage%3Ad_flagship3_search_srp_all%3B5jrghZq%2FRViM4nhSP0iWzg%3D%3D) --- # Impact evaluation | VC Impact Playbook Impact evaluation is the process of comparing achieved and potential outcomes against the thesis for investment. Below are some ideas about what evaluation might look like: [](#for-early-stage-or-generalist-investors-where-objectives-are-around-number-of-impact-companies-suppo) **For early-stage or generalist investors where objectives are around number of impact companies supported and graduation rates:** ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 1. Justification for why a company meets the fund's definition of an impact startup 2. Number of impact startups backed 3. Number of impact startups graduating to secure further funding from a new lead investor [](#for-thematic-investors-where-objectives-are-around-specific-outcomes) **For thematic investors where objectives are around specific outcomes:** -------------------------------------------------------------------------------------------------------------------------------------------------------- 1. Degree to which outcomes are being achieved against targets set [](#for-impact-investors-that-did-not-have-specific-outcome-based-targets-but-want-to-say-more-about-out) **For impact investors that did not have specific outcome-based targets but want to say more about outcomes created:** ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 1. A case study approach at startup level is a useful approach 2. The power law applies to impact as it does to returns (ie minority of companies responsible for majority of impact returns) 3. Therefore, it makes sense to focus on the companies that are outperforming in terms of financial and impact performance As evaluation is often a sensitive discussion between GPs and their investees, we are not aware of any public examples to share. We believe increased transparency on this front is ultimately useful, although we recognise there are some tensions and challenges that have to be thought through carefully. [PreviousImpact measurement](/vcplaybook/investing-in-impactful-business-models/managing-impact-investments/impact-measurement) [NextImpact reporting](/vcplaybook/investing-in-impactful-business-models/managing-impact-investments/impact-reporting) Last updated 1 year ago Was this helpful? --- # Welcome! | VC Impact Playbook ### [](#what-is-this) What is this? This is a resource published by ImpactVC in the pursuit of building community and resources that unlock venture capital’s (VC) ability to solve the world’s most pressing challenges.   This playbook has been designed for VCs to help them source, select and support the most exciting impact startups and help them maximise their potential. It draws heavily on work done at Big Society Capital, and has been iterated and developed through engagement with the broader ImpactVC community. For a full list of contributors, see [here](/vcplaybook/contributors) . If you want to contribute, give us feedback, or have any questions, please do [get in touch](mailto:hello@impactvc.co) . ### [](#why-are-we-building-it) Why are we building it? The world faces increasingly pressing social and environmental challenges. We believe technology has an important role to play in tackling those challenges, if used with the right intent, in the right context, and with an aligned business model. We also believe that building an impactful business can be a driver of value – whereby managing for positive impact can reinforce and enhance commercial performance. Many entrepreneurs and VCs share these beliefs. An ever-greater number of entrepreneurs see purpose and impact as core to their work, and an increasing number of VCs are looking to back impact startups. These VCs need to engage with impact topics in order to effectively source, select and win investments into impact-driven companies. However, topics such as identifying high-impact startups, assessing founder intent and maximising impact value over time, can be relatively new aspects of the investment process, even for the most seasoned VCs. In addition, prospective investors in VC funds increasingly expect VCs to be able to clearly articulate their impact thesis and demonstrate their impact management and reporting capabilities. Here we break down some of these core aspects of impact investing, in a way that is practical and relevant for the VC community. We draw on expertise from the pioneers in impact venture who have paved the way for others, as well as drawing on fresh perspectives and ideas from the wider VC community, who are earlier in their impact investing journey.    ### [](#who-is-this-for) Who is this for? The playbook is for VCs looking to better understand how to embed impact thinking into their investment process, to maximise impact and financial returns. We hope it is useful for both those new to impact and those with more experience, as we have contributions from leading impact investors. While the focus is predominantly European (given the makeup of our community), we hope it is useful to other geographies too. [NextContributors](/vcplaybook/contributors) Last updated 1 year ago Was this helpful? ![Page cover image](https://impactvc.gitbook.io/~gitbook/image?url=https%3A%2F%2F2789415758-files.gitbook.io%2F%7E%2Ffiles%2Fv0%2Fb%2Fgitbook-x-prod.appspot.com%2Fo%2Fspaces%252FCGKWxLjK75ED4hY1rXJe%252Fuploads%252FGl87ahz4IAKBGpBCcmIr%252FThe-VC-Impact-Playbook.jpg%3Falt%3Dmedia%26token%3D6d4da320-521e-4496-852e-dfa34bc1fcbc&width=1248&dpr=4&quality=100&sign=6c566f87&sv=2) --- # Firm/Fund impact strategy | VC Impact Playbook This section is about the high-level approach of the firm or fund to impact in terms of what it wants to achieve, and who is ultimately accountable for delivering on that aspiration. 1. [Impact Thesis](/vcplaybook/investing-in-impactful-business-models/firm-fund-impact-strategy/impact-thesis) 2. [Impact Resourcing](/vcplaybook/investing-in-impactful-business-models/firm-fund-impact-strategy/impact-resourcing) 3. [Incentive Structures](/vcplaybook/investing-in-impactful-business-models/firm-fund-impact-strategy/incentive-structures) 4. [SFDR Alignment](/vcplaybook/investing-in-impactful-business-models/firm-fund-impact-strategy/sfdr-alignment) [PreviousOverview](/vcplaybook/investing-in-impactful-business-models/overview) [NextImpact thesis](/vcplaybook/investing-in-impactful-business-models/firm-fund-impact-strategy/impact-thesis) Last updated 1 year ago Was this helpful? --- # Incentive structures | VC Impact Playbook Impact carry mechanisms help to align incentives with impact performance of the fund, similar to the way financial carry mechanisms do for financial performance. Still a relatively new concept, the industry hasn’t yet landed on best practice for impact carry structures. Below we articulate the main dimensions that funds are thinking about. It’s important to note that as this is an emerging practice, many are looking to innovate with structures and mechanisms that can better incentivise impact. These structures are [becoming more commonplace](https://impactalpha.com/have-we-reached-the-tipping-point-for-impact-linked-compensation/?mc_cid=62476695d4&mc_eid=7385e35657) and some LPs are already making them mandatory for some of their funding programmes. Dimension Explanation Amount of carry The industry norm is to link impact carry to financial carry, rather than to have dedicated incentives for impact performance. In other words, a proportion of financial carry is ‘gated’ by impact performance. Some funds have a fixed amount linked to impact performance (eg 50% of carry which is unlocked once ABC impact metrics are achieved) while others have a variable scale (eg linked to the proportion of KPIs achieved). The range of financial carry gated by impact varies by fund; there doesn’t appear to be a norm yet, we’ve seen everything from 25% to 100%. Picking the right metrics Metrics (eg $ or £) saved, CO2 emissions, number of patients supported etc) are a critical part of any impact carry mechanism, as they are the foundation on which performance is determined and therefore remuneration rewarded. It’s a challenging task, as the metric has to be something the venture and fund can realistically measure (ie quantitative) with sufficient accuracy, yet still speak to impact in a meaningful way. Some commonly used metrics such as NPS or number of people reached are useful starting points, but should be supplemented with deeper measurements of impact. Thresholds for distribution In the same way that a hurdle exists for financial carry, the same should be true for impact performance. In other words, at what level of performance on a given metric should carry be paid? The challenge here is a lack of benchmarks to determine what good performance is and therefore should be rewarded. This is where bringing in external experts can be helpful, as they can set realistic yet ambitious targets (see governance bodies below). Measurement mechanisms In a financial context, it’s often obvious how performance is measured (ie it’s universally agreed how to calculate IRR), but for impact metrics there are several ways (eg what does improved mental health mean?). For impact it’s important to specify the measurement mechanisms by which the data will be collected, the tools used, by whom, with what cadence, and what checks and balances there are to ensure the integrity of data (eg third-party data audits – see below). Decision and governance bodies In the same way that there is oversight and third-party auditing of financial information, the same should be true of impact information. Some funds choose to have independent and dedicated impact committees to approve KPIs at the point of investment, and audit impact metrics over time. Others integrate these functions into one governance committee responsible for overall performance at the fund. See [Mustard Seed Maze's approach](https://medium.com/msmfund/putting-your-money-where-your-mouth-is-impact-incentives-for-fund-managers-b2944837d3b0) as an example. [PreviousImpact resourcing](/vcplaybook/investing-in-impactful-business-models/firm-fund-impact-strategy/impact-resourcing) [NextSFDR Alignment](/vcplaybook/investing-in-impactful-business-models/firm-fund-impact-strategy/sfdr-alignment) Last updated 1 year ago Was this helpful? --- # Impact resourcing | VC Impact Playbook As with any organisational initiative, success is determined by who is accountable for it and the financial and non-financial resources they are given to execute. A senior member of the firm, ideally a partner with a vote on an IC, is well placed to hold accountability for impact. Where possible, this individual should have expertise, experience and/or training in impact. This applies both to the relevant impact-related areas for the fund (eg healthcare) but also to impact management processes (eg impact measurement). Impact execution may or may not be led by the same individual, depending on fund size, maturity, etc. Regardless, those responsible for execution should also have expertise, experience and/or training in impact. Mathew Joseph at Kinnevik has written a [detailed post](https://www.linkedin.com/pulse/building-sustainability-function-first-steps-learnings-mathew-joseph/) on building a sustainability function at an investor, which has many applicable learnings for any impact function. [PreviousImpact thesis](/vcplaybook/investing-in-impactful-business-models/firm-fund-impact-strategy/impact-thesis) [NextIncentive structures](/vcplaybook/investing-in-impactful-business-models/firm-fund-impact-strategy/incentive-structures) Last updated 1 year ago Was this helpful? --- # Making impact investments | VC Impact Playbook Making impact investments means adding an impact lens to the established processes that startup investors go through to make any investment: 1. [Sourcing impact-driven deal flow](/vcplaybook/investing-in-impactful-business-models/making-impact-investments/sourcing-impact-driven-deal-flow) 2. [Assessing impact returns](/vcplaybook/investing-in-impactful-business-models/making-impact-investments/assessing-impact-returns) 3. [Assessing impact risks](/vcplaybook/investing-in-impactful-business-models/making-impact-investments/assessing-impact-risks) 4. [Assessing the links between impact and commercial value](/vcplaybook/investing-in-impactful-business-models/making-impact-investments/assessing-the-links-between-impact-and-commercial-value) 5. [Embedding impact into decision making](/vcplaybook/investing-in-impactful-business-models/making-impact-investments/embedding-impact-into-ic-decision-making) [PreviousSFDR Alignment](/vcplaybook/investing-in-impactful-business-models/firm-fund-impact-strategy/sfdr-alignment) [NextSourcing impact-driven deal flow](/vcplaybook/investing-in-impactful-business-models/making-impact-investments/sourcing-impact-driven-deal-flow) Last updated 1 year ago Was this helpful? --- # Impact thesis | VC Impact Playbook 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: 1. What overarching impact goals are you looking to achieve, and why? 2. What business models are you investing in? What change does that create, and for which customers and end-users or the environment? 3. Why are you investing in these business models (how do they drive returns and create impact)? 4. 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](https://knowhow.ncvo.org.uk/how-to/how-to-build-a-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)**[](#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: 1. A definition of what an impact startup is to the fund (it often helps to structure this along an established framework like [IMP](https://impactfrontiers.org/norms/) , eg which stakeholders are being targeted, how underserved are they, what outcomes are expected to materialise and with how much change). 2. How many impact startups they hope to back with investment, and the proportion of the fund that this will be. 3. How many impact startups they hope to see graduate to subsequent funding rounds. 4. 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**[](#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: 1. An articulation of which thematic areas the fund is focusing on, and why (using evidence to justify the impact need). 2. 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). 3. 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**[](#for-thematic-investors-who-are-looking-to-achieve-specific-outcomes) 1. An articulation of which thematic areas the fund is focusing on, and why (using evidence to justify the impact need). 2. Which outcomes the fund is looking to achieve and for whom (eg meaningfully improve quality of life for X group, CO2 reduction, etc). 3. Impact targets where possible (eg X improvement in Y health outcome or Z tonnes of carbon mitigated). 4. 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**[](#for-investors-targeting-systemic-change-outcomes) 1. A representation of the system, the key actors, conditions within the system and problematic systems outcomes (often depicted as a systems change map). 2. The key leverage points within the system that are opportunities for creating change. 3. How the fund plans to influence these leverage points. Examples of different theses include: 1. [Fair By Design (poverty premium)](https://fairbydesign.com/) 2. [Planet A (environment)](https://planet-a.com/science/) 3. [Eka Ventures (health & wellbeing and sustainable consumption)](https://medium.com/eka-ventures-writes/eka-ventures-our-thesis-15ed4fe75be1) 4. [AENU (environment)](https://www.aenu.com/wp-content/uploads/2022/07/AENU-IMPACT-FRAMEWORK-1.pdf) [PreviousFirm/Fund impact strategy](/vcplaybook/investing-in-impactful-business-models/firm-fund-impact-strategy) [NextImpact resourcing](/vcplaybook/investing-in-impactful-business-models/firm-fund-impact-strategy/impact-resourcing) Last updated 1 year ago Was this helpful? --- # Impact learning and iteration | VC Impact Playbook Impact is a new endeavour for most startups and VCs. New learnings are constantly being generated, and it's important these are acted upon. We've found these work best when there is a forum that: 1. Is dedicated for impact-related reflections 2. Has a regular cadence 3. Is attended/chaired by senior members of the team with impact expertise 4. Has the mandate to iterate processes as a result of insights Big Society Capital holds annual impact conversations with its portfolio, to facilitate some of these conversations, and has found it to be a useful way of promoting learning when it comes to impact. [PreviousImpactful exits](/vcplaybook/investing-in-impactful-business-models/managing-impact-investments/impactful-exits) [NextOverview and external initiatives](/vcplaybook/investing-for-impactful-operations-esg/overview-and-external-initiatives) Last updated 1 year ago Was this helpful? --- # Impact on systems | VC Impact Playbook [PreviousImpact on environment](/vcplaybook/impact-fundamentals/types-of-impact/impact-on-environment) [NextOverview](/vcplaybook/investing-in-impactful-business-models/overview) Last updated 1 year ago Was this helpful? Many startups aspire to change the entire system they are operating in, including healthcare, financial, political and education systems. Examples could include more equitable access to healthcare, or changing the way financial resources move around a system. Any time a startup is trying to tilt a system to a more impactful equilibrium, this is an example of an indirect pathway to creating impact. VCs might also be operating at the systems level, making multiple investments targeting a system, in the hope that they can create a new, system-wide, status quo. [Ascension Ventures](https://www.ascension.vc) is a good example of this, with a Fair By Design fund aiming to tackle systemic challenges leading to the poverty premium, and a Good Food Fund that aspires for the same in terms of healthy eating. A helpful framework to think about systems change, is [FSG's inverted triangle framework.](https://www.fsg.org/publications/water_of_systems_change#download-area) This highlights six systems conditions that determine the outcomes that the system generates. These conditions are often the targets of systems change interventions. Here are some examples of startups trying to tilt systems against these systems conditions: System Condition Startup Approach Policies Its platform gives workers the tools to organise and take collective action to change policies for working conditions Practices Recruitment software that de-biases the recruitment and selection process, leading to a fairer way of hiring Resource Flows Making it easier for capital to flow to impactful business models Relationships & Connections Making it easier for organisations to engage with their communities Power Dynamics By enabling remote working through its distributed HR platform, Oyster is trying to shift the balance of power to those who are underserved by the current labour market Mental Models Changing mental models often happens organically when startups demonstrate a radically better way of doing things. Paired is a good example of trying to shift relationship care away from crisis resolution, towards proactive management of relationship health, as a way of improving mental and physical health. For any organisation trying to create systems change, it's worth going through a process to analyse the system in question and identify where the key levers for change are. Here is an [example of the process that Oyster went through](https://www.oysterhr.com/impact-framework?utm_source=partner&utm_campaign=mission&utm_medium=external&utm_content=landing-page) to map out and understand how it wanted to change the employment system to a more equitable status quo. The process included: 1. Mapping the system: 1. What problem have we observed? 2. What are the systems change conditions that drive it? 3. What would a better version of this system look like? 4. How might we close the gap? 2. Focusing on impact on people: 1. What outcomes for people do we want the new system to generate? 2. What are the key levers to achieving this? 3. What might go wrong along the way? [Organise](https://organise.network/) [Applied](https://www.beapplied.com/) [CIRCA5000](https://circa5000.com/) [Commonplace](https://www.commonplace.is/) [Oyster](https://www.oysterhr.com/) [Paired](https://www.paired.com) ![](https://impactvc.gitbook.io/~gitbook/image?url=https%3A%2F%2F2789415758-files.gitbook.io%2F%7E%2Ffiles%2Fv0%2Fb%2Fgitbook-x-prod.appspot.com%2Fo%2Fspaces%252FCGKWxLjK75ED4hY1rXJe%252Fuploads%252FM7FOXrRoRMioj7U9Ymbc%252FSystems%2520Change.png%3Falt%3Dmedia%26token%3Dc540c96a-52f5-482e-af2e-bb2e8d650d5c&width=768&dpr=4&quality=100&sign=2675a3a&sv=2) ![](https://impactvc.gitbook.io/~gitbook/image?url=https%3A%2F%2F2789415758-files.gitbook.io%2F%7E%2Ffiles%2Fv0%2Fb%2Fgitbook-x-prod.appspot.com%2Fo%2Fspaces%252FCGKWxLjK75ED4hY1rXJe%252Fuploads%252FAwq3zlDJB8YN5XEubDUB%252FSystems%2520Change%2520Conditions%2520-%2520definitions.png%3Falt%3Dmedia%26token%3Db4df11ab-aa22-4ff8-b2e7-78a1d295bc6f&width=768&dpr=4&quality=100&sign=759ce32b&sv=2) --- # Sourcing impact-driven deal flow | VC Impact Playbook [](#tracking-impact-deal-flow) **Tracking impact deal flow** ----------------------------------------------------------------- A good place to start before changing deal flow strategies, is to understand how many propositions in your current pipeline identify as being mission-driven. Some VCs include a couple of questions in their screening assessment to tag impact propositions as they come in. Something as simple as ‘yes, no, maybe’ works. This provides interesting insights, such as the relative weighting of impact in the pipeline vs deals signed. It might be the case that impact startups are more or less likely to end up in your portfolio; these are important dynamics to understand before making any changes. This exercise will also highlight where current impact-deal flow is coming from, which might trigger some inspiration for where to go in order to ramp this up, if desired. [](#enhancing-impact-deal-flow) **Enhancing impact deal flow** ------------------------------------------------------------------- This is an emerging area of fund management. It’s expected that managers will become more sophisticated at this over time. Here are a few ideas of what tends to work well: 1. **Signalling impact intent of the fund** **through:** 1. **Dedicated impact comms** including a published impact thesis, impact reports, impact blogs and other communications. This attracts impact-driven founders and gives them confidence in the impact credentials of the fund. Examples of funds that do this well include [Zinc VC](https://www.zinc.vc/) and [BGV](https://bethnalgreenventures.com/) . 2. **Being thesis-driven.** Being very clear about the impact you want to achieve and the business models that you’re looking to back, sends a clear signal to the market about the expertise you have and who should be approaching you. The Fair By Design fund at [Ascension](https://www.ascension.vc) is a great example of this. 2. **Proactive outreach** **to impact-driven founders** by: 1. Being members of, or staying close to, relevant networks (eg the [Toniic](https://toniic.com/membership/) network) or monitoring upstream portfolios of impact investors 2. Developing a scouting network to source impactful deal flow (much like [Ada’s scout network](https://www.adaventures.com/) is specifically designed to source under-represented founders) [PreviousMaking impact investments](/vcplaybook/investing-in-impactful-business-models/making-impact-investments) [NextAssessing impact returns](/vcplaybook/investing-in-impactful-business-models/making-impact-investments/assessing-impact-returns) Last updated 1 year ago Was this helpful? --- # Overview | VC Impact Playbook [PreviousImpact on systems](/vcplaybook/impact-fundamentals/types-of-impact/impact-on-systems) [NextFirm/Fund impact strategy](/vcplaybook/investing-in-impactful-business-models/firm-fund-impact-strategy) Last updated 1 year ago Was this helpful? This section outlines what the key steps to investing for impact are, and some tips on how to go about doing this in practice. They broadly fall into three buckets: 1. [Firm/fund impact strategy](/vcplaybook/investing-in-impactful-business-models/firm-fund-impact-strategy) 2. [Making impact investments](/vcplaybook/investing-in-impactful-business-models/making-impact-investments) 3. [Managing impact investments](/vcplaybook/investing-in-impactful-business-models/managing-impact-investments) The impact management process ![](https://impactvc.gitbook.io/~gitbook/image?url=https%3A%2F%2F2789415758-files.gitbook.io%2F%7E%2Ffiles%2Fv0%2Fb%2Fgitbook-x-prod.appspot.com%2Fo%2Fspaces%252FCGKWxLjK75ED4hY1rXJe%252Fuploads%252FmeyNDo1CXc8oHqGvgmu1%252FImpact%2520management.png%3Falt%3Dmedia%26token%3D93463a3d-66f5-4a4a-87e2-3a20c923902c&width=768&dpr=4&quality=100&sign=8843cf5&sv=2) --- # Managing impact investments | VC Impact Playbook As with making impact investments, managing them post-investment is a case of taking an impact lens to existing VC portfolio/platform processes. 1. [Supporting your portfolio with impact](/vcplaybook/investing-in-impactful-business-models/managing-impact-investments/impact-support-to-your-portfolio) 2. [Impact measurement](/vcplaybook/investing-in-impactful-business-models/managing-impact-investments/impact-measurement) 3. [Impact evaluation](/vcplaybook/investing-in-impactful-business-models/managing-impact-investments/impact-evaluation) 4. [Impact reporting](/vcplaybook/investing-in-impactful-business-models/managing-impact-investments/impact-reporting) 5. [Impactful exists](/vcplaybook/investing-in-impactful-business-models/managing-impact-investments/impactful-exits) 6. [Impact learning and iteration](/vcplaybook/investing-in-impactful-business-models/managing-impact-investments/impact-learning-and-iteration) [PreviousEmbedding impact into IC decision-making](/vcplaybook/investing-in-impactful-business-models/making-impact-investments/embedding-impact-into-ic-decision-making) [NextImpact support to your portfolio](/vcplaybook/investing-in-impactful-business-models/managing-impact-investments/impact-support-to-your-portfolio) Last updated 1 year ago Was this helpful? --- # Impact reporting | VC Impact Playbook Best practice in impact reporting is moving quickly, partially down to incoming regulation in this area. A few general principles to adhere to include: 1. A regular cadence of information around impact; at a minimum annually 2. Offering comprehensive coverage on the major sources of positive and negative impacts 3. Providing data in a meaningful form (ie with relative benchmarks) 4. Transparency around impact measurement methods [Bluemark](https://bluemarktideline.com) recently conducted a [review of impact reporting](https://bluemarktideline.com/wp-content/uploads/2022/04/BlueMark_Raising-the-Bar_Full-Report.pdf) in general (ie not specific to venture), with some interesting insights including: 1. 74% of reports included investment-level metrics that addressed two or more of the IMP’s five impact dimensions, but only 10% reported on all five dimensions for all investments in their report 2. Fewer than half of the reports (38%) presented expected targets alongside actual results at the investment level 3. Fewer than half of the reports used standardised indicators (44%) or cited the sources/ definitions for the metrics included, limiting the comparability of the reported data The audience of an impact report largely determines what's likely to feature in a report. For public-facing reports, it's unlikely that investors would include as much information on impact performance and risks. While this is understandable to some degree (although we hope that we can get to a place where we can have this discourse in public), reports to LPs should include detailed information on performance and risks in the spirit of having constructive conversations with LPs. While the current norm is that impact information is communicated in standalone reports, we are seeing an increasing preference for integrated annual reports, whereby the fund's performance is discussed in its entirety. [Snowball](https://www.snowball.im) has written a piece on [how to read an impact report](https://www.snowball.im/blog/how-to-read-an-impact-report) . Some funds also engage in regular comms on impact-related topics. For example, [Planet A](https://planet-a.com/science/) publishes a lot on its impact approach, the science backing its investments, and progress to date. [](#some-examples-of-vc-impact-reports) Some examples of VC impact reports: -------------------------------------------------------------------------------- 1. [BGV](https://bethnalgreenventures.com/learning-and-impact-report/) 2. [Norrsken VC](https://www.norrsken.vc/impact-investing) 3. [SJF Ventures (US)](https://sjfventures.com/impact/) 4. [2150](https://www.2150.vc/wp-content/uploads/2022/06/2150-Impact-report-May-Optimised.pdf?utm_source=LinkedIn) 5. [Rubio Ventures](https://www.rubio.vc/about-impact/) If you have come across exceptional examples of reports or regular impact communication, please do [share them with us](mailto:nandreou@bigsocietycapital.com) . [PreviousImpact evaluation](/vcplaybook/investing-in-impactful-business-models/managing-impact-investments/impact-evaluation) [NextImpactful exits](/vcplaybook/investing-in-impactful-business-models/managing-impact-investments/impactful-exits) Last updated 1 year ago Was this helpful? --- # Assessing impact risks | VC Impact Playbook Impact risk assessment is a critical part of the process, especially in venture investing, where there is a lot of uncertainty about how a business model evolves over time. It's important to note that many investors also include ESG risk assessments as part of this process. While important, we do not cover this here, as there are [other resources](/vcplaybook/investing-for-impactful-operations-esg/overview-and-external-initiatives) that do an excellent job of this already. There are largely three buckets of impact risk that need to be considered: 1. The likelihood of the targeted positive impact materialising 2. The degree to which expected/known negative impacts could be mitigated 3. The nature of and likelihood that unknown/unintended negative impacts could materialise and the startup's ability to avoid/mitigate these These are unpacked below, alongside some thoughts on how best to think about this in the context of an investment process. **Whether the targeted positive impact will materialise**[](#whether-the-targeted-positive-impact-will-materialise) Risk here is largely a function of: 1. Execution risk – Can the startup overcome any scientific/technical/business risks in getting to its vision? In early-stage venture context this is by far the biggest risk. 2. Alignment risk – Are the founders likely to stay on their impact course? This is a combination of their impact intent, and whether they can turn that into a workable business model without having to pivot to more commercial applications of their product. 3. External risk – Will stakeholders, including customers, users and regulators, prevent impact occurring in some way? **The expected/known negative impacts and how they could be mitigated**[](#the-expected-known-negative-impacts-and-how-they-could-be-mitigated) It is difficult to imagine a business with no negative impacts (eg anything heavy on logistics will have implications for the environment), and so here the question is around how startups can mitigate those impacts (eg in the example above, by using zero/low emissions forms of transport). The risk frameworks linked below are a useful starting point for understanding the risk profile of a business model. ESG-related risk typologies can also help to unpack [operational related risks](/vcplaybook/investing-for-impactful-operations-esg/overview-and-external-initiatives) . **What the unknown/unintended negative impacts could be and how they can be avoided/mitigated**[](#what-the-unknown-unintended-negative-impacts-could-be-and-how-they-can-be-avoided-mitigated) In many cases, the most damaging risks are the unforeseeable ones, because they go unmanaged for so long. While the following aren't impact businesses, they help to make the point. Think of the challenges that Uber had with working conditions and driver safety; that Airbnb has had with discrimination and housing prices; that Facebook had with fake news, hate speech and distortion of the democratic process. The founders probably never would have imagined these outcomes being associated with their businesses, and yet they are. The question here is less about whether it's possible to predict these consequences, and more about what processes the startup sets up to regularly scan for these, so that if they were to materialise, they could be managed effectively. For example, BGV supports its portfolio to conduct 'horizon scanning' exercises, where it proactively considers what risks may arise and how to monitor them. See [section 12 of their 2021 impact report](https://uploads-ssl.webflow.com/625a6a50e620b457b31b660f/627d5d9b5f85fa6df5c1f395_BGV%20Impact%20and%20Learning%20Report%202021.pdf) for more information. [](#other-frameworks) **Other frameworks** ----------------------------------------------- 1. [Omidyar's Ethical Explorer Guide](https://omidyar.com/introducing-the-ethical-explorer-pack/) 2. [Impact Frontiers' risk dimensions](https://impactfrontiers.org/norms/five-dimensions-of-impact/impact-risk/) [PreviousAssessing impact returns](/vcplaybook/investing-in-impactful-business-models/making-impact-investments/assessing-impact-returns) [NextAssessing the links between impact and commercial value](/vcplaybook/investing-in-impactful-business-models/making-impact-investments/assessing-the-links-between-impact-and-commercial-value) Last updated 1 year ago Was this helpful? --- # Assessing impact returns | VC Impact Playbook [PreviousSourcing impact-driven deal flow](/vcplaybook/investing-in-impactful-business-models/making-impact-investments/sourcing-impact-driven-deal-flow) [NextAssessing impact risks](/vcplaybook/investing-in-impactful-business-models/making-impact-investments/assessing-impact-risks) Last updated 1 year ago Was this helpful? 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](/vcplaybook/investing-for-impactful-operations-esg/overview-and-external-initiatives) that do an excellent job of this already. A couple of general frameworks that would be useful to consult are: * [Impact Frontiers 5 dimensions of impact](https://impactfrontiers.org/norms/five-dimensions-of-impact/) – This articulates different dimensions of impact that help to break down total impact returns * [Theory of Change](https://www.thinknpc.org/resource-hub/ten-steps/) – 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**[](#for-talent-investors-accelerators) At this stage, the business model is still very fluid, and so the focus is predominantly on the founders: 1. Assess founding team values 1. Do the team show values aligned with impact (eg empathy, integrity, rigour)? 2. Assess founding team's motivation for starting the business 1. Is the motivation for starting the business at least in part to solve a social or environmental problem? 2. Where has this motivation come from; is it lived experience personally or professionally, or is it from a passion for solving the problem? 3. Assess founding team's impact intent 1. 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**[](#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: 1. Does the product have a clear use case that delivers impact? 2. 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. 3. Can the founders deliver on the use case (execution/scientific/technical risk)? 4. 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. 5. 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**[](#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: 1. Which specific outcomes are being targeted? For social outcomes: 1. For which customer segments and their relative levels of need? 2. What is the 'per user' impact expected (in other words how much will this product move the needle on the outcome being targeted)? 3. 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. For environmental outcomes (based on [emissions reduction potential](https://static1.squarespace.com/static/60903dcf05bc23197b2b993b/t/617a2ad6a6865d4cbf72eee7/1635396312310/PRIME-NYSERDA-Climate-Impact-Assessment-Report_Final.pdf) ): 1. What is the _additional (ie net of alternatives)_ per use/per transaction impact of the product? 2. What scale is expected to be reached? 3. What is the total expected environmental potential? Specifically for environmental outcomes, many investors are using the [EU Taxonomy](https://eu-taxonomy.info/info/eu-taxonomy-overview) to assess environmental impact, as it is linked to upcoming [SFDR](/vcplaybook/investing-in-impactful-business-models/firm-fund-impact-strategy/sfdr-alignment) regulations. **For series B investors and beyond**[](#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) Examples --------------------------- 1. AENU's impact assessment methodology and criteria in [short form](https://www.aenu.com/wp-content/uploads/2022/10/AENU-IMPACT-METHODOLOGY.pdf) and longer form blogs [here](https://www.aenu.com/insights/our-impact-process-part-1-your-application/) and [here](https://www.aenu.com/insights/our-impact-process-part-2-the-investment-process/) 2. Planet A's impact assessment process is captured [here](https://planet-a.com/science/) , including a detailed white paper on its [methodology](https://drive.google.com/file/d/1VtYpx5bxSr6TR3FlGqHMfne1Sa12dk0r/view) , and a list of its Life Cycle Assessments can be found [here](https://protect-eu.mimecast.com/r/IS9uukFEXjKL2O6WBxJ8WENFFJT4hfxAA62-4LjppgancDg7S4F-QpvTGLdLkt0iWyIN4aiqoR-wsAOsLYotWu0MmngB0M4CW67bTvDQteVQ1zbNuFPvqrOx--566Q49IqzJSJKTOBa8-G53rhZ6XYjK_yjxvzIMhxespUJ6UADVvTWT8AJjUStjp0vjWCK_aXgj91dE0CYr1mdI2hyiTYqlgC9IhZEjOcToDAbL4NeaflTbzMaYEATZ61ZxAs3-a_H6p2-9aWUgnb3LeSZwlgTxGSvjz88ikQqjp8-dpQKzpuhxT2GKCo4nGOBMID_j_7IWX9EvNqQ8mkpPXqH0-d-E8q9T_-Mj8eQ_IjJ9O4pTDmnarZXXB9gMq62G2aL5DsaqWe2V2gEtI7QNtEL--9J7ytGFYHtNK5_07NQ5qXLErqlc4o2utahORYMNO7jjbgla-5cWInM5nUGqkLVMbOwK32KnCrez6Sf-m-C_8uoeDcl02PFV2rrlHWSAsIPnrqV0Y4-M75QnP8rus68QEIexJqpOEBSS_HQqm3adeSq-h74Wob-RuQrX0Cd1bEDyqp2Q7-zXa-KhYyS-UixJqtasSu5cKuv-2LQbhH4rHEq96ePjghZj3q1meFJeq1PFDU5hV2kwWy--K3kpAeff46x7T-JZ0LLcK8DINLUlv31E1W8RdZRXczKDHoXzKGjDNyVZsxZp6tFY5MDwjgfNCy6pvhlhkysuqGH8hI3Lkog3dQp1UAGKFSsFu9XEfJ_0QG4IoKf57JydVtfTEvW7tpEum3k_1GTZeyAh9Dinjf4bpGg4pW3YpGtKVaHkdFhYLuCxrqoRYR61xSVECd32kqxwfL0ztMs0Ix1TYjStQsAtmP8xJsuKjkHVd_iHrcR8XzAM9rreDZpDHdB7u9jhn85o5jbRNVd5pygSwIcc6M18qrtumhHfMJznY3At9DFc86ypddk1n7TPOC5PtnzC7TaJkOe7P3L0XOFR9RfpmzOG1GhTFGq7zOSzewYgmoXPkvUsW6Lzy0mLemnGQa7G3kjJTDX7wIJBOrQ9OZiwh6vjGsTZXaUoq5ciVIvbhkQ8fxTDvxvNfS576kJ4OkUaOi0MQ0ojduXuID4kuoIB3r0o9l_EaPm2iRXma_tjrzdKJMg23tzvWG_O1l8tsbiGfBySdV16H6mzwhnlhByGAV7WmrBrKPBuCMhn1M3Zs_REFFYhLwCQYKjjD65gebZsdm2agA160ip2se2MTusB2jXYbLEnFSepflRUUh9oPHbdGXgbqxuDchaNv5cyq9OHu6LOOt7wxDdcqxNXbH8sEvfoac0svKtzh1ziP6RE3-r1dZY32KwOyswYqFlet-Fkjs3jTLTI8u9GbiNAN-HzRBFbXUOTHq_laAiYVfVm9psF-Td9eHdEKon2aimqj3SScx-V8etKWXrDY_0UDSlZ9VkCBcSX402eOAoIX_mraEeuIQ1Ea2hoMHQfXY_a5ey_Nga8Fby_fPFH5B2LX5kBXbdLm_NBHICEMKpTxkdCuKJsJssVuJ8UsVjSud6LB8GyUOtzW8n1pTp76TiEzgIah4WI_puPBW0CGXFIDl5Q__BKGfqtSRPH6SfLorK0J6X5OhQGM2vUkiqle303oEZfpqP4zi2NmF0gQ8WQMGRlntohAmsf4xQziHWMIeTYsQiRDxHfRaQY9l37ciUQ4LjAEnpJ4AdWs46r6bkdInYTy9A9OGheOA-RILl4uVopeQ875coL3XTZNnvEubP62hmXgPM) The IMP’s five dimensions of impact ![](https://impactvc.gitbook.io/~gitbook/image?url=https%3A%2F%2F2789415758-files.gitbook.io%2F%7E%2Ffiles%2Fv0%2Fb%2Fgitbook-x-prod.appspot.com%2Fo%2Fspaces%252FCGKWxLjK75ED4hY1rXJe%252Fuploads%252FVWBw0B7hNL0otXqz2X9P%252Fimage.png%3Falt%3Dmedia%26token%3D8de85e04-acdf-4e89-90eb-146cf4597b4e&width=768&dpr=4&quality=100&sign=8d8bcd5a&sv=2) ![](https://impactvc.gitbook.io/~gitbook/image?url=https%3A%2F%2F2789415758-files.gitbook.io%2F%7E%2Ffiles%2Fv0%2Fb%2Fgitbook-x-prod.appspot.com%2Fo%2Fspaces%252FCGKWxLjK75ED4hY1rXJe%252Fuploads%252FJtc9FtbG8dhmWoS4TI8B%252FTheory%2520of%2520change.png%3Falt%3Dmedia%26token%3D4a20f907-5cac-4dc0-a65b-d0cbc8e733ad&width=768&dpr=4&quality=100&sign=a4fd5395&sv=2) --- # SFDR Alignment | VC Impact Playbook [The Sustainable Finance Disclosure Regulations (SFDR)](https://finance.ec.europa.eu/sustainable-finance/disclosures/sustainability-related-disclosure-financial-services-sector_en) is an emerging European policy framework for sustainability disclosures that went live on 1 January 2023. We have collected our interpretation of the emerging SFDR requirements and what that means for venture funds. > **Note, it is a complex policy initiative that has been delayed several times and there are many unknowns that the European Commission and associated stakeholders are still working through.** > > **Not withstanding that things may change after we publish this, we are not lawyers or policy experts and this should not be considered as legal advice!** One way to think about SFDR, is the different reporting categories and the requirements specified for each: 1. **entity-level** (ie at the firm level) principal adverse impact reporting 2. **product-level** pre-contractual disclosures (eg prospectus) 3. **product-level** website disclosures, and 4. **product-level** periodic disclosures #### [](#key-terminology) Key terminology: **Principal adverse impacts** are a key concept in SFDR. They are considered the universe of the most material sustainability-related risks concerning environmental, social and governance matters. Assessing risk likelihood and reporting data against these are a central part of SFDR. **Reference period** ie a benchmark, typically the first, or proceeding, year’s performance of the fund. ### [](#entity-level-principal-adverse-impact-reporting) **Entity-level principal adverse impact reporting** **What’s required?**[](#whats-required) 1. Reporting performance data on specific indicators (similar to ESG metrics) that can be found in the template (see below) 2. Qualitative elements including: 1. A summary 2. Relevant policies 3. Actions and mitigation strategies 4. Adherence to international standards 5. Historical comparison covering five reference periods **Is there a template?**[](#is-there-a-template) Yes (see Word version [here](https://www.eiopa.europa.eu/document-library/other-documents/principal-adverse-impact-and-product-templates-sustainable-finance) ). **How often do I have to do this?**[](#how-often-do-i-have-to-do-this) As noted in the [Final Report on draft Regulatory Technical Standards](https://www.esma.europa.eu/sites/default/files/library/jc_2021_03_joint_esas_final_report_on_rts_under_sfdr.pdf) (published 2/2/2021): By 30 June each year, financial market participants shall publish the information referred to in paragraphs 1(a), 2, 3 and 4 of Article 4 of [Regulation (EU) 2019/2088](https://eur-lex.europa.eu/eli/reg/2019/2088/oj) and this Section \[[section 1, p. 23 of the RTS](https://www.esma.europa.eu/sites/default/files/library/jc_2021_03_joint_esas_final_report_on_rts_under_sfdr.pdf)\ \] on their websites in a separate section titled, ‘Principal adverse sustainability impacts statement’ located in the same part of the website as the section referred to in Article 31. This is a helpful factsheet including a timeline: [_https://go.factset.com/hubfs/Website/Resources%20Section/Brochures/sfdr-disclosing-principal-adverse-impact-indicators-brochure.pdf_](https://go.factset.com/hubfs/Website/Resources%20Section/Brochures/sfdr-disclosing-principal-adverse-impact-indicators-brochure.pdf) What about a reference period?[](#what-about-a-reference-period) In the first year, no reference period information is required. In the second year, a reference period is required. Anything else?[](#anything-else) 1. Keep any published information up to date. 2. Include date of publication of the information and clearly identify any updated text with the date of the update 3. Where that information is presented as a downloadable file, indicate the version history in the file name. ### [](#product-level-pre-contractual-disclosures) **Product-level pre-contractual disclosures** **What's required?**[](#whats-required-1) You must include information in line with the given template (see below). This includes information on: 1. Objectives of the fund and whether aligned with Article 8 or Article 9 2. Investment strategy 3. Relevant indicators to track performance 4. Alignment of targeted investments and the fund’s goals 5. Investment strategy and proportion of portfolio that will align with different categories of impact 6. Benchmarking information on impact performance Is there a template?[](#is-there-a-template-1) Yes (see [here](https://www.eiopa.europa.eu/sites/default/files/publications/other_documents/c_2022_1931_annex_2_pre-contractual_environmental_social_characteristics.docx) for Article 8 environmental and social characteristics and [here](https://www.eiopa.europa.eu/sites/default/files/publications/other_documents/c_2022_1931_annex_3_pre-contractual_sustainable_investment_objective.docx) for Article 9 sustainable investment objective). **Note:** SFDR documents (Article 6 in [Regulation 2019/2088](https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A02019R2088-20200712) ) require that ‘transparency of the integration of sustainability risks’ be included in pre-contractual disclosures, although it is not clear where this should be reported in the template. How often do I have to do this?[](#how-often-do-i-have-to-do-this-1) Once, in the pre-contractual disclosures, but they have to be kept up to date. What about a reference period?[](#what-about-a-reference-period-1) No reference period data required. ### [](#product-level-website-disclosures) **Product-level website disclosures** **What's required?**[](#whats-required-2) A disclosure statement on the website referencing the product’s sustainability profile. This should include: 1. Sustainability-related objectives of the product and whether they are aligned with Article 8 or 9 2. Investment process and sustainability-related elements and policies (in particular focusing on sustainability risk policies) 3. Any data sources used to inform decision-making (eg to estimate impact or create benchmarks) 4. Screening criteria 5. Whether and how principal adverse impacts are considered 1. Disclosure on how the product complies with the ‘do no harm’ principle 2. Disclosure on alignment with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights **Is there a template?**[](#is-there-a-template-2) No. **How often do I have to do this?**[](#how-often-do-i-have-to-do-this-2) Once, but information must be kept up to date. What about a reference period?[](#what-about-a-reference-period-2) No benchmarking data needs to be included here. Anything else?[](#anything-else-1) SFDR documents (Article 5 in [Regulation 2019/2088](https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A02019R2088-20200712) ) also state that there should be ‘transparency of remuneration policies in relation to sustainability risks’ on the website. However, there is little guidance as to how to approach this and whether that exists at product level or entity level. ### [](#product-level-periodic-disclosures) **Product-level periodic disclosures** **What's required?**[](#whats-required-3) You must include information in line with the given template (see below). This includes information on: 1. Objectives of the fund, whether aligned with Article 8 or Article 9, and whether they are being met 2. Relevant indicators to track performance and performance against those 3. The degree to which investments met the ‘do no harm’ principle 4. Whether and how principal adverse impacts were considered 5. Identifying the 15 largest investments and the breakdown of assets by categories of sustainability 6. Benchmarking data and relative performance **Is there a template?**[](#is-there-a-template-3) Yes (see [here](https://www.eiopa.europa.eu/sites/default/files/publications/other_documents/c_2022_1931_annex_4_periodic_environmental_social_characteristics.docx) for Article 8 environmental and social characteristics and [here](https://www.eiopa.europa.eu/sites/default/files/publications/other_documents/c_2022_1931_annex_5_periodic_sustainable_investment_objective.docx) for Article 9 sustainable investment objective). **How often do I have to do this?**[](#how-often-do-i-have-to-do-this-3) Annually. **What about a reference period?**[](#what-about-a-reference-period-3) You need to report at least one reference period. [PreviousIncentive structures](/vcplaybook/investing-in-impactful-business-models/firm-fund-impact-strategy/incentive-structures) [NextMaking impact investments](/vcplaybook/investing-in-impactful-business-models/making-impact-investments) Last updated 1 year ago Was this helpful? --- # Assessing the links between impact and commercial value | VC Impact Playbook [PreviousAssessing impact risks](/vcplaybook/investing-in-impactful-business-models/making-impact-investments/assessing-impact-risks) [NextEmbedding impact into IC decision-making](/vcplaybook/investing-in-impactful-business-models/making-impact-investments/embedding-impact-into-ic-decision-making) Last updated 1 year ago Was this helpful? It is becoming increasingly clear that impact and commercial value can interact in a positive way. There's a list of resouces at the bottom of this page that unpack this dynamic, and we summarise our thinking here. It's important to remember that some of these dynamics play out over the long term, and so should be thought of as part of building a winning enterprise over time, rather than considering immediate ROI. We think there are four key stakeholder groups where interesting dynamics are emerging between the pursuit of impact and value: 1. **Customers** – There are multiple levels at which mechanisms exist here. A relatively superficial one is the degree to which customers prefer impactful products and brands. At a deeper level there are dynamics around [enhanced unit economics](https://bigsocietycapital.com/latest/how-impact-can-increase-customer-retention/) eg when reaching underserved populations and [unlocking new market segments](https://bigsocietycapital.com/latest/how-impact-driven-innovation-can-unlock-new-market-segments/) through innovative revenue streams. 2. **Talent** – Talent is critical to building a winning startup, and younger generations of talent are increasingly looking for meaningful careers. Building an impact-driven startup could be one way of [winning top-tier talent](https://medium.com/impact-edge/impact-driven-startups-are-winning-the-war-for-talent-heres-how-you-can-do-it-too-1acdf891558f) through offering talent a career that is aligned with their values. 3. **Regulators** – Regulators are becoming increasingly interested in the impact of business on society and the environment. Legislation introduced to prevent negative impact from payday lenders, or unethical insurance practices, demonstrate this well. By building an impact-driven business, [founders can stay ahead of the regulatory curve and minimise shocks to their business.](https://bigsocietycapital.com/latest/how-impact-mitigates-startup-risk/) 4. **Capital providers** – If all of the above is true, then capital providers will increasingly want to back impactful businesses. We are already [seeing these trends emerge](https://bigsocietycapital.com/latest/four-ways-impact-acts-as-a-source-of-value-for-startups-and-investors/) with dramatic increases in ESG and purpose-driven investing. Most recent Atomico data shows early-stage investing in impactful business models [has grown 3x in the last few years](https://2021.stateofeuropeantech.com/chapter/executive-summary/) . If we accept that impact can be a source of value in building a winning business, the best investors will become increasingly more sophisticated when analysing this. The simplest way we've found of thinking about this, is to take established ways of thinking about startup dynamics, and layering in an impact lens on top of them. For example, how does the impact mission of the company affect customer acquisition, lifetime value, market size and so on. Some of the resources below get at these questions, although we are still a few steps away from a clear framework on assessing value here. **General:** 1. [Overview](https://bigsocietycapital.com/latest/four-ways-impact-acts-as-a-source-of-value-for-startups-and-investors/) 2. [How impact acts as a source of value, insights from our portfolio](https://bigsocietycapital.com/latest/how-impact-acts-as-a-source-of-value-insights-from-our-portfolio/) 3. [How impact mitigates startup risk](https://bigsocietycapital.com/latest/how-impact-mitigates-startup-risk/) 4. [Eka Venture's](https://www.ekavc.com/#3) [investment thesis](https://medium.com/eka-ventures-writes/eka-ventures-our-thesis-15ed4fe75be1) highlights the 'shared value' behind impact and financial returns 5. Ascension's data showing [impact investments perform better than non-impact investments](https://medium.com/@ascension_vc/ascension-investments-addressing-social-inequalities-outperform-rest-of-portfolio-302b32d4eb40) **Customers:** 1. [How impact can enhance customer retention](https://bigsocietycapital.com/latest/how-impact-can-increase-customer-retention/) 2. [Unlocking pathways to scale and impact through innovative revenue models](https://bigsocietycapital.com/latest/unlocking-pathways-to-scale-and-impact-through-innovative-revenue-models/) 3. The ['Impact Moat'](https://medium.com/giant-leap-fund/the-impact-moat-an-d0d5c65facec) 4. [How impact-driven innovation can unlock new market segments](https://protect-eu.mimecast.com/s/hzSzC1W4qIZo3jty5PXN?domain=bigsocietycapital.com/) **Talent:** 1. [Impact-driven startups are winning the war for talent](https://medium.com/impact-edge/impact-driven-startups-are-winning-the-war-for-talent-heres-how-you-can-do-it-too-1acdf891558f) **Case studies highlighting links between impact and commercial value:** 1. [Wagestream](https://medium.com/impact-venture/impact-as-a-source-of-value-case-study-wagestream-dc1972f45711) (financial wellbeing) 2. [Urban Jungle](https://medium.com/impact-venture/how-impact-acts-as-a-source-of-value-urban-jungle-2be1305d645d) (affordable insurance) 3. [Ophelos](https://medium.com/impact-venture/how-impact-acts-as-a-source-of-value-in-building-a-startup-the-case-of-ophelos-db0a290a0271) (debt resolution) 4. [Oyster](https://medium.com/impact-venture/how-impact-helped-mint-a-unicorn-in-two-years-the-case-of-oyster-9aaa5ee46909) (future of work) ![](https://impactvc.gitbook.io/~gitbook/image?url=https%3A%2F%2F2789415758-files.gitbook.io%2F%7E%2Ffiles%2Fv0%2Fb%2Fgitbook-x-prod.appspot.com%2Fo%2Fspaces%252FCGKWxLjK75ED4hY1rXJe%252Fuploads%252FEQWl11d1IhnQKwq1RQIQ%252FShared%2520values.png%3Falt%3Dmedia%26token%3D012d663a-1a1e-436d-b962-ef55f25278da&width=768&dpr=4&quality=100&sign=448ddfd2&sv=2) --- # Impact support to your portfolio | VC Impact Playbook In the same way that funds provide support to startups on product, talent, growth, etc, we’re seeing more funds provide support to founders on solving their biggest impact challenges including impact strategy, business model design for impact, and impact measurement. This speaks to a fund's 'investor contribution' to use [IMP language](https://impactfrontiers.org/norms/investor-contribution/) . In other words, how does the fund help enhance impact through engaging with its portfolio? [](#some-approaches-to-impact-support) Some approaches to impact support ----------------------------------------------------------------------------- 1. Building capacity and expertise in-house to support startups (eg by training the existing team, or through bringing in impact venture partners) 2. Curating a list of existing resources (see a blog by Balderton and Big Society Capital, which includes reference to many difference resources [here](https://bigsocietycapital.com/latest/what-determines-a-successful-exit-for-an-impact-startup/) ) 3. In some cases, venture builder programmes or accelerators are designed with impact support very much at the core of the offering. Some examples include: 1. [Bethnal Green Ventures Accelerator](https://www.bethnalgreenventures.com) 2. [BMW Foundation Accelerator](https://bmw-foundation.org/en/our-work/respond-accelerator/) 3. [Katapult Accelerator Programmes](https://katapult.vc/startups/accelerators/) 4. [Maze X Startup Accelerator](https://maze-impact.com/maze-x/) 5. [Zinc VC Venture Builder](https://www.zinc.vc) [](#what-founders-seek-help-with) What founders seek help with ------------------------------------------------------------------- 1. How to create an impact strategy that is aligned and is mutually reinforcing with a commercial strategy 2. How to build a product and business model that effectively deliver impact 3. How to leverage a social and/or environmental mission to attract top talent 4. How to build a differentiated brand through impact thought leadership on the problem they are trying to solve 5. How to measure and report impact 6. Where to find impact-driven talent (eg the Mustard Seed Maze [job portal](https://careers.msm.vc/jobs) to help impact-driven talent find relevant jobs) AENU has made a [number of resources](https://protect-eu.mimecast.com/s/965gCmOy6TB7JqtQXajJ?domain=aenu.com/) public that might be helpful to impact startups (ESG policy, sample impact term sheet clauses, etc). [PreviousManaging impact investments](/vcplaybook/investing-in-impactful-business-models/managing-impact-investments) [NextImpact measurement](/vcplaybook/investing-in-impactful-business-models/managing-impact-investments/impact-measurement) Last updated 1 year ago Was this helpful? --- # Overview and external initiatives | VC Impact Playbook [](#what-is-esg) What is ESG? ---------------------------------- Impact through operations or _how_ a venture operates is a [second dimension](/vcplaybook/impact-fundamentals/what-is-impact-and-how-is-it-created) of impact that's important to consider. This dimension refers to an approach to running a business, and so is applicable to all businesses regardless of their business model. This is largely referred to as Environmental, Social and Governance (ESG). ESG assessment can (and we believe should) be applied to VCs and their portfolio companies alike. It describes a set of criteria for assessing responsible investment and business practices, regardless of whether a VC or startup is explicitly trying to tackle a social or environmental problem. Typical considerations include: **Environmental:** Factors that relate to the natural world. Examples include carbon footprint, pollution, waste, deforestation. **Social:** Factors that affect the lives of humans where categories include management of human resources, local communities and clients. Examples include working environment, human rights (including modern slavery and child labour), data and privacy. **Governance:** Factors that involve issues inherent to the governance of the business and the interest of wider stakeholder groups (eg workers, customers). Examples include bribery and corruption, compensation, board diversity and structure. [](#why-is-this-important) **Why is this important?** ---------------------------------------------------------- It's worth noting that for most early-stage ventures, the opportunity here is limited, given small team size, environmental footprint and uncertainty over survival. However, as the large corporates of tomorrow, it's important to embed the right values and discipline around operational impact early on. This is a relatively nascent and evolving field in venture which, largely driven by regulatory pressure, LPs and other stakeholders are expecting VCs to get quickly up the curve. Incoming regulatory frameworks include: 1. The EU's [Sustainable Finance Disclosure Regulations](/vcplaybook/investing-in-impactful-business-models/firm-fund-impact-strategy/sfdr-alignment) (SFDR) 2. The UK's [Sustainable Disclosure Regulation](https://www.fca.org.uk/publications/consultation-papers/cp22-20-sustainability-disclosure-requirements-sdr-investment-labels) (SDR) 3. The [Task Force on Climate-related Financial Disclosures](https://www.fsb-tcfd.org) (TCFD) 4. The [Task Force on Nature-related Financial Disclosures](https://tnfd.global) (TNFD) Pertinent for VCs and startups with an eye on exits, later-stage investors are pushing these considerations down the value chain, with public market asset managers choosing not to invest in companies who don’t meet their ESG standards. The Deliveroo IPO case, for instance, [saw various big asset managers refuse to buy into the company](https://bigsocietycapital.com/latest/how-impact-mitigates-startup-risk/) based on ‘ESG concerns’ highlighting the importance of robust ESG. [](#how-to-manage-esg) **How to manage ESG** ------------------------------------------------- Rather than reinvent the wheel here, we refer you to two ongoing initiatives in the space, that have a comprehensive set of resources and strong community, to help venture managers and startups navigate ESG questions in early stage venture. 1. [VentureESG](https://www.ventureesg.com) 2. [ESG\_VC](https://www.esgvc.co.uk) [PreviousImpact learning and iteration](/vcplaybook/investing-in-impactful-business-models/managing-impact-investments/impact-learning-and-iteration) Last updated 1 year ago Was this helpful? --- # Embedding impact into IC decision-making | VC Impact Playbook There are two factors here that are relevant: 1. Impact insights from DD making it to the Investment Committee (IC) as an input 2. The IC's ability to consider those impact insights as part of the decision [](#impact-insights-from-dd-making-it-to-the-ic) **Impact insights from DD making it to the IC** ----------------------------------------------------------------------------------------------------- The simplest way to do this is to include space in IC memos (or equivalent) to consider impact. Doing this in a structured and clear way helps to present the information in digestable way, whereby an IC can also consider impact relative to the portfolio or other propositions. Frameworks including the [Impact Frontiers' 5 dimensions of impact](https://impactfrontiers.org/norms/five-dimensions-of-impact/) or a [theory of change](https://www.thinknpc.org/resource-hub/ten-steps/) might be a good way to do this. Key questions include: 1. What outcomes are being targeted by the startup? 2. How will these be achieved? 3. What are the key risks associated with impact in this model? 4. How does the above [drive commercial value](/vcplaybook/investing-in-impactful-business-models/making-impact-investments/assessing-the-links-between-impact-and-commercial-value) (eg does it interact with customer acquisition, market size)? For social investments: 1. Who is the startup currently reaching and planning to reach over time? 2. How meaningful is the change experienced by end-users? 3. How many people stand to benefit? 4. How additional is this impact? For environmental investments: 1. What is the per transaction/use emissions impact of the product? 2. How does this compare to existing products? 3. How big can the company get (ie how many transactions/uses of the product will exist)? 4. Are there other environmental impacts (biodiversity, resource use, etc) [](#the-ics-impact-expertise) **The IC's impact expertise** ---------------------------------------------------------------- It is often helpful to have members on the investment committee with impact expertise. They can help to surface the most material impact questions, and help connect impact and business value in a meaningful way for IC members to consider. This is normally achieved by appointing an impact champion to the IC, or providing training to members of the IC, so that they better understand impact dynamics. For example, the [Fair By Design fund has a 'lived experience panel'](https://bigsocietycapital.com/latest/impact-best-practice-venture-fair-design-fund/) that helps IC members incorporate their expertise of living with poverty into prudent decision making, around which products will actually work and therefore generate value. [PreviousAssessing the links between impact and commercial value](/vcplaybook/investing-in-impactful-business-models/making-impact-investments/assessing-the-links-between-impact-and-commercial-value) [NextManaging impact investments](/vcplaybook/investing-in-impactful-business-models/managing-impact-investments) Last updated 1 year ago Was this helpful? ---