Understanding impact companies: The why and what

We define an impact portfolio company when the outcomes of the company’s products lead to a positive environmental or social benefit. This is intentional, demonstrable, quantifiable, and at a later stage verifiable (independently audited). Some examples are shown below.

Impact companies address sustainability challenges such as climate change, financial inclusion, access to healthcare and education as well as cyber threats. The VC industry, in more recent years, placed more capital in this industry than ever before. This is for a number of reasons:

• Founder and employee purpose: More founders want to build mission-driven companies that have positive impact on the world and solve enduring problems. Startups with a clear impact mission have a competitive edge in attracting and retaining individuals who are not just looking for a job but seeking to make a difference.
• Supportive policies: Initiatives like the EU Green Deal and the US Inflation Reduction Act are bolstering impact companies with favourable capital flow conditions.
• Resilience: Despite the ebb and flow of VC, impact-focused startups have shown remarkable resilience, often outperforming their counterparts.
• Consumer dynamics: Today's consumers prioritize impact, leading to higher retention rates and opening new market segments for businesses that deliver on these values.
• Regulatory trends: Current and emerging regulations are carving out advantages for companies that prioritize ethical and sustainable practices.
• Investment trends: There’s a noticeable shift among venture capital limited partners (LPs) towards impact investing, recognizing the dual potential for social/environmental benefit and financial return.

See the Global Impact Investing Network (GIIN) definition of impact investing below.

Dispelling misconceptions around impact investing:

In essence, the misconceptions surrounding impact investing stem from outdated perceptions. The reality is that impact investing represents a forward-thinking approach that does not compromise on financial performance but rather complements it with meaningful societal contributions.

Here are a few more facts we would like to share:

1. Impact measurement can be different for each company: While measuring impact can be complex, understanding the most effective approach is key to demonstrating your company’s contribution.
2. Impact investing is not just for philanthropists: Impact companies seeks to blend intentional, measurable social or environmental benefits with financial returns. It's a viable, competitive investment strategy.
3. Many impact frameworks exist: As impact investing evolves, so too do the frameworks and methodologies for assessing and advancing impact goals.

Essential steps for impact companies

1. Define your company mission and vision

This is a vital first step for an impact company. Even if you are two people starting out, ensure you both have clarity on your company’s purpose and what you aim to achieve.