As impact investing catches on I think one of the most important things will be how the social and environmental impact of the ventures it invests in is measured.
At the end of last year, our friends at Nesta published their ‘Standards of Evidence’ for impact investing which are really helpful. Rather than trying to define all the different types of impact and setting standards (which would be incredibly difficult and I think could stultify innovation) they’ve defined different levels of collecting data about impact that they expect to see as startups develop.
It’s a bit like the way you can categorise startups into pre-seed, seed, series A etc in financial terms but with the focus on evidence of impact rather than the finances.
Here’s the short summary of the levels:
- Level 1: Account of impactÂ â€“ this means a potential investee can clearly say what a product or service does and why this may have a positive impact on one of our outcomes in a logical, coherent and convincing way.
- Level 2: CorrelationÂ â€“ at this stage some data is being collected which show a positive impact on the users of the product or service, but it is not confirmed that the investment caused this.
- Level 3: CausationÂ â€“ here we will expect to see that the positive change amongst the users of the product or service is happening because of the product or service.
- Level 4: Independent replicationÂ â€“ the claims behind a product or service will have been validated, such as through an independently conducted evaluation. At Level 4 we would also expect to see that the product or service can deliver this positive impact at a reasonable cost.
- Level 5: ScaledÂ â€“ to reach this point it is clear that the product or service can be operated by someone else, somewhere else and on a large scale, whilst continuing to have positive and direct impact on the outcome, and whilst remaining a financially viable proposition.
With BGV we’ll accept teams that are at or below level 1 but our aim will be to help all our ventures get to level 1 by the end of the programme and level 2 by 6–12 months after the programme.
As a social venture it’s well worth getting your head around this because the earlier you start thinking this way, the easier it will be as you go along. The whole impact investing world is getting a lot more savvy and this will be one of their most important tools for differentiating themselves from one another and from more old school investors.