Three Things Impact Investors Look For In Venture
Venture investors are increasingly seeking positive social and environmental impact. Investment into impact-targeting startups has tripled in recent years, now representing more than 15% of all venture dealflow in Europe.
At Big Society Capital, we believe we can accelerate this trend and tilt the venture ecosystem further towards impact. We do that by investing with top tier venture funds who are thoughtful about impact, and with impact-dedicated venture funds who are pioneering innovative high impact models. This gives us a perspective across the market on what venture firms with an impact lens are looking for.
To cut through the noise of a growing and vibrant ecosystem, venture firms typically have a ‘thesis’ that lays out what they look for and how that will deliver strong impact and financial returns together. Venture funds’ thesis vary by stage, sector, geography and a myriad of other factors – but there are a few areas that show up regularly in the impact-oriented parts of the market.
1 – Purposeful Intent
The first factor that many impact venture firms look at is founder intent. Is a desire to create positive impact one of their core motivations? How does that come through in what they’re building and how they do business?
Clarity on the problem an entrepreneur is seeking to solve and for whom would be a key part of any venture firm’s analysis. For impact-oriented venture firms, the presence of a positive social or environmental mission is critical.
Knowing that companies may change course many times on their paths to scale, an entrepreneur’s drive to deliver on their mission makes a lasting impact focus more likely. This same drive can also lead to better execution: being purpose-led can correlate with resilience in the face of adversity, and clarity of intent enables clarity of execution as entrepreneurs can better focus on what matters to their mission.
Similarly, when we are investing in venture capital firms as a limited partner, the most important thing for us is values alignment. Assessing partnership dynamics and firm culture is a big part of that. We look for values in line with Big Society Capital’s own, and often place a particular emphasis on purposefulness and impact intent.
2 – Opportunity for Transformative Impact
At Big Society Capital, we are interested in venture investing because we believe in the positive impact potential of tech-enabled companies – in the right context, with the right intent, and with an aligned business model. Done well, we believe this approach can lead to transformative impact in areas such as health, education and financial inclusion.
Many venture firms investing with an impact lens share this belief. They are looking for companies that have the potential to deliver meaningful impact for millions of people by transforming social issues – often by creating new categories of product or service, or by meeting the needs of a structurally underserved group.
For example, Wagestream is improving financial wellbeing by enabling employees to get instant access to their earned wages. Open Bionics is on a mission to ‘turn disabilities into superpowers’ by building and developing the next generation of bionic limbs for limb-different people. Second Nature’s habit change programme is tackling chronic health conditions by helping people lose weight and live healthier lives.
3 – Impact as a Driver of Value
Venture firms investing for impact are also investing for financial returns. A core part of that approach is to look for companies where strong impact performance reinforces or accelerates strong commercial performance.
We have seen several ways in which impact acts as a driver of value. We believe that delivering strong impact performance can help attract and retain customers, employees, and investors – as well as positioning companies ahead of regulatory risks.
Drawing on one of the examples above, Wagestream is improving employee financial wellbeing. By improving their ability to do this, and to evidence the positive outcomes they create, Wagestream is better positioned to attract employers as customers.
We believe impact in venture is here to stay – as purpose-led startups play an increasingly important role in delivering positive outcomes in areas like health, education and inclusive finance. As venture firms increasingly apply an impact lens, we expect to hear of many more VCs asking entrepreneurs these questions around purposeful intent, the opportunity for transformative impact, and how impact can be a driver of value in their companies.