Demonstrating impact for investors: Impact measurement for startups

Social entrepreneurship has been around for a while, but never enjoyed the same level of attention as its mainstream cousin, as it’s often associated with non-profit ventures. However, technology is enabling more entrepreneurs to build new equitable products and business models. For example, companies like Airbnb, Etsy and Shopify all generate enormous economic opportunities on a global scale. At the same time, businesses are realizing employees are increasingly looking for job opportunities in which they can make an impact, while an increasing number of investors are searching for investments that generate more than a financial return.

Investors looking beyond monetary gains need to evaluate and compare ventures on their non-financial returns. That means entrepreneurs pitching impact-oriented investors likely have to respond to variations of the following questions: Assuming you’re widely successful, what will be the impact on the world? What will change?

The ideal answers will show exact data demonstrating the accurate impact the venture will have on specific social, health or environmental metrics. However, no startup will be able to present such data and, thankfully, sophisticated impact investors know that.

The degree to which entrepreneurs are expected to demonstrate impact depends on the stage of their venture.

This table shows actions ventures should have completed by each stage.

Stage Completed deliverables Comments
Ideation and Discovery Mission statement, theory of change and UN Sustainable Development Goal (UN SDG) alignment One of the first things entrepreneurs do when starting a new venture is to draft a mission statement—the “why you exist” part of your corporate statements. For most entrepreneurs, “why” aligns directly with a UN SDG, but some decide they want their business to contribute to other UN SDGs as well. For instance, you may be in the business of providing technology to help mental health, which aligns with UN SDG #4, but decide you also want to contribute to gender equality (#5) and decent work (#8).

The theory of change is where you formulate how you believe the implementation of your technology will eventually impact the users and world at large—a very useful exercise at the beginning of the venture. However, in the early stages, going any further may not make sense, since most startups iterate and pivot as part of the startup process.

Validation Create a logic model and confirm what social or environmental impact you are targeting; complete B Corp’s free B Impact Assessment Once you start firming up your product and how it works, creating a logic model is a useful next step. Simply put, the logic model is a rough equation showing how the use of your product generates impact. While the logic model concerns your product’s impact, the B Impact Assessment helps you understand the various other dimensions of impact your business can have and provides many pointers that help you build your business the right way. However, the validation stage is too early for most startups to do the B Corp Certification, simply because of the resources it takes to complete and maintain.
Growth Complete your impact model and, if needed, a complementing data collection plan and impact report (see below for examples) At the growth stage, it makes sense to start measuring impact. Try using the IMP Impact of an Enterprise template to get going. Aside from saving you the time of developing your own template, it supports you in reviewing which categories of impact, specific impact metrics and sources of data are relevant for you. The process of completing the template will also demonstrate whether you have all the data required to calculate your impact. If you are missing any data, you’ll need to design a survey or other data collection tool to gather it. Once you have all the data, you can prepare an impact report, including all the deliverables mentioned above. We have included links to resources below, including sample impact reports to give you an idea of how you can compile and communicate your impact work.
Scale B Corp Certification B Corp Certification requires a bit of work, but exactly how much depends on your starting point. If you have built your startup following the various steps outlined in this article, the process should be relatively smooth. While B Corp Certification isn’t necessarily a requirement for raising funds, you do get the benefit of being part of a global community sharing best practices. From a business perspective, most scaleups are expanding internationally, so being part of a global community could be helpful beyond the certification itself.

Further resources