As a tech for good VC, we often get asked, 'How do you know the impact of your companies is real?' It's a more complex question than may seem at first. The nature of early-stage businesses means there’s still a great deal of uncertainty.
So how do we know that our investors' capital generates real change? It's usually through a combination of three things.
- Pre-investment impact due diligence
When companies come to us for investment, they are typically just getting started on building their products. There isn't a wealth of data for us to analyse. Instead, at this stage, we try to understand their impact potential.
In short, as part of the due diligence process, we ask founders about the size of the problem they are trying to solve, how they learnt about it and how their solution is uniquely positioned to address it. We also ask founders who they are trying to serve and whether their route to market is the optimum strategy for reaching that population. For example, Noggin HQ impressed us by showing a deep understanding of the 14 million people in the UK excluded by traditional credit scoring systems and presenting a thoughtful path to reaching the most vulnerable populations.
- Portfolio reporting
This element is the most straightforward. We know that our ventures' impact is genuine by looking at their data. This data spans quantitative output metrics like the number of patients seen or carbon removed from the atmosphere, qualitative feedback from product users, self-reporting on impact risks, unintended consequences and data rigour. Second Nature, a diabetes prevention programme, published multiple studies showcasing its effectiveness in reducing weight and average blood glucose.
- An active role in supporting our companies' impact strategies
Perhaps most importantly, we know our ventures' impact is credible because we maintain a close relationship with our founders. In practice, we are often the go-to investors for teams looking to improve their evidence or sense-check their approach. Recently, we supported our portfolio company SPOKE in refining their theory of change and aligning their data to industry-recognised frameworks like the Impact Frontiers (formerly the Impact Management Project). For the team, the outputs of our work resulted in stronger evidence for their fundraising efforts. And for us, it meant a more nuanced insight into the team’s roadmap to impact validation.
For further information on BGV’s thinking on impact validation, please see our ‘Impact for Startups’ guide.