Defining and measuring the social impact of your startup: Where to start

For any socially-minded entrepreneur in search of financing for their startup, the impact must be clearly defined as part of the value proposition together with a battery of solid arguments to convince prospective investors. And, as we all know, hard data will be required to reflect and support the narrative of the venture.

The key difference in impact investing is that financial reasons should be accompanied precisely by the social or environmental performance of the venture as codependent data points.

Those of us who manage impact investment funds want to know, for example, how many people would we help get ahead through your marketing and fintech project aimed at artisans in a certain region. We too have to convince our investors with indicators and projections!

But here is the problem: the social or environmental benefit cannot always be as black and white as the benefit measured in the rate of return. Following the previous example, how does one objectively measure the “get ahead” and with what specific results?

That is why metrics to evaluate the impact performance should be an essential element of your business plan and pitch, in addition to pure ROI. If we take a step back, before approaching investors you’ll find invaluable support if you fully understand what you have in your hands and its potential reach. This helps you clearly define the parameters of success, the strategy and what you should propose, offer, measure, and inform.

The good news is that impact measurement is one of the areas in which the sector has advanced greatly, with increasingly comprehensive and precise instruments that have contributed to the standardization of criteria, so that entrepreneurs, investors, and beneficiaries all share a common language.

The progress in this area has been spectacular, especially if we take into account the fact that the concept of impact investing was coined no more than twelve years ago. It has evolved in parallel with the ESG metrics (Environmental, Social and Governance) that an increasing number of companies are adopting to measure and inform their practices and risks in this field. Today, these metrics are used in turn by mutual funds and exchange-traded funds (ETFs) that offer impact-driven portfolios.

All of this means that although there is always room for innovation and adaptation, you don’t have to reinvent the wheel: there are excellent models available for you to start thinking about and working with these metrics as a true social entrepreneur.  Additionally, you can complement these models with mentorship and resources that can be found in programs such as those offered at New Ventures Group and capacity-building organizations of the like.

Among the best-known is IRIS+, from the Global Impact Investing Network (GIIN): this is an excellent starting point that offers benchmarking tools to measure, manage, and optimize social and environmental impact, aligned with commonly accepted accounting principles, specifically those adopted by the United States Securities and Exchange Commission (SEC). The IRIS+ system translates data into a language that is specific to respective impact areas like climate change or gender equity. This method was originally designed with investors in mind; however, upon familiarizing yourself with it, the platform will clearly show you the expectations that investors have for both the entrepreneur and the venture.

An additional collaborative tool for impact measurement is the Global Impact Investment Rating System (GIIRS), which was developed by B-Lab, the nonprofit organization that certifies B Corporations and promotes the benefit corporation structure. Like IRIS+, GIIRS is a rating tool and analytics platform that assesses companies and funds on the basis of their social and environmental performance. 

Finally, for the impact entrepreneurs determined to do business and do good – in fact, I’d say for all entrepreneurs – it is a requirement that you know the 17 Sustainable Development Goals (SDG) of the United Nations. This framework is vital to assessing the relevance, scope, and consistency of your project as it correlates with the most pressing challenges of humankind. As of today, more than 40% of impact investors monitor the performance of their investments with respect to the SDGs. 

Here is the concrete takeaway: start your impact measurement journey by exploring the value of these goals and data analytics platforms. You will find success stories to inspire you as you solidify your idea and reaffirm your conviction to be a social impact entrepreneur, which is imperative to have as you build your business plan and prepare yourself before seeking financing from investors.