How Can Impact-Led Startups Win the Backing of Investors?

Olivia Sibony, Head of Impact and Partnerships at Angel Investment Network, discusses how impact-led startups can stand out and win the backing of investors.

Investor interest in impact-focused startups has rocketed in recent years. On the Angel Investment Network platform there has been a huge rise in keyword searches for terms like ‘renewables’, ‘greentech’ and ‘environmental’ as investors look to back startups with solutions to the manifold challenges humanity faces. This summer’s extreme weather temperatures have helped to highlight the urgency of tackling these issues.

Meanwhile more than 4,000 investors have become signatories of the Principles of Responsible Investing (UNPRI), a United Nations’ supported organisation. This is responsible for more than $120 trillion US in assets under their management. The UNPRI has a commitment to “incorporate ESG issues into investment analysis and decision-making processes.”It has been part of a growing momentum as it is also good commercial sense. One of the largest studies commissioned in recent times, a 2020 Zeno Strength of Purpose study of 8,000 global consumers found they were four to six times more likely to trust, buy, champion, and protect those companies with a strong purpose and determined to make a positive impact.

So what are the key considerations impact-led startups need to consider when approaching investors for that vital early stage backing?


1. Make Sure You Can Measure Your Impact

Investors are now becoming increasingly wary of claims not backed up by evidence. Whilst in the past ‘self certifying’ enabled many companies to commit a lot of ‘green washing’ the move to more recognised standards is moving apace. Sustainable Development Goals are a good framework for understanding where the focus is needed to address the world’s biggest social and environmental challenges. But it’s not a measurement tool. Start-ups such as Vested Impact are bringing together Big Data, automation and qualitative input to create holistic impact measurement tools for companies.

Meanwhile in 2020, the “Big Four” accounting firms — Deloitte, PwC, EY, and KPMG — announced a new reporting framework for environmental, social, and governance standards (ESGs).

When you talk about metrics to investors, make sure to put equal weighting on your impact metrics as your financial ones. Neither should have more importance than the other and by placing equal attention to them, you show you can align profit and purpose and will attract more investors who are bought into your mission. Investors will want to see clear evidence of how your startup is measuring up in the claims you are making about the impact you have.


2. Ensure Your Processes are as Purposeful as Your Business Model

This is crucial to avoid having good intentions being let down by a flaw in your operations and processes. One that could be quickly exposed by a knowledgeable investor. For example if you have a fashion platform or sustainable fashion, how does your technology support what you are doing? We also look at the end to end life cycle of a product or service.

For example, it is not enough to merely produce solar panels if they are not produced in a way that is in itself carbon-efficient or if they might end up unrecyclable. Thinking through the full life cycle of a product is critical. If you run a mental health app, what are your people policies like around recruiting, benefits and inclusivity?

Similarly, if you create sustainable building materials that use a Circular Economy model, are the machines you use to transform your materials energy-efficient? Are you paying a fair price for your materials and paying your suppliers in good time? How are you treating your employees?



3. Profit Should be Paramount

Impact-focused investors may be motivated by making a difference through their investment. Yet at the same time their primary concern is likely to be whether they are going to make a profit. The likely potential for profit needs to be clearly laid out for them to consider backing your startup.

If your brilliant business idea is not able to be profitable and then you have no chance of making the impact on the world you so desire.


4. Use Tech to Enable You to Better Deliver Your Purpose

What do you want to achieve, what is your purpose? Come up with tech that is the simplest way of achieving your goals and demonstrating this. What is the simplest way to bring an MVP to life while you are pre-revenue? Once you start making revenue, you can look to develop this. As a result, a clear plan for making your impact is what investors will be looking for.

Technology platforms can help with this goal. For example The Tech Dept is a plug in tech team that builds digital products for startups. Where other developers ask “what’s the spec” The Tech Dept help startups understand (and if needed, help you refine) your vision – then build it incrementally on the journey with you, ensuring you can deliver your purpose-driven goals.


5. Explain the Virtues of ‘Patient Capital’ Over a Hockey Stick Growth Curve

Part of growing the impact startup ecosystem has to be about educating investors as well. For many sustainability focused startups the growth might not be the unicorn-style hockey-stick-growth curve that is arguably not beneficial for a sustainable future. Instead it might be slower and steadier – ie ‘patient capital’ and therefore more sustainable and profitable in the long term. Indeed the recent spate of dramatic tech re-evaluations indicate this quick win model was something of the emperor’s new clothes. A new model needs a new paradigm.

The need for impact-driven startups to win financial backing for their problem-solving innovation has never been greater. With the right approach they can win the backing of investors and ensure profit and purpose can walk hand in hand.


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