- Impact Measurement and Management Practice Leader
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Impact measurement and management (IMM) are two related but distinct practices that we believe are critical to effective impact investing. Impact measurement helps to identify and track both the positive and negative social or environmental impacts of a company’s products and services. Impact management uses this information to try to maximise positive outcomes for people and the planet.1
In this piece, we highlight how we view IMM, why venture capital (VC) matters to impact investors, how IMM can be applied to this asset class and how to authentically measure impact in venture capital.
At Wellington, a holistic assessment of impact is core to our investment process in both public and private markets where we are explicitly investing to drive real-world positive outcomes alongside strong financial returns. For these strategies, several IMM activities are central to the investment process, including clearly defining what impact criteria qualifies a company to be part of a portfolio ahead of each investment, conducting detailed research to evidence that the specified impact criteria can be met and, finally, reporting on and analysing this data to seek to maximise real-world positive impact.
The Global Impact Investing Network (GIIN) estimates that there are over US$715 billion impact investing assets under management globally. Notably, in its annual survey, 63% of respondents had an allocation to venture-stage companies, demonstrating that impact investors are deploying capital in this segment of the market.2
Many venture-stage companies are innovative, fast growing and on a mission to change the entire ecosystem in which they operate. Combining these characteristics with products and services aligned with making real-world positive social or environmental progress is an extremely attractive proposition for impact investors, particularly those looking to bring about widespread changes through their investments. The climate crisis represents a useful example here given that many venture-stage companies are developing new technologies that may play a key role in helping every sector of the economy transform by reducing energy consumption, increasing energy efficiency and making global energy supply more sustainable.
In addition, the next generation of entrepreneurs seeking venture capital may be more likely than the last to include sustainability considerations in their business models. In fact, entrepreneurs in their 20s and 30s are more likely than those in their 50s to view social impact as a personal motivation.3 A company’s positive impact is likely to become an increasingly important part of its mission and pitch to investors. Impact investors therefore need to develop the tools and skill sets to accurately assess these claims in order to allocate capital effectively to those companies making the biggest positive impact.
IMM has been a core part of our public market impact investing strategies since 2015. However, IMM in private markets, and particularly in VC, has specific considerations we believe investors should take into account. In our view, the following points are the most crucial:
We believe there are a few best practices that can help companies and investors navigate the unique challenges of measuring impact in this constantly evolving space. Below, we share four ways to authentically measure the progress companies create.
Impact measurement and management are essential parts of the impact investing industry. In our view, a holistic, considered and authentic approach to IMM is particularly relevant in venture capital, where the earlier-stage opportunity set can make this process more complicated.
1Source: Global Impact Investment Network, “Getting started with impact measurement and management”. |2Source: Global Impact Investment Network, “Annual Impact Investor Survey 2020”.|3Source: HSBC, “Essence of Enterprise - A new age of Entrepreneurship”.|4Source: Impact Frontiers, “Impact Management Norms”.|5Source: Global Impact Investment Network, IRIS+ system.
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Alternative Investment Outlook
This collection provides timely ideas across the spectrum of alternative investments -- including hedge funds, private equity, and private credit.
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Frederik Groce, Deal Lead for Wellington Access Ventures, explores how the 'growth-at-any-cost' venture capital regime has shifted to a focus on growth efficiency, highlighting two key metrics for companies to keep top of mind.
Private investing portfolio company interview with AMP Robotics CEO
Dr. Matanya Horowitz, CEO of AMP Robotics, highlights how the company integrates AI and robotics into the recycling industry and explores the “actionable guidance” Wellington provides on ESG and other strategic issues.
Supporting the next generation of entrepreneurs
We highlight how Wellington Access Ventures, our early-stage VC platform, partners with historically underrepresented founders and offers the capital, resources, and networks that these companies have historically lacked.
Decoding impact expectations: best practices for impact investors and companies
We share three recommendations each for impact investors and companies to help them better understand and manage each other's expectations.
Why climate change matters in private markets
Private investing portfolio company interview with RayzeBio CEO Ken Song
Dr. Ken Song, President and CEO of RayzeBio, discusses the company’s innovative approach to radiopharmaceuticals and highlights how Wellington’s public and private investment expertise is distinctive in the health care space.
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For private companies approaching the public markets, we highlight the corporate governance best practices that can help pave strong relationships with public market investors.
WellSaid: Partnering with portfolio companies
Co-head of private investing Michael Carmen explores how we partner with portfolio companies to help them along the "last mile from the private market to the public market" including on key ESG issues for private companies to consider.
Understanding private equity performance
We dive deep on best practices for measuring and benchmarking private equity performance. In addition, we outline the J-curve and the impact of fund lifecycle on returns.