When you are looking for more than just a financial return, it can be difficult to define and measure success. Luckily, there are some very smart people trying to create standard social impact investing measurements, but in the meantime, this is how we’re approaching it:
Our investments have to create significant financial (why?) AND social success:
Our definition of significant FINANCIAL success:
- Success for the entrepreneurs AND investors – This is key. We ask the entrepreneurs and investors to clearly define and agree upon their expectations for a financial return and strive to achieve that success for both sides.
- A significant financial return – We strive for at least 2x on investment and expect at least a 10% interest rate on convertible debt deals
Our definition of significant SOCIAL success:
- An impact the entrepreneurs AND the investors “feel good” about – As mentioned previously, there are some very smart people trying to establish standards and metrics, but for now, we just use our “gut feel”. We simply ask the investors and entrepreneurs if they feel the investment created a significant social and environmental impact. If it’s “yes”, we go with it.
- “Genuine” impact – When we ask that same question, we consider how long it takes the entrepreneurs and investors to answer the question. If they have to pause, think and put a PR spin on it, it probably isn’t “genuine” impact.
Is this a perfect science? No. Is there a better way to measure success in social impact investing? Probably.
……but we just decided we could either spend 20 years trying to define social impact success or just start trying to make an impact. We’ve chosen the later.
How do you define success in social impact investing? Do you have a better way to do it? Leave a comment.