THE INVESTING FOR IMPACT

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 Cover photos:
© Callander Youth Project
WARC © Yonathan Adamchuk
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Living Well with Dementia © Genio
© Social Bee

 INTRODUCTION I. SETTING UP AN ORGANISATION

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ACKNOWLEDGEMENTS

This toolkit is based on the EVPA publication “A Practical Guide to Venture

Philanthropy and Social Impact Investment”. This report was first published
in 2008 as a working paper, and then updated in 2010, 2016 and 2018. The
investing for impact toolkit is, therefore, the fifth edition of this publica-
tion, and would have not been possible without all the experts and prac-
titioners who participated in the continuous developments of the guide
over the last decade.

In particular, EVPA is very grateful to the first authors of this Practical Guide:
Luciano Balbo, Lisa Hehenberger, Deirdre Mortell and Pieter Oostlander.

EVPA is also thankful to Priscilla Boiardi, who contributed to updating the

later versions of this report, and to Elena Vittone, who designed the first
practical online tool based on this publication in 2016.

Finally, a special thanks to Gianluca Gaggiotti and Ludovica Piergiovanni

for their suggestions and feedback, and to Caroline Cornil for her valuable
support in developing the new format of the toolkit.

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3 
 THE INVESTING FOR IMPACT
TOOLKIT
What is this toolkit and who is it for?
The Investing for Impact Toolkit aims to assist newcom- Special consideration is given to the EVPA Charter of
ers or early-stage investors for impact by provid- Investors for Impact, a document that sets out the ten
ing an insight into ‘what works’ in the European impact principles that define and drive investors for impact.
ecosystem. It contains strategies and best practices for We have mapped each principle of the charter across
applying the venture philanthropy approach. the toolkit to better help investors for impact embed
the charter in their strategy and activities.
This is the fifth edition of a working paper that was first
published in 2008. This edition incorporates the learn- This document is a guide for investing for impact as well
ings from more than ten years of research performed as a compilation of EVPA’s research and resources. It
by EVPA’s Knowledge Centre. incorporates mentions and links to the most relevant
resources to look at in each section.
Throughout the document, we display the different
frameworks developed by EVPA, step by step. Specifi- This document is divided into four parts. First, we
cally, we illustrate the frameworks of the three venture outline the process of setting up an organisation invest-
philanthropy practices (i.e. tailored financing, non-fi- ing for impact. Second, we look at how to define the
nancial support and impact measurement and manage- investment strategy. Then, we dive into each step of the
ment) and for managing an exit strategy. The three investment process. Finally, we look at the execution of
venture philanthropy practices are introduced in the the exit process.
beginning of the document.

To better navigate this toolkit and understand the jargon of

the impact sector, consult our glossary of terms.

 INTRODUCTION I. SETTING UP AN ORGANISATION

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Venture philanthropy – main definitions

Venture philanthropy (VP) is a high-engagement and • The final beneficiaries are those benefitting
long-term approach through which an investor for from the SPO’s services or products; e.g.
impact supports a social purpose organisation (SPO) minorities, people in poverty, people with
to help it maximise its societal impact. 1
disabilities, women, children, migrants, or
the environment.
The main actors involved are investors for impact, social
purpose organisations and final beneficiaries:
Investors for impact adopt the venture philanthropy
approach by being highly-engaged and committed
• Investors for impact can be highly-engaged in the long term, applying three core practices to
grant-makers or social investors (e.g. foun- support the SPOs:
dations, social impact funds). They are will-
ing to take risks that most other investors
are not prepared to take in order to support Tailored Financing (TF) –
SPOs’ innovative solutions. They adopt the VP core practice #1
venture philanthropy approach to support
SPOs maximising their social impact.
Non-Financial Support (NFS) –
• Social purpose organisations (SPOs) can VP core practice #2
be, for example, social enterprises, NGOs or
charities. They can be revenue-generating or
not. They have a solution to solve a pressing Impact Measurement & Management
social or environmental issue, but often need (IMM) – VP core practice #3
resources (e.g. funding, human resources,
capacity building).

1 EVPA purposely uses the term “social” for the sake of simplicity, but the accurate term would be “societal” because the impact may be
social, environmental, medical or cultural.

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 The Charter of investors for impact
Investors for impact are driven by 10 principles included
To endorse the 10 principles, sign the Charter
in the EVPA Charter, which defines the DNA of such
of investors for impact here!
capital providers.

1.
10. ARE PROBLEM-
FOCUSED AND
UPHOLD SOLUTIONS-ORIENTED,
HIGH ETHICAL INNOVATING THE
STANDARDS WAY TO TACKLE

9. SOCIETAL

2.
CHALLENGES
WORK TO
FOSTER THE PUT THE FINAL
MOBILISATION OF BENEFICIARIES AT
RESOURCES IN THE THE CENTRE OF THE
SOCIAL IMPACT SOLUTIONS
ECOSYSTEM

3.
8. INVESTORS ARE HIGHLY
PROACTIVELY ENGAGED FOR
ENHANCE
COLLABORATION
FOR THE LONG-TERM,
STRIVING FOR
WITH OTHERS
IMPACT LASTING
IMPACT

7.
TAILOR THEIR
4.
FINANCIAL SUPPORT TAKE RISKS THAT
TO THE NEEDS AND MOST OTHERS ARE
CHARACTERISTICS OF NOT PREPARED
SOCIAL PURPOSE TO TAKE
ORGANISATIONS
6. 5.
PROVIDE
MEASURE
EXTENSIVE
AND MANAGE
NON-FINANCIAL
SOCIAL IMPACT
SUPPORT
Figure 1: The Charter
of investors for impact

 INTRODUCTION I. SETTING UP AN ORGANISATION

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INVESTING FOR IMPACT
The 10 principles of the EVPA Charter of investors for Investors for impact aim to apply the 10 principles in
impact (Figure 1) identify the distinctive characteris- practice and to integrate them into their strategies and
tics that differentiate investors for impact from other activities. Thus, the Charter not only defines the unique-
capital providers that also aim at generating positive ness of investors for impact but also represents a way
impact on society. Thus, the Charter helps investors for forward for them and for new organisations joining the
impact better describe how they drive social impact, impact ecosystem.
at a time when the growing interest in the impact
ecosystem of different types of investors is raising the Each principle translates into three explanatory state-
need for transparency, integrity and clarity around the ments. Throughout this toolkit, the 10 principles and
focus on impact. the explanatory statements are allocated in chapters
in which they are particularly relevant, starting from
principle 1 displayed below.

Apply the Charter of investors for impact – Principle 1

• Be primarily dedicated to mitigating or even fully eliminat-

ing societal challenges.
1.
…BE PROBLEM-FOCUSED • Proactively look for solutions that address the root causes
AND SOLUTIONS-ORIENTED, of societal issues.
INNOVATING THE WAY
TO TACKLE SOCIETAL
CHALLENGES • Be eager to find and support those solutions that have the
potential to transform the way in which a societal prob-
lem is tackled.

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 The Impact Ecosystem Spectrum
In the report “15 Years of Impact – Taking Stock and non-financial support, and measuring and managing
Looking Ahead”, EVPA included the impact ecosys- social impact. These investors take the social purpose
tem spectrum displayed in Figure 2, which defines the organisation (SPO)’s needs as the starting point, and
position and the role of the different types of investors reverse-engineer which financial instruments are the
active within the impact space. most appropriate to support them. They are willing
to take risks that no one else can – or is prepared to –
Between traditional grant-making and sustainable and take. Investors with impact, on the other hand, need
responsible investing (SRI), EVPA identifies two main to guarantee a certain financial return on their invest-
impact strategies: investing for impact and investing ment alongside the intended positive impact they aim
with impact. at generating. They take a limited level of risk, often
investing in business models that have proven track
Investors for impact apply the venture philanthropy records of both financial and impact performances.
approach by tailoring their financial offer, providing

VENTURE PHILANTHROPY
APPROACH

TRADITIONAL INVESTING INVESTING SUSTAINABLE

GRANT-MAKING FOR IMPACT WITH IMPACT AND
RESPONSIBLE
SOCIAL INVESTMENT
INVESTING
ENGAGED (SRI)
GRANT-MAKING IMPACT INVESTING

TRADITIONAL
INVESTING
Social purpose Social purpose Social purpose Traditional ESG compliant
organisations organisations organisations businesses traditional
that will never with a potentially with a proven with intentional businesses
be financially / financially / financially social impact (often listed
self-sustainable self-sustainable sustainable companies)
business model business model

Building social infrastructure

Figure 2: The EVPA Impact Ecosystem Spectrum

 INTRODUCTION I. SETTING UP AN ORGANISATION

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INVESTING FOR IMPACT
 © Callander Youth Project

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 Tailored financing – VP core practice #1
Tailored financing is the process of choosing the most Step 2 is the assessment of the characteristics and
suitable financial instrument(s) to support an SPO. the financial needs of the SPO. These include internal
These instruments include grant, debt/loan, equity, and factors of the SPO, such as its business model, organisa-
hybrid financial instruments, such as mezzanine finance, tional structure and stage in the life cycle; and external
convertible loans/debts, and recoverable/converti- factors, such as the macro-environment and the SPO’s
ble grants. The choice of the financial instrument(s) stakeholders. This step takes place during the deal
depends on a number of factors, such as the investor screening and the due diligence phases of the invest-
for impact’s financial/return expectations and willing- ment process.
ness to take risk; the SPO’s business model and stage
of development; and the macro-environment in which Finally, step 3 of tailored financing consists in matching
the SPO operates. the goals of the investor for impact with the needs of
the SPO. Considering the results of steps 1 and 2, in
In its report “Financing for Social Impact – The key Role this phase investors for impact consider whether to
of Tailored Financing and Hybrid Finance”, EVPA has deploy grants, debt instruments, equity instruments
developed a three-step process for tailored financing or hybrid financial instruments to better match their
(see Figure 3). goals with the SPO’s needs. This step occurs during
the investment decision and deal structuring phase of
Step 1 concerns the assessment of the pre-conditions the investment process.
of the investor for impact. In particular, two main
elements of the investor for impact’s strategy influ-
ence the choice of which financial instrument to use: its
legal structure and its impact/financial return expecta-
tions and risk profile. Additional elements to consider
are the investors/funders that support the investor for
impact itself, the life cycle, the duration of commitment,
the non-financial support provided and the team’s
expertise. The assessment of the pre-conditions of the
investor for impact is part of the definition of its funding
model and its investment strategy.

 INTRODUCTION I. SETTING UP AN ORGANISATION

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INVESTING FOR IMPACT
 Assess the pre-conditions Assess the financial
of the investor for impact needs of the SPO

Match the investor

for impact’s goals
with SPO’s needs

Figure 3: Three-step process of tailored financing

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 Non-financial support – VP core practice #2
Non-financial support (NFS) is the process of providing Step 2 consists in assessing the needs of the SPO.
support services to a social purpose organisation in A light assessment is made at the deal screening
order to maximise its social impact, increase its financial phase, and a further in-depth assessment is carried
sustainability or strengthen its organisational resilience. out during the due diligence.

There are different types of NFS, such as the develop- Step 3 involves developing the non-financial support
ment of a Theory of Change and an impact strategy; plan, which includes the baseline, the goals, the mile-
impact measurement; fundraising; revenue strategy stones and the target outcomes for the SPO. This plan
management; financial management; governance; is developed during the deal structuring.
human capital, etc.
The non-financial support delivery phase, i.e. step 4, is
EVPA has developed a five-step framework, displayed carried out during the investment management. Deliv-
in Figure 4, which is analysed in the report “A Prac- ery modes of non-financial support can be taking a seat
tical Guide to Adding Value Through Non-Financial on the board of the investee; coaching the management
Support”. For each step in the process, an investor team; organising trainings, workshops and boot camps;
should consider how this relates to the day-to-day taking the SPO to external events and offering access
work of funding and building stronger social purpose to networks.
organisations. That is why managing non-financial
support is at the core of the NFS process. It occurs Finally, step 5 consists in assessing the value and impact
continuously and is facilitated by integrating NFS into of NFS, and it takes place during the post-exit evalua-
the investment process. tion, illustrated in part 4.2 of this toolkit.

In step 1 of the NFS process, investors for impact map

their own assets. Based on their own impact objectives,
investors for impact consider what types of NFS they
have available to help the SPOs advance on the three
core areas of development (i.e. social impact, financial
sustainability and organisational resilience). This step
is defined in the investment strategy.

 INTRODUCTION I. SETTING UP AN ORGANISATION

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INVESTING FOR IMPACT
 Map investor
for impact’s assets

Managing
Assess the value
non-financial Assess needs
and impact of NFS support of the SPO

Deliver NFS Develop the NFS

plan

Figure 4: Five-step process of non-financial support

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13 
 Impact measurement and management –
VP core practice #3

In EVPA’s definition, the impact measurement and during the investment management phase. However,
management practice (IMM) is measuring and moni- before reaching an investment agreement, investor and
toring the change created by an organisation’s activi- investee should already go through the different steps
ties, and using this information/data to refine activities of the framework and define the IMM strategy.
in order to increase positive outcomes and reduce the
potentially negative ones. Step 1 consists in setting objectives. When defining
the investment strategy, investors for impact should
EVPA has developed a five-step approach to meas- define their own impact objectives. Then, during the
uring and managing impact (Figure 5), which can be deal screening and, more in-depth, during the due dili-
applied by both investors and investees, and which is gence, investors should set long-term impact objec-
presented in EVPA’s “Practical Guide to Measuring and tives together with the SPOs under scrutiny. Step 2
Managing Impact”. This framework has informed the entails a stakeholder analysis and starts during the
European Standard for impact measurement and due diligence. During the deal structuring, investors
management developed by the European Commis- define outputs, outcomes, and impact, and select indi-
sion’s group of experts on social entrepreneurship cators that can capture the SPO’s progress towards or
“Groupe d’experts de la Commission sur l’entrepre- away from the intended outcomes, i.e. step 3. Step 4
neuriat social – GECES”. consists in verifying and valuing the impact that has
been generated. This is first performed in the course
This guide focuses on two levels: how to measure and of the due diligence and repeated after the investment
manage the impact of specific investments (level of the has exited, i.e. during the exit follow-up phase. Step 5,
SPO) and how the investor for impact itself contributes monitoring and reporting, is defined during the deal
to that impact (level of the investor). structuring: investors and investees decide how they
will assess whether the progresses are in line with
The EVPA impact measurement and management their objectives, and how they will report back to their
framework is a “circular process” which an organisation stakeholders and the broader community. Step 5 is also
is supposed to go through more than once, to constantly repeated after the investment management (i.e. during
improve its IMM system. The entire IMM process occurs the exit follow-up phase).

 INTRODUCTION I. SETTING UP AN ORGANISATION

14
INVESTING FOR IMPACT
 in
g es
1. An
a
sta lysi
ke ng
ho
tt ctiv ld
je
ob e
S

er
2.

s
5. Managing
Impact
M o n i t o r ti n
and re

re suring
o ri

ts
p

a
sul
ng g

Me
4. Verifying &
3.
valuing impact

Figure 5: Five-step process of impact

measurement and management

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STRATEGY PROCESS
15 
 THE JOURNEY II
Investment
Strategy

1. Defining how to measure

and manage social impact 5
IMM step 1

2. Defining the social problems to tackle

I and applying appropriate strategies
4

Setting up
an organisation 3. Defining the geographical focus
investing
for impact 4. Defining which type(s) of social
2
purpose organisations to support

5. Selecting which financial instrument(s)

1. Defining the funding model and the to use to support which SPO(s) 7
legal structure TF step 1

TF step 1
6. Defining what non-financial
2. Developing a sustainable support to offer 6
fundraising strategy NFS step 1

3. Recruiting a CEO and the 7. Defining how to collaborate

8 9
management team with other actors

4. Working out the role of the board 8. Thinking about the exit already
as part of the investment strategy
5. Abiding by high ethical standards 10 Exit step 1

 INTRODUCTION I. SETTING UP AN ORGANISATION

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INVESTING FOR IMPACT
 III
Investment
process IV
Exit

1. Deal screening
TF step 2 IMM step 1

NFS step 2 Exit step 1 1. Exit management

Exit step 4
2. Due diligence
IMM steps 1, 2 and 4 TF step 2 2. Exit follow-up
NFS step 2 Exit step 2 IMM steps 4 and 5 NFS step 5 Exit step 5

3. Investment decision and deal structuring

IMM steps 3 and 5 TF step 3

NFS step 3 Exit step 2

4. Investment management
IMM – impact management 3 LEGEND

NFS step 4 Exit step 3

0 — Principle of the Charter
of Investors for Impact

NFS step 5 — EVPA framework

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17 
 INTRODUCTION I. SETTING UP AN ORGANISATION
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INVESTING FOR IMPACT
 I.
SETTING UP
AN ORGANISATION
INVESTING FOR
IMPACT

II. INVESTMENT III. INVESTMENT IV. EXIT

STRATEGY PROCESS
19 
Social Bee © Fotogenika

 INTRODUCTION I. SETTING UP AN ORGANISATION

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INVESTING FOR IMPACT
I. SETTING UP
AN ORGANISATION
INVESTING FOR IMPACT
An investor for impact should consider some issues
when setting up an organisation investing for impact.

First, before setting up such an organisation, consider-

ation should be given to the type of funding model that
CHECKLIST
will be applied and the best legal structure to establish
the funding model. Second, fundraising is a key chal-
lenge for any new investor for impact, so appropriate Defining the funding
strategies should be applied. Third, the recruitment model and the legal structure
of the CEO and the management team will be critical
to the success of the organisation. Fourth, the role of Developing a sustainable
the board must be defined, as well as the tasks and fundraising strategy
duties of the board members. Finally, any new investor
for impact needs to ensure that it keeps high ethical Recruiting a CEO and
standards in the management of its activities. the Management Team

Working out the role

of the board

Abiding by high
ethical standards

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21 
 1) Defining the funding model and
the legal structure
How to start assessing the pre-conditions to provide financial support

Various types of instruments are available for funding When the primary activity of the organisation investing
social purpose organisations (SPOs), such as grants, for impact is to provide grants to SPOs, it tends to be
debt, equity or hybrid financial instruments, which set up as a foundation. Through grant-making, founda-
include mezzanine finance, convertible loans/debts, and tions can take high risks and support innovative solu-
recoverable/convertible grants. Before structuring an tions. If the investor for impact mainly invests in social
organisation investing for impact, the funding model to enterprises through social investment (using a range of
be applied should be defined, by assessing the pre-con- financial instruments), it is usually set up as an impact
ditions of the investor for impact – i.e. step 1 of tailored fund. Funds can be limited in time or evergreen, which
financing. Three main elements will influence the choice means that they do not have a limited life.
of which financial instrument to use: the legal structure,
the impact/return expectations, and the risk profile. As described in the report “15 Years of Impact – Taking
Stock and Looking Ahead”, although impact funds and
At this stage, a basic question to be answered is whether foundations are the early adopters of the venture philan-
the organisation investing for impact will act as a social thropy approach, more and more players are entering
impact investor or focus on engaged grant-making. In the impact space, playing strategic roles. These can be
many European countries, tax and legal regulations social investment crowdfunding platforms, financial
distinguish between grant-making and instruments that institutions, the public sector, institutional investors,
establish ownership titles. Grant-making can usually incubators and accelerators, asset managers, family
be done from organisations with a charitable status, offices, NGOs and development finance institutions.
whereas in various countries other types of funding
could conflict with a charitable status, although the Along with the funding model and the legal structure,
primary goal for those instruments is social when used social impact considerations are the main drivers of
by investors for impact. In many cases, the choice of investors for impact. These are further analysed during
financial instruments will impact the legal and tax struc- the definition of the investment strategy.
ture of the investor for impact, and it is recommended
to seek for specialist advice.

 INTRODUCTION I. SETTING UP AN ORGANISATION

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INVESTING FOR IMPACT
 Tailored financing

Alongside the legal structure and the impact strategy, there are other factors linked to the investor
for impact that can have implications on the funding model:

• The investors/funders’ wishes in terms

of what level of social impact and what
level of financial returns (if any) should
be achieved.

1. 2. • The life cycle of the investor for impact

Assess the Assess the
pre-conditions of the financial needs (i.e. whether it has a self-liquidating struc-
investor for impact of the SPO
ture, a perpetual life cycle or a “continu-
ously fundraising” model).

• The duration of commitment, given by the

3. length of time the investor for impact is
Match the investor
for impact’s goals willing to support an investee.
with SPO’s needs

• The non-financial support that the

organisation commits to providing to
its investees.

• The expertise of the team and the skills of

the employees in managing different types
Figure 6: Step 1 of tailored financing of financial instruments.

Resources
Report “15 Years of Impact – Taking Stock and Looking Ahead” (EVPA, 2019) – see Part 2

II. INVESTMENT III. INVESTMENT IV. EXIT

STRATEGY PROCESS
23 
 2) Developing a sustainable fundraising strategy
Sources and methodology for obtaining capital at the different stages of
development of an organisation investing for impact

The nature of the founder affects the type of fundrais- The funding model can pose challenges, especially when
ing required. Some individual founders and institutions it comes to the financial sustainability of those investors
have been able to fully fund the investor for impact for impact that do not have an endowment and thus
without external fundraising, others engage in formal have to rely on fundraising to sustain their activities.
fundraising from third parties and some use a combi- Investing for impact needs ‘patient capital’ that is flexible
nation of both. When the investor for impact is closely enough to accommodate unforeseen circumstances.
linked to a larger institution, funding is often provided
on an ongoing basis by budgeting a certain amount Prospective donors and investors need clarity on the
to the investor for impact each year. However, in many investor for impact’s investment model and goals. The
cases, the investor for impact needs to engage in fund- founder(s) needs to clearly articulate how the money
raising in order to operate and have money to invest. will be invested; which areas will be prioritised; what the
overall social impact will be; and how the organisa-
Raising capital successfully from third tion will manage to achieve its goals. It also needs to
parties requires: consider how the organisation investing for impact will
sustain itself over time. The founder’s personal track
• A clear vision of what is intended to be record will be critical.
achieved with the capital.
In the social sector, the providers of capital are driven
• A clear structure and an investment strategy. by a combination of heart and head. They will be moti-
vated to support an organisation investing for impact
• Credibility and ability to deliver the vision. by heart, considering the vision of the social good to be
achieved; but they will also be strongly influenced by the
head, looking at the plausibility of the plan and whether
the agreed objectives are likely to be achieved.

 INTRODUCTION I. SETTING UP AN ORGANISATION

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INVESTING FOR IMPACT
Potential sources of funding:

• The founders’ network of contacts – friends, • Government agencies sometimes support

family and colleagues. Boards of direc- efforts of this nature, in order to foster new
tors can be a valuable source of funding, ideas and develop the social market. However,
both directly and through their individual this relationship might entail a very long sales
networks. Some of this is a matter of luck, process and significant operating restrictions.
but the prior business experience of the In most cases, other investors will be needed
founders and their track record of success to support the effort and to give the plan
are important drivers. more credibility and independence.

• Trusts and foundations generally make

smaller grants to support projects. Promot-
ing innovation can be an important moti-
vation for these organisations, and they
are thus likely to support the first fund
in a particular geographical area.

• Corporate sources are an important source

of capital, usually for corporate social inves-
tors, which are becoming more and more
engaged in the impact ecosystem.

• High-net-worth individuals can some-

times be accessed through private
banks. An investor for impact can get in
contact with the bank’s philanthropic advi-
sors to build a long-term relationship. Offer-
ing the opportunity to invest for impact can
be a value-added service that banks offer to
their clients.

Inspire2Care – Karuna Foundation © Leonard Fäustle

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25 
 Start-up funding

Raising the initial capital is clearly difficult, but it helps if Key issues to consider before attempting
the founder(s) can commit some of its/their own raising a first-time fund:
resources to cover both capital needs and operating
costs. This not only helps financially but also demon- • Being clear about objectives and trying to
strates their commitment to the project. articulate a Theory of Change.

Educating the potential supporters about both the • Carefully targeting potential investors and
methods and the benefits of investing for impact is developing an understanding of why they
essential. The first step in that direction is to clearly would want to support the organisation
articulate a Theory of Change, as outlined in part 2.1 investing for impact – remembering that
(see pages 39-42). Potential supporters may be wary each potential supporter will have different
about investing in a blind pool – i.e. committing capi- motivations.
tal to a fund whose investment targets have not been
identified. Hence, it may be necessary to pre-select five • Anticipating the difficult questions and
or six candidate organisations to support before start- thinking about how to respond credibly.
ing the fundraising.
• Finding an early-stage lead sponsor – seeing
Finally, the investor for impact may need to demon- if identifying a foundation, a financial insti-
strate the organisation’s capability by putting in tution, high-net-worth individuals or other
place an initial management team before raising funds. entities with a strong funding base. This will
In the absence of a major early-stage sponsor, the give more capital and more credibility while
organisation will necessarily grow slowly, starting with developing operations.
just a few people and expanding as it starts to build a
track record. • Being prepared for a major effort: the
majority of the people contacted will say
no, and it will be necessary to learn from
those rejections and to adjust the approach
as necessary.

• Being optimistic and persistent.

 INTRODUCTION I. SETTING UP AN ORGANISATION

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INVESTING FOR IMPACT
Follow-on funds

Follow-on funds ideally should not be raised until several Key issues to consider for follow-on
years after start-up, so that the investor for impact can fundraising:
point to the results achieved with the prior fund(s). The
advantage of raising a follow-on fund is that there should • Using case studies from the portfolio where
be an established team, an established portfolio of invest- added value delivered and the social benefit
ments, and some evidence to support the claim that the achieved can be demonstrated clearly. It is
intervention has made a positive impact. The fundraising important to be careful that claims are not
pitch can be based on the track records developed and exaggerated and they can be substantiated.
on the progress that has been attained and should facil-
itate the fundraising process. • Refining the targeting strategy. There may
be subgroups of potential funders that are
However, moving from the start-up to the follow-on interested either in some target sector(s) or
phase can be difficult. Some supporters will be in certain types of investments done. Devel-
more animated by the excitement of a start-up and the oping relationships with these key funders
opportunity to invest in a new concept. Moreover, found- early and building trust and support should
ers may have exhausted the appetite of their immedi- be a priority.
ate network and may have to start ‘cold-calling’.

The profile of investors for the second or third time

round is broadly similar to that of the funders initially Other methods of raising capital
targeted, but depending on the strength of the invest-
ment case, they may offer a better reception. For exam- Investors for impact have tried to find complementary
ple, institutional investors will be difficult to attract in the revenue streams as a solution to financial sustainabil-
start-up stage, but it may make sense to bring them in ity issues. Adding peripheral activities (such as consul-
for a follow-on fund. However, as highlighted in EVPA’s tancy), finding ways to recycle capital (through debt
report “Learning from Failures in Venture Philan- instruments and by reinvesting capital gains) and gener-
thropy and Social Investment”, institutional investors ating economies of scale in the management fees (by
tend to still be more focused on achieving high financial raising larger funds) are examples of methods for obtain-
returns, sometimes to the detriment of social impact. ing more resources.

Resources
Report “Learning from Failures in Venture Philanthropy and Social Investment” (EVPA, 2014).

II. INVESTMENT III. INVESTMENT IV. EXIT

STRATEGY PROCESS
27 
 3) Recruiting a CEO and the management team
What is needed to be careful of when composing the team

The CEO of a newly created organisation may there is a need for a mix of social and private
be a founder or an individual recruited at an early sector backgrounds.
stage by the founder(s). The CEO, the management
team and the board must share among them a blend It may be difficult to attract ideal candidates at first. If
of skills and knowledge that can satisfy a very diverse it is necessary to compromise, calibre and energy are
set of demands. preferable to directly relevant experience. It may be
necessary to upgrade a particular position when the
The composition of the management team is obvi- hire has demonstrated success.
ously important, although it would be dangerous
in a general discussion such as this one to be overly Most successful investors for impact in Europe have
prescriptive. Professionalism is a necessary but not started with high-calibre teams that have significant
sufficient condition. Ideally, recruits should also ‘share experience – either held by the founders or gained
the vision’ – i.e. be motivated by the social objectives through recruiting. According to EVPA’s report “Learn-
of the investor for impact. ing from Failures in Venture Philanthropy and Social
Investment”, the ideal team members often have basic
A management team should be able to wear two hats financial skills. It is better to hire staff with a strong
simultaneously during its work with SPOs. Its members business or financial background (including business
should understand the specific social issues that the planning and financial skills) who can then learn how
SPO addresses and the latter’s strategy for doing so. to apply their skills to the social sector.
They should also maintain an ‘investor perspective’
that considers both the SPO’s performance and its
alignment with the organisation’s objectives and with
the rest of its portfolio.

A small team, typically one to four people, may

be an appropriate number to start with. The profile
could focus on people who are patient enough to
understand how the social sector works, but who may
not necessarily be from the social sector. In general,

 INTRODUCTION I. SETTING UP AN ORGANISATION

28
INVESTING FOR IMPACT
Balancing between the social sector’s
perspective and the investor’s perspective:

Different investors for impact have taken different

approaches, when it comes to forming the team,
to achieve the balance between the social sector’s
perspective and the investor’s perspective, including:

• Hiring both skill-sets into the management

team, i.e. hiring a very diverse team and
working hard to ensure they learn from each
other – building a learning culture.

• Hiring a team with backgrounds that

complement those of the founder(s).

• Hiring a team with investment back-

grounds and challenging them to
develop a deep knowledge of the field
at a rapid pace.

Simplon © Frederic Bieth

Resources
Report “Learning from Failures in Venture Philanthropy and Social Investment” (EVPA, 2014) – see pages 39-41

II. INVESTMENT III. INVESTMENT IV. EXIT

STRATEGY PROCESS
29 
 4) Working out the role of the board
How to select the right board members and which roles they can play

The role of the board should be determined early on – sion-making processes have been established, and
ideally by the founder(s) and any early board members. may allow the investment committee to take over the
It should be noted that the board’s role will evolve as investment decision process.
the organisation investing for impact moves from the
start-up phase to a more ‘steady-state’. At start-up, As the board is often involved in the decision process
the role and composition of the board will be heav- of investors for impact, there is a need for a governance
ily influenced by the needs of the organisation and structure that includes a balanced mix of experiences
the management team. In the longer term, boards will from both the private and social sector. Members of the
take on the kind of traditional governance and over- board must be chosen on the basis of their entrepre-
sight roles seen in mature companies/organisations. neurial approach as well as their collaborative mind-set,
patience and high ethical standards.
The level of engagement of the board is likely to be
high – possibly even ‘hands-on’ – during the start-up Finally, the board size should be kept small, typically
phase. Board members should be selected if they can three to five members. In cases where an organisation
provide the necessary time and if they are person- investing for impact needs a larger board (e.g. if several
ally committed to the success of the organisation. board seats are requested by the investors), it is recom-
Donor/investor representatives on the board are likely mended that the board’s active engagement activities
to represent the organisation externally, including are assigned to a smaller sub-committee, which can
through fundraising and marketing activities, whereas meet frequently (e.g. monthly).
board members that are hired to bring specific
skills and expertise to the table will tend to be the
ones that engage directly with the management team
of the social purpose organisations.

During the start-up phase, when the organisation

as a whole is in a learning mode with respect to invest-
ment decision-making, the board is likely to act as an
investment committee for final investment approval.
Later, boards may consider that adequate deci-

 INTRODUCTION I. SETTING UP AN ORGANISATION

30
INVESTING FOR IMPACT
Drivers for establishing the board:

Some of the drivers for establishing the board’s role,

focus and composition during the start-up phase include:

• The need to grow the network (on both the • Fundraising.

fundraising and the investment sides).
• Providing skills, expertise and knowledge
• Public relations and building the investor to the management team.
for impact’s profile.

© Social Bee

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STRATEGY PROCESS
31 
 5) Abiding by high ethical standards
How to guarantee the preservation of high ethical standards in
the management of the activities

As investors for impact aim to achieve systemic change, • Professional business conduct, which entails ensur-
they must abide by high ethical standards in managing ing efficiency and sustainability and responsibly
their activities. EVPA has developed a Code of Conduct conducting the operations.
as a set of minimum principles, whose compliance is
mandatory for EVPA members. The primary objectives of the EVPA Code
of Conduct are:
The Code of Conduct is founded on the principles of:
• Set the standards of conduct for an industry
• Transparency, which entails openness about in continuous development.
the operations of the organisation and enables
the development of trust between actors in the • State the principles of ethical behaviour for
impact ecosystem, enhancing the reputation of EVPA members.
the industry.
• Assert on behalf of the membership the
• Ethical behaviour, which comprises integrity, fair- collective view that the highest professional
ness and responsibility. standards as well as just and equitable prin-
ciples of philanthropy, trade and investment
• Integrity implies not gaining competitive shall be observed.
advantage and commercial success through
manipulative practices. • Address lapses in professional conduct
when they occur within EVPA.
• Fairness relates to abiding by the existing rules.
• Act within the rule of law and business rules
• Responsibility implies being accountable for of the jurisdiction of the EVPA member.
own mistakes and using them as a learning tool.

• Mutual respect, which is avoiding stereotyped

prejudices.

 INTRODUCTION I. SETTING UP AN ORGANISATION

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INVESTING FOR IMPACT
Another key element of upholding high ethical standards As identified in the “Roadmap for investors for impact”,
relates to the eagerness in collecting and sharing both included in the report “15 Years of Impact – Taking
impact and financial data. In this regard, EVPA is commit- Stock and Looking Ahead”, structuring data and extract-
ted to collecting and analysing data from practitioners ing valuable information to maximise social impact is a key
from all over Europe, running the EVPA Industry Survey objective for investors for impact. EVPA states that in the
since 2010. The Industry Survey provides independent next decade, investors for impact should be able to (i)
statistics on the impact space, with the aim of understand- use data and evidence to anticipate long-term issues that
ing the strategies and practices of investors for impact. will affect people and the planet and take action; and (ii)
EVPA firmly believes that the Industry Survey is an essen- aggregate data and compare them with baselines to show
tial tool for the impact ecosystem to grow and unleash its contributions and progresses at impact sector level.
impact potential, and encourages all investors for impact
to share their data.

Apply the Charter of investors for impact – Principle 10

• Behave ethically, ensuring integrity, fairness and responsibility.

10. • Embrace transparency.

…UPHOLD HIGH ETHICAL
STANDARDS
• Believe in the power of evidence.

Resources
Code of Conduct of EVPA (2020)
Industry Survey of EVPA (2010 – 2020)
Report “15 Years of Impact – Taking Stock and Looking Ahead” (EVPA, 2019) – see “Roadmap for Investors
for Impact” at pages 88-89

II. INVESTMENT III. INVESTMENT IV. EXIT

STRATEGY PROCESS
33 
 INTRODUCTION I. SETTING UP AN ORGANISATION
34
INVESTING FOR IMPACT
 II.
INVESTMENT
STRATEGY

II. INVESTMENT III. INVESTMENT IV. EXIT

STRATEGY PROCESS
35 
IntoUniversity © Caroline Cornil

 INTRODUCTION I. SETTING UP AN ORGANISATION

36
INVESTING FOR IMPACT
II. INVESTMENT STRATEGY

The investment strategy of the investor for impact is composed of eight

main elements:

• The impact measurement and manage- • The non-financial support – the investor
ment strategy and the development of the for impact needs to decide how much
Theory of Change. non-financial support to provide, what type
of NFS is core or non-core to its investment
• The social focus of the operations. strategy and who provides each type of
support. The non-financial support offered
• The geographical focus of the operations. needs to be in line with the goals of the
investor for impact in terms of financial
• The type of social purpose organisa- return and social impact, as defined in its
tions supported. Theory of Change.

• The type of financial instruments deployed • The collaboration with other actors, including
– the investor for impact can use a range of the co-investment policy.
financial instruments, such as grants, loans/
debt, equity and hybrid financial instruments. • The exit strategy – it is recommended that
investors for impact already think about how
they will exit their investments as part of
developing their investment strategy, allow-
ing them to assess variables such as duration
of the investment and potential exit routes.

II. INVESTMENT III. INVESTMENT IV. EXIT

STRATEGY PROCESS
37 
 CHECKLIST

Defining how to measure and

manage social impact

Defining the social problems

to tackle and applying
appropriate strategies

Defining the geographical focus

Defining which type(s)

of social purpose
organisations to support

Selecting which financial

instrument(s) to use to support
which SPO(s)

Defining what non-financial

support to offer

Defining how to collaborate

with other actors

Thinking about the exit

already as part of the
investment strategy

 INTRODUCTION I. SETTING UP AN ORGANISATION

38
INVESTING FOR IMPACT
1) Defining how to measure and manage social impact
Understanding the change to seek and how to define it

EVPA’s report “A Practical Guide to Measuring and There are five factors investors for impact have to
Managing impact” helps investors for impact look consider when defining the scope of impact manage-
at impact measurement and management (IMM) ment: (i) what is their motivation for measuring social
as a learning process. The EVPA five-step approach impact; (ii) what resources they can dedicate to impact
guides investors to define their social impact objec- measurement – including financial, human, technologi-
tives and embed them in the overall impact meas- cal and time resources; (iii) what type of SPOs they are
urement system, allowing them to better manage the working with; (iv) what level of rigour they require in
impact generated through their investments. their impact analysis; and (v) what is their time frame
for measuring impact.
Investors for impact should go through all the steps
of the framework with their investees throughout The more accurate and customised IMM is, the lower
the investment process, and then the IMM process the risk of not achieving the intended social impact,
will finally occur in the course of the investment or generating unintended negative consequences.
management phase. However, investors for impact should be careful not
to over-claim and to take into consideration the
Investors for impact should keep in mind that they will attribution.
not only have to measure (and eventually aggregate)
the impact of their investees, but also assess the impact
of their own activities. This second level of measure-
ment consists in measuring the value of the finan-
cial and non-financial support provided. Thus, while
defining the investment strategy, investors for impact
already start focusing on step 1 of IMM i.e. setting objec-
tives, at the investor level.

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STRATEGY PROCESS
39 
 Defining the Theory of Change (ToC)

Investors for impact start by defining their own Defining a ToC in practice:
social objectives, continuing with the development
of a Theory of Change to articulate how and why they • The investor for impact needs to determine
expect to achieve change through their activities to the overarching social problem or issue
solve a particular social problem. Moreover, a clearly that it aims to alleviate – e.g. youth unem-
articulated Theory of Change is also necessary to be ployment in Spain (including an assess-
able to choose investments in SPOs that can contribute ment of the magnitude of the problem as
to solving the social issue that the investor for impact the base case).
is addressing.
• The investor for impact needs to determine
A Theory of Change defines all the building blocks the specific objective it wants to achieve
required to bring about a given long-term goal. This – e.g. to reduce youth unemployment in
set of connected building blocks is depicted on a map Spain by investing (financial and non-fi-
known as a pathway of change or change framework, nancial support) in social enterprises with
which is a graphic representation of the change process. innovative solutions to introduce youth in
the labour force (including an assessment
The Theory of Change and the financial return expec- of what the greatest needs of such social
tations are the cornerstones of the investment strat- enterprises are and how the investor for
egy, and will help investors for impact further refine impact can help them).
their investment strategy.
• The investor for impact needs to determine
the expected outcomes – what the investor
for impact must achieve to be considered
successful (the milestones against which
the investor for impact will be measured) –
e.g. the reduction of youth unemployment
in Spain by 2 percentage points in 5 years.

 INTRODUCTION I. SETTING UP AN ORGANISATION

40
INVESTING FOR IMPACT
 Impact Measurement and Management

The objectives selected during step 1 should be “SMART”: specific, measurable, attainable, realis-
tic and time-bound.

In practice, “SMART” means:

• Specific: the objective is specific if it is clearly • Realistic: the objective is realistic if it is

written so relevant parties easily understand within the organisation’s reach to achieve,
it. The party should be able to define what given the external context in which its activi-
is to be done, the rationale or benefit related ties take place.
to meeting the outcome or goal and what
requirements are necessary. • Time bound: the objective is time bound if it
can be accomplished within the evaluation
• Measurable: the objective is measurable if it period that has been set by the organisation.
covers at least one measure of a quality metric,
quantity, time and/or cost-effectiveness. Meas-
urable means not just meeting a standard but
evaluating to what extent the standard needs
in
g es
1. An
a
sta lysi
ke ng
ho
tt ctiv ld
to be met. Without a specific measure the je
ob e
S

er
2.
party is not able to self-monitor how they are

s
doing relative to the overall objectives of the
organisation.
5. Managing
• Attainable: the objective is attainable by the Impact
M o n i t o r ti n
and re

re suring
organisation if it is appropriate, given the
o ri

ts
p

resources (time, human, capital, technology)

a
sul
ng g

Me
it has at its disposal. It should allow for some
stretch to encourage the organisation to
meet its goals. 4. Verifying &
3.
valuing impact

Figure 7: Step 1 of IMM

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STRATEGY PROCESS
41 
 Apply the Charter of investors for impact – Principle 5

• Commit to a set of common principles of impact measure-

ment and management, to maximise social impact while
minimising the risk of impact washing.

5.
• Collect data, not only to measure the impact, but in order to
… MEASURE AND MANAGE
SOCIAL IMPACT systematically refine the impact strategies and to take better
informed decisions.

• Help social purpose organisations set up their own impact

measurement and management system to maximise their
social impact.

Resources
Report “Measuring and Managing Impact – A Practical Guide” (EVPA, 2015).
Leaflet “Impact Management Principles”, co-developed by EVPA and Social Value International (EVPA/SVI, 2017).
Report “Impact Measurement in Practice: In-depth Case Studies” (EVPA, 2016).

 INTRODUCTION I. SETTING UP AN ORGANISATION

42
INVESTING FOR IMPACT
2) Defining the social problems to tackle
and applying appropriate strategies
Guidance on how to choose a sectorial focus

As part of the definition of the investment strat-

egy, investors for impact should define if they will
have a sectorial focus (and which one) or if they will
be sector agnostic. On the one hand, an advantage
of having a sectorial focus is that it allows investors
for impact to bring more added value in the areas
where they have developed a learning curve. Measuring
impact is also facilitated by a clear investment focus on
one particular social sector: there will be fewer, if any,
problems with aggregating data at portfolio level.

On the other hand, having a broad-based portfolio

allows start-up investors to appeal to a wide variety of
stakeholders. Moreover, investors for impact operating
in a small market may be forced to focus on multiple
sectors, as the deal flow related to one specific sector
would be too limited.

As the impact ecosystem becomes more established,

more and more investors for impact are becoming
sector agnostic, looking for opportunities to invest in
innovative ventures, regardless of the sector in which
these SPOs are active. As a consequence, the large
majority of investors for impact support multiple
sectors and beneficiaries.

NEST © Joan Bardeletti

II. INVESTMENT III. INVESTMENT IV. EXIT

STRATEGY PROCESS
43 
 Apply the Charter of investors for impact – Principle 4

• Be prepared to take both financial and impact risks betting

on new solutions.
4.
… TAKE RISKS THAT MOST • Be willing to accept a less attractive risk/return ratio than
OTHERS ARE NOT PREPARED other investors, if you believe in the potential impact of the
TO TAKE
proposed solution.

• Create the pipeline for follow-on investors by providing early-

stage high-risk capital.

 INTRODUCTION I. SETTING UP AN ORGANISATION

44
INVESTING FOR IMPACT
3) Defining the geographical focus
How to choose a geographical focus ensuring to be efficient and impactful

Investors for impact need to define the geographical Questions about the impact investment market in the
scope of their activity as part of their investment strat- target geography need to be explored in this context as
egy. Most European investors for impact invest in their well. Is there a sizeable social need that the organisation
own domestic market or in developing countries. investing for impact can address in a meaningful way? Is
there sufficient deal flow to ensure that an appropriate
Investors for impact that adopt an international focus level of investments will result?
face additional costs and management complexities
in comparison with those operating within a single A market study is normally required to understand
national jurisdiction. the relevant demographics and the quantity, qual-
ity and size of potential investment targets. To ensure
Engaged portfolio management is more complicated that the investor for impact can selectively invest in
if the investee organisations are dispersed across high-quality organisations, the number of potential
several countries, while the development of an overseas investments should significantly exceed the total
network is necessary to maintain deal flow. Travel, legal number of investments required to fill the portfolio.
advice and taxation advice will impose additional costs.
Often, investors for impact investing internationally rely
on local offices and partners.

II. INVESTMENT III. INVESTMENT IV. EXIT

STRATEGY PROCESS
45 
 Eau et Vie © Trafigura Foundation

 INTRODUCTION I. SETTING UP AN ORGANISATION

46
INVESTING FOR IMPACT
4) Defining what type(s) of social purpose
organisations to support
The types of social purpose organisations that investors tend to work
with and ways to select the right social purpose organisations to support

By adopting the venture philanthropy approach, inves- Another important aspect of the SPO is its stage of
tors for impact can support different types of SPOs, development. SPOs go through four sequential stages
from charities and non-profit organisations to social – which constitute their life cycle: (i) pre-seed/seed, (ii)
enterprises and socially driven businesses. start-up/early stage, (iii) validation, and (iv) preparation
to scale and scaling. Investors for impact mostly invest
As shown in the EVPA spectrum (Figure 2 at page 8), on in organisations during their start-up and validation
the left side of the spectrum, there are social purpose stages, which have the potential to develop new and
organisations that will never be financially / self-sus- innovative solutions to pressing social challenges.
tainable. These organisations provide valuable social The early stage of development calls for more patient
products or services with no market outlet and can capital and this could reduce the funding possibili-
therefore be supported by traditional grant-mak- ties. Investors for impact, hence, take the risk inferred
ers and/or by engaged grant-makers. Investors for from supporting SPOs in their first stages of devel-
impact also support SPOs with a potentially financially opment and construct a pipeline for other investors,
/ self-sustainable business model, by providing either which may come in during the scaling phase. In the
grants (e.g. first-loss grants) or repayable financial case of SPOs that will never be financially / self-sus-
instruments. SPOs with a proven financially sustaina- tainable, an important actor in their scaling phase is the
ble business model can be supported by investors for public sector, which might recognise the value of the
impact, but they can also attract investors with impact solutions developed by the SPO and consider taking
since they have already generated track records. Addi- them over and scaling them.
tionally, investors with impact also support traditional
businesses with intentional social impact, which can
generate financial returns on their investments, along-
side social impact.

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47 
 Finally, investors for impact support SPOs that actively
involve final beneficiaries in their activities, and put
them at the centre of the solutions. Sometimes,
the founder of the SPO may be a beneficiary itself.
Depending on the SPO’s business model, the final
beneficiaries can have two roles: being employees
of the SPO or being customers (Hehenberger, 2019).
If the beneficiaries are employees of the SPO, they
should be treated as such, so that they feel empow-
ered and treated with dignity. When beneficiaries are
customers, their needs should be well understood and
they should be involved in the creation of the solution.
Lastly, if investors for impact want to put beneficiaries
at the centre of the solutions, they “should entrust
them with more agency, and perhaps calling them
agents of social change” (ibid).

Types of final beneficiaries targeted by the SPOs

supported by investors for impact are: children and
youth (including teens, NEETs, etc.); elderly people;
women; people with disabilities; people with diseases
(either mental or physical); re-offenders; migrants,
asylum seekers and/or refugees; unemployed people;
minority ethnic communities; and people in poverty,
among others. As these categories are not mutually
exclusive, some SPOs target more than one cate-
gory at a time.

IntoUniversity © Liam Arthur

 INTRODUCTION I. SETTING UP AN ORGANISATION

48
INVESTING FOR IMPACT
Apply the Charter of investors for impact – Principle 2

2. • Support solutions co-created with final beneficiaries.

… PUT THE FINAL

• Encourage social purpose organisations to proactively
BENEFICIARIES
AT THE CENTRE OF involve beneficiaries in their activities.
THE SOLUTIONS
• Be primarily accountable to final beneficiaries.

Resources
Report “Impact Strategies – How Investors Drive Social Impact” (EVPA, 2018).
Article: “The agents of change in social entrepreneurship” (Hehenberger, L., 2019).

II. INVESTMENT III. INVESTMENT IV. EXIT

STRATEGY PROCESS
49 
 5) Selecting which financial instrument(s) to use
to support which SPO(s)
Definitions of the main financial instruments

Financial instruments are contracts involving mone- • Equity instruments are contracts through
tary transfers through which investors for impact finan- which investors for impact provide funding to
cially support social purpose organisations (SPOs). The SPOs and in return acquire ownership rights
financial instruments used in the impact ecosystem are on part of the SPOs’ businesses. This form of
broadly similar to those used in the commercial invest- capital can be appropriate when the pros-
ment sphere, but also include the grant and grant-re- pect of a loan repayment is low or non-exist-
lated financial instruments. ent. If the SPO is successful, the equity share
holds the possibility of a financial return in
The three main types of financial instruments: the form of dividend payments and/or the
capital gain at the exit. In addition, it allows
• Grants are a type of funding in the form for the possibility of a transfer of ownership
of a cash allocation that investors for impact to other funders in the future.
can offer to SPOs. From SPOs’ perspective,
grants do not foresee any type of repay-
ment or any financial returns to be given Moreover, investors for impact can also support SPOs
back to the investor. From the investors’ by using hybrid financial instruments (HFIs). HFIs
perspective, grants do not establish any are monetary contracts that represent a variation or
ownership rights. combine features of the traditional financial instru-
ments (grants, debt instruments and equity instru-
• Debt instruments are loans investors for ments) in order to achieve the best possible alignment
impact can provide SPOs with charg- of risk and impact/financial return for particular invest-
ing interest at a certain rate. The interest ments. As experts from the field described, HFIs are
charged can vary depending on the risk financial instruments that attempt to reconcile some of
profile of the investee (i.e. the SPO); on its the basic tensions between the financial requirements
potential social impact; and on the securi- of the investors and the impact motivation of the social
tisation and repayment priority of the loan entrepreneurs (Varga and Hayday, 2019).
(e.g. senior vs subordinated loan).

 INTRODUCTION I. SETTING UP AN ORGANISATION

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INVESTING FOR IMPACT
 Some examples of hybrid financial instruments are
mezzanine finance, convertible loans (or convertible
debt), recoverable grants (or convertible grants), soft
loans, revenue sharing agreements (or royalty-based
financing), and forgivable loans.

Hybrid financial instruments – some examples:

• Mezzanine finance is a hybrid of debt and

equity financing, usually used to fund the
scaling of an organisation. Although it is
similar to debt capital, it is normally treated
like equity on the organisation’s balance
sheet. Mezzanine finance involves the provi-
sion of a high-risk loan, repayment of which
depends on the financial success of the SPO.
This hybrid financial instrument bridges the
gap between debt and equity/grant through
some form of revenue participation.

• Convertible loans (or convertible debt) are

loans that may be converted into equity.
Convertible loans are most often used to
support SPOs with a low credit rating and
high growth potential. Convertible loans
are also a frequent vehicle for seed invest-
ing in start-up SPOs, as a form of debt that
converts into equity in a future investing
round. It is a hybrid financial instrument that
carries the (limited) protection of debt at
the start, but shares in the upside as equity
if the start-up is successful, while avoid-
ing the necessity of valuing the company
at a too early stage.
CottonConnect ©Ben Langdon for C&A Foundation

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STRATEGY PROCESS
51 
 • Recoverable grants (or convertible grants) • Revenue sharing agreements (or royal-
are grants that investors for impact use to ty-based financing) are hybrid finan-
fulfil a role similar to equity. Recoverable cial instruments in which the investor for
grants may include an agreement to treat impact lends money to the SPO against its
the investment as a grant if the SPO is not future revenue streams. The initial capital
successful, but to repay the investor for plus an additional interest has to be repaid
impact if the SPO meets pre-agreed KPIs with by the company until the pre-established
success. Recoverable grants are designed to amount is paid back (so called royalty
focus the SPO on sustainability and to reduce cap), with repayments only starting when
its risk of grant dependence. the company generates positive cash flow.
Investors obtain returns as soon as the
• Soft loans are debts investors for impact investees reach an agreed level of revenue.
offer to SPOs with no interest (i.e. 0% interest (Source: Jakimowicz, K., et al., 2017).
rate loans) or with a below-market rate inter-
est. The main difference with recoverable • Forgivable loans are the opposite of
grants lies in the repayment scheme, which convertible grants. They are loans which are
is agreed ex-ante between the two parts and converted into grants in case of success. If
it is not conditional to any specific KPI. the SPO reaches the goals agreed on before-
hand by the investor and the investee, the
loan does not have to be repaid. The SPO
bears the full risk of project success and,
on top of that, has a strong incentivation
for making it happen as planned. (Source:
Oldenburg and Struewer, 2016).

Resources
Leaflet “Financing for Social Impact – Financial Instruments Overview” (EVPA, 2020).
Report “Financing for Social Impact – The Key Role of Tailored Financing and Hybrid Finance” (EVPA, 2017).
Report “A recipe book for social finance. Second edition: A practical guide on designing and implementing
initiatives to develop social finance instruments and markets” (Varga, E., and Hayday, M., 2019).
Report “New financial instruments for innovation as a way to bridge the gaps of EU innovation support”
(Jakimowicz, K., et al., 2017).
Article “Full spectrum finance: how philanthropy discovers impact beyond donation and investments” (Oldenburg
F., and Struewer, B., 2016).

 INTRODUCTION I. SETTING UP AN ORGANISATION

52
INVESTING FOR IMPACT
Apply the Charter of investors for impact – Principle 7

• Provide appropriate funding to support the different stages

7. of development of social purpose organisations.
… TAILOR THE
FINANCIAL SUPPORT • Start from the societal solutions and reverse-engineer the
TO THE NEEDS AND
financial support to provide.
CHARACTERISTICS OF
SOCIAL PURPOSE
ORGANISATIONS • Ensure that there is a match between the financial support
you can offer (i.e. grants, debt, equity or hybrid financial
instruments – or a mix of them) and the needs of the social
purpose organisation.

Don’t forget…
While defining the investment strategy, step 1 of tailored financing
should be applied to ensure that the assessment of the pre-condi-
tions of the investor for impact is completed, as explained in part 1.1
at pages 22 and 23.

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STRATEGY PROCESS
53 
 6) Defining what non-financial support to offer
Deciding what non-financial support (NFS) to provide to investees based
on the investment strategy

The non-financial offer of an investor for impact can Based on its own impact objectives and Theory of
be as important to the investee’s development as the Change, the investor for impact can choose which types
financial support provided. of non-financial support are core to implementing its
strategy. Once this mapping exercise is completed, the
As part of its investment strategy, the investor for impact investor for impact should choose among these services
should first consider the possible forms of non-financial the most relevant ones and distinguish between core
support available to help the SPO advance on three support and non-core support.
core areas of development: social impact, financial
sustainability and organisational resilience. EVPA distin- It is recommended that the investor for impact asserts
guishes between specific support and generic support. who can provide each type of support. Most of the
Specific NFS is meant to impact a specific area of devel- organisations investing for impact offer non-finan-
opment of the SPO. The types of NFS that impact the cial support through their internal team, and some of
development area of social impact are support in devel- them couple it with support from external contributors.
oping the Theory of Change and Impact Strategy, as Concretely, grant-making organisations tend to dele-
well as support in managing the impact. Types of NFS gate their provision of non-financial support to external
related to financial sustainability are fundraising, reve- contributors more often than impact funds.
nue strategy and financial management. Finally, govern-
ance support and human capital support are aimed at The investor for impact also needs to consider how it
strengthening the organisational resilience. Generic will finance the non-financial support it provides and –
NFS is not meant to impact directly any specific area in order to do so – it needs to have a clear view of the
of development, but it contributes to all of the three in real cost of the non-financial support provided, as well
different ways. Examples of generic NFS are strategic as the strategy to finance the different assets.
support and operational support.

 INTRODUCTION I. SETTING UP AN ORGANISATION

54
INVESTING FOR IMPACT
 Specific Support Area of development Generic Support

Theory of Change
and Impact Strategy

Social Impact
Impact
Measurement

Operational Support
Fundraising

Strategic Support
Revenue strategy
Financial
Sustainability
Financial
Management

Governance
Support

Organisational
Human Capital
Resilience
Support

Figure 8: Mapping of non-financial support based on the three key

areas of development of the SPO

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STRATEGY PROCESS
55 
 Non-financial support Map
investor
for impact’s
assets
An important decision to be taken in this step is who
provides non-financial support. NFS can be provided
either by the internal team (i.e. paid employees and
Assess
board members) or through external support. the value
Assess needs
and impact
of the SPO
of NFS

External contributors can be pro-bono contribu-

tors (e.g. individuals with specific skills or knowl-
edge on a topic, professional services firms,
etc.), low-bono contributors (i.e. consultants that Deliver NFS Develop
the NFS plan
charge a reduced fee) or paid external contributors
(such as consultants or academics).
Figure 9: Step 1 of non-financial support

Apply the Charter of investors for impact – Principle 6

• Provide highly-engaged non-financial support to strengthen

the three core areas of development of the social purpose
organisation: social impact, organisational resilience and
6. financial sustainability.
… PROVIDE EXTENSIVE
NON-FINANCIAL
• Customise non-financial support to the social purpose organ-
SUPPORT
isation and its different phases of development.

• Provide sufficient time and strategic bandwidth to allow the

social purpose organisation to succeed.

Resources
Report “Adding Value through Non-Financial Support - A Practical Guide” (EVPA, 2015).
Expert round-up: “Commit time, not only money” (EVPA, 2018).

 INTRODUCTION I. SETTING UP AN ORGANISATION

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INVESTING FOR IMPACT
7) Defining how to collaborate with other actors
Collaborating with other actors and bringing in co-investors

Collaboration with other actors is particularly important risk of failing and/or having the investee out of business.
within the impact space. Key players with whom to
collaborate can be other investors for impact, investors Other aspects of the relationship that should be agreed
with impact, traditional grant-makers, traditional inves- upon are the co-investors’ attendance to review meet-
tors, incubators and accelerators or the public sector. ings, their supply (or not) of value-added services, or
the lead investor and the SPO’s reporting obligations.
A particular way of collaborating with other actors
is co-investing. Co-investment can be an important In addition to traditional co-investment, when multiple
part of an investor for impact’s investment strategy. It actors with different impact strategies join forces, they
represents an excellent way to raise funds to support can engage with hybrid finance. Hybrid finance is the
SPOs through the venture philanthropy approach – and allocation of financial resources to impact-oriented
may be easier than raising funds for the investor itself. investments combining different types of financial
In addition, it can help promote VP among a wider instruments and different types of risk/return/impact
audience. It also eliminates the ‘blind pool’ element, profiles of organisations investing for impact. Two
whereby investors are asked to fund unidentified common examples of hybrid finance are hybrid
organisations. It can help investors for impact target financing vehicles (developed at fund level) and hybrid
suitable trusts and foundations that are appropriate financing mechanisms (developed on a deal-by-deal
for a given investment. Co-investment does prompt basis, e.g. social impact bonds, development impact
certain cost considerations. Some investors may wish bonds or social success notes). Part 3 of the EVPA’s
to charge co-investors a fee for managing the invest- report “Financing for Social Impact” analyses these two
ment – to share overheads. This can often be a difficult elements and their main features.
negotiation. Co-investing can also be risky in particular
if the co-investors do not have similar objectives. For
example, purely financial co-investors might exit an
investment that is doing well from a social impact
perspective if it does not generate the desired financial
return. This would force the investor for impact to look
for other investors or to financially cover for the part of
the co-investor that dropped out, in order to avoid the

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57 
 Apply the Charter of investors for impact – Principle 8

• Go beyond supporting individual social purpose organisations,

to achieve systemic and lasting positive change at scale, by
also focusing on building an enabling ecosystem (at regional,
national, and global scale).
8.
… PROACTIVELY ENHANCE • Acknowledge the importance of collaborating with peers
COLLABORATION WITH when it creates value for the solution.
OTHERS

• Recognise the value of collaborating with others in the ecosys-

tem – including the public sector, traditional philanthropic
organisations, NGOs, investors with impact and corporations –
aligning on a long-term vision.

Apply the Charter of investors for impact – Principle 9

• Share and communicate your successes and failures.

9.
… WORK TO FOSTER • Encourage other potential investors for impact to join the social
THE MOBILISATION impact ecosystem.
OF RESOURCES IN
THE SOCIAL IMPACT
• Inspire the world towards positive and significant impact,
ECOSYSTEM
encouraging all investors to integrate impact considerations in
each practice and decision-making process.

Resources
Report “Financing for Social Impact – The Key Role of Tailored Financing and Hybrid Finance” (EVPA, 2017)
– see Part 3

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INVESTING FOR IMPACT
8) Thinking about the exit already as part of
the investment strategy
Including exit considerations as part of the investment strategy, so that exits
will never be at surprise

The exit is the end of the relationship between the The exit needs to be carefully planned, managed and
investor for impact and the social purpose organisation. executed following the “exit strategy process”. This
The nature of the exit will normally be agreed before the process, defined by EVPA in the report “A Practical
investment is completed. In the case of a charity, the Guide to Planning and Executing an Impactful Exit”,
investor for impact will ideally be replaced by a mix of is composed of five steps: (i) determining key exit
other funders. In the case of a social enterprise, an exit considerations, (ii) developing an exit plan, (iii),
may require the repayment of a loan, for example, and determining exit readiness, (iv) executing an exit and
the timing will depend on the commercial success of (v) post-investment follow-up.
the enterprise.
As the exit constitutes the endpoint of the invest-
An exit strategy is an action plan to determine when ment, the exit strategy needs to be aligned with the
the investor for impact can no longer add value to the investment strategy. For this alignment to happen, the
investee, and to end the relationship in such a way investor for impact must reflect upon its investment
that the social impact is either maintained or ampli- strategy, and determine the main elements that will
fied, or that the potential loss of social impact is influence its exit strategy, i.e. the key exit considerations
minimised. Having an exit strategy is necessary for (step 1 of the exit strategy process).
investors for impact as they are committed to gener-
ating a long-lasting impact.

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59 
 The exit strategy process

Step 1: Determining key exit considerations

Developing an Determining Executing Post-investment

exit plan exit readiness an exit follow-up

Figure 10: Step 1 of the exit strategy process

The key exit considerations:

• Context: the geographical and the sector • Type of funding: each financial instrument
focus of an investor for impact determine (debt, equity or grant) will have differ-
the context in which both the SPO and the ent benefits and different constraints on
investor operate and will therefore influ- the exit strategy. The investor needs to
ence the exit strategy, especially in terms perform an overall assessment of the instru-
of whom to exit to and how to exit. ments it uses to finance the SPOs in its port-
folio, and how they influence the exit.
• Type of investee: the type and the stage
of development of the investee influence
how the investor for impact exits, to whom
it can exit, and the milestones the inves-
tor for impact and the SPO use to define
exit readiness.

 INTRODUCTION I. SETTING UP AN ORGANISATION

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INVESTING FOR IMPACT
 Eau et Vie © Trafigura Foundation

• Co-investing: co-investors with a broad • Relationship with the funders: the way in
network that can be leveraged are a very which the investor for impact is funded
important asset, especially at the time of has an impact on the investment strat-
exit. However, co-investment also repre- egy and on the key exit considerations.
sents a challenge, as it requires alignment on
different elements, such as investment strat-
egy and objectives, financial/impact trade-
offs and exit plans. A misalignment of the
co-investors on the investment strategy can
generate issues throughout the investment
period and at the time of exit.

Resources
Report “Planning and Executing an Impactful Exit – A Practical Guide” (EVPA, 2014)

II. INVESTMENT III. INVESTMENT IV. EXIT

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61 
 INTRODUCTION I. SETTING UP AN ORGANISATION
62
INVESTING FOR IMPACT
 III.
INVESTMENT
PROCESS

II. INVESTMENT III. INVESTMENT IV. EXIT

STRATEGY PROCESS
63 
WARC © Yonathan Adamchuk

 INTRODUCTION I. SETTING UP AN ORGANISATION

64
INVESTING FOR IMPACT
III. INVESTMENT PROCESS
Investment process

Investment Deal Due Investment Investment

strategy screening diligence Decision management
and Deal
Structuring

Investment Appraisal Figure 11: The investment process

For each investment, an investor for impact goes in and define how to structure the deal (investment
through an investment process as outlined in Figure decision and deal structuring). The investment manage-
11. This process helps maximise the achievement of ment at both SPO and portfolio level follows the invest-
the social and financial return objectives at the time of ment appraisal phase.
exit. By properly managing the process, the investor
maximises its exit options and works to enable the most
appropriate and impactful use of its resources. The
CHECKLIST
investor for impact should plan, monitor and execute
the investment with the final aim of leaving behind an
SPO that has a stronger business model and organisa-
tional structure and that is capable of attracting and Deal screening
managing the resources necessary to pursue its social
impact goal(s) in the long term. Due diligence

After assessing the key elements of its investment strat- Investment decision and
egy, the investor for impact screens the investment deal structuring
opportunities available (deal screening). After the first
phase, a detailed screening (or due diligence) helps Investment management
the investor for impact decide which SPOs to invest

II. INVESTMENT III. INVESTMENT IV. EXIT

STRATEGY PROCESS
65 
 1) Deal screening
Guidance on how to identify potential investment targets in line with
the investment strategy

Generating high-quality deal flow is one of the most Managing an open application process can create a pool
important challenges of investors for impact and it should of disappointed applicants that can have a negative
receive the same level of priority as fundraising. Even if impact on the investor’s reputation. Moreover, the inves-
this is not immediately apparent, the task is likely to be tor for impact has to decide whether to operate a ‘gated’
just as difficult. Finding investment opportunities that process, in which it invites applications at specific times,
offer a good fit with the investor’s objectives can be or it has an always-open application process. The former
crucial to securing investment. The type of investee that can be very cost-effective in terms of generating and
is the target of the VP approach is sometimes hard to find. processing deal flow but it presupposes (i) good market-
In many ways, investors for impact have to take an active ing channels for the organisation to broadcast its process;
part in creating the market and good ideas may need to (ii) a fairly mature SPO market where organisations will
be incubated. be open to responding to a gated process; (iii) a well-
branded organisation, with an existing track record; and
Due to the possible lack of suitable social purpose organ- (iv) a good network that can support spreading the voice.
isations available, identifying and approaching target
SPOs directly is the recommended route to secur-
ing initial deals. Managing open funding applications
is another option, but it can impose significant administra-
tive burdens without providing any guarantee of success.

 INTRODUCTION I. SETTING UP AN ORGANISATION

66
INVESTING FOR IMPACT
Different ways of identifying potential
investment targets:

• Networking with intermediaries, other • Through desk research.

funders, and, in particular, potential co-in-
vestors with a deep knowledge of the field • Connecting with VC funds that have dropped
of interest (preferred investee identification high-risk deals, which could be of interest.
activity by European investors for impact).
• Looking for SPOs implementing projects
• Speaking at sector-specific conferences. within the focus area of the investor.

• Through existing portfolio organisations. • Organising business plan competitions.

Eau et Vie © Trafigura Foundation

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STRATEGY PROCESS
67 
 Other measures can help optimise deal flow:

• In the beginning, aiming for quick wins by • Developing a clear positioning around value-
choosing low-risk deals. Some early success added services – and articulating it very clearly
stories can help secure financing. Deals that to SPOs. There is the need to differentiate
offer higher levels of social return will more from all other funding sources, including other
likely flow once a robust, high-quality port- philanthropists, state and corporate funders.
folio is in place.
• Providing a case example of an
• Working with a small group of aligned ideal investment.
co-investors will significantly improve the
quality of the deal flow. These may be foun-
dations or trusts, other individual philanthro-
pists, a corporation or even a state funder. If the
co-investors are older than the organisation
investing for impact, they will have an existing
pipeline, relationships and market knowledge,
all of which can save the investor time.

• Selecting marketing channels (considering

that, in any case, word of mouth is the most
powerful channel of all):

• Website, web links, annual reports, publica-

tions, conference presentations, etc.

• Current investees.

• Casting the net widely (e.g. by publishing

information and application forms on the
web) may trigger many applications, but
they may not be of the right quality. It is
also important to communicate the type of
projects that might not be in scope.
AfB Social and Green IT

 INTRODUCTION I. SETTING UP AN ORGANISATION

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INVESTING FOR IMPACT
First screening Setting impact objectives

The outcome of the first screening is the basis for the The impact objectives of the investor for impact set
investor for impact’s initial decision. Detailed screening during the investment strategy will guide the deal
will only be completed for organisations with a serious screening, narrowing down the type of SPO(s) that
chance of securing investment. As such, the first screen- will be considered for investment. For each potential
ing should not consume much time from the investor. investment, it is important to evaluate the expected
outcome of the SPO and how the investor for impact
First screening – a two-step approach: expects to contribute to that outcome.

• Step 1: desk screening of strategic fit At the SPO level, the elements that should be defined
between investor and investee. Aspects are (i) the social problem the SPO is trying to solve,
to analyse are thematic focus, geography, (ii) the activities the SPO is undertaking to solve the
investment size and social relevance/impact. social problem or issue, (iii) the resources or inputs
needed to undertake these activities, and (iv) the
• Step 2: discussions with management to get expected outcomes.
acquainted and to get an overall view of the
organisation and its activities, projects, part-
ners, etc. – including a preliminary needs’
assessment and whether the investor for
impact can add value.

Don’t forget…
Setting objectives is part of step 1 of impact measurement and management, which
starts being developed at the investor level during the investment strategy, as
described at pages 39-42.

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STRATEGY PROCESS
69 
 Conducting a first assessment of the SPO’s needs

At this stage, the investor for impact makes a preliminary

assessment of both the financial and the non-financial
needs of the SPO (i.e. step 2 of tailored financing and
step 2 of non-financial support).

Tailored financing

During the first screening, investors for impact

should start considering step 2 of tailored financ- 1. 2.
ing, which is assessing the financial needs of the Assess the Assess the
pre-conditions o f the financial needs
SPO. Specifically, they should consider internal investor for impact of the SPO

factors and external factors. The internal factors

are the SPO’s business model, organisational
structure and stage in the life cycle, whereas
the external factors are the macro-environ- 3.
ment, which is a combination of geography and Match the investor
for impact’s goals
sector, and the stakeholders. These factors are with SPO’s needs

further analysed during the due diligence phase

(see page 74).
Figure 12: Step 2 of tailored financing

Taking into account the key exit considerations

The development of the exit strategy of the investor guide the investor for impact throughout the invest-
for impact is an integral part of its investment strat- ment process and especially in the deal screening, i.e.
egy and the alignment of both is a crucial pre-condi- in assessing which investment opportunities fit with its
tion for a successful exit. The key exit considerations social impact and financial return goals.
developed in parallel to the investment strategy will

 INTRODUCTION I. SETTING UP AN ORGANISATION

70
INVESTING FOR IMPACT
 Non-financial support

Once the investor for impact has clearly defined

its objectives, what it can offer and has mapped Map
investor
its resources, it proceeds to map the needs for impact’s
assets
of a specific SPO to invest in, across the three core
areas of development (i.e. social impact, finan-
cial sustainability and organisational resilience).
Assess
During the first screening, the investor for impact the value
Assess needs
and impact
carries out a “light” assessment to check whether of NFS
of the SPO

the needs of the SPO broadly match with what it

can offer. An in-depth analysis will be carried out
during the due diligence, and is further explained
at pages 75-77. Deliver NFS Develop
the NFS plan

Figure 13: Step 2 of non-financial support

Don’t forget…
When screening SPOs, investors for impact should take into account the key exit
considerations, already assessed during the investment strategy (step 1 of the
exit strategy process, at pages 60-61).

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STRATEGY PROCESS
71 
 2) Due diligence
How to perform due diligence to choose the deal that is most in line with
the investment strategy

The due diligence, which is a detailed screening, is

usually performed (at least in part) through the anal-
ysis and validation of a business plan. Interviews with
SPO’s management, staff and board, review of relevant
documentation and research on external information
sources are of crucial importance.

Discussing the IMM strategy (I)

During the due diligence, investors for impact should

dig deeper into the questions asked in step 1 of the IMM
process, analysed during the investment strategy (see
figure 7 and pages 39-42), and during the deal screen-
ing (see page 69). At this stage, it is a good practice to
take a bottom-up approach to the IMM process. Starting
from the business model of the potential investee, inves-
tors for impact can start reflecting on objectives that each
investee can use to measure and monitor the social impact
created. This should be coupled with a preliminary stake-
holder analysis (step 2 of IMM), which is an integral part
of the due diligence phase. To avoid wasting resources,
it is advisable for investors for impact to increase the
intensity of the analysis as it becomes more likely that the
investment will be realised. At the same time, investors for
impact should start verifying the impact the SPO claims
to have (step 4 of IMM).

Living Well with Dementia - Genio

 INTRODUCTION I. SETTING UP AN ORGANISATION

72
INVESTING FOR IMPACT
 Impact Measurement and Management

After setting objectives (step 1 of the IMM process),

investors for impact perform stakeholder analy-
sis (step 2). A stakeholder can be defined as any
party effecting and/or affected by the activities
of the organisation. Investors for impact start by
identifying the stakeholders i.e. mapping, select-
ing, and understanding their expectations. Then,
they engage with the selected stakeholders.

Concurrently, investors for impact should start

verifying whether the claim made by the SPO on
in
g es
1. An
a
sta lysi
ke ng
ho
having positive social impact is likely to be true and, tt ctiv ld
je

ob e
S

er
2.
if so, to what extent (step 4 of the IMM process).

s
5. Managing
Impact
M o n i t o r ti n
and re

re suring
o ri

ts
p

a
sul
ng g

Me
4. Verifying &
3.
valuing impact

Figure 14: Steps 1, 2 and 4 of IMM

II. INVESTMENT III. INVESTMENT IV. EXIT

STRATEGY PROCESS
73 
 Assessing the financial needs of the SPO

A first preliminary assessment of the financial needs Alongside the business model and the organisational
of the SPO should have been carried during the first structure, the third internal factor to consider is the
screening, as shown in Figure 12 at page 70. However, SPO’s stage in the life cycle, which can be (i) pre-seed/
during the due diligence, the investor for impact works seed, (ii) start-up/early-stage, (iii) validation, and (iv)
together with the SPO to determine its needs. The first preparation to scale and scaling. As for the business
question to be answered at this stage is: “Does a market model and the organisational structure, also for each
(commercial or public) exist for the SPO’s products/ stage of development, there is a different funding need.
services or activities?” Four scenarios are possible,
looking at the business model and organisational struc- In this phase, it is also relevant to consider the external
ture of the SPO: factors that will have an effect on the SPO’s funding needs.
The main external factors are the macro-environment –
• The SPO has a business model that allows it i.e. the geography(-ies) where the SPO is operating and
to become self-sustainable, with an organi- the sector(s) it is active in – plus the SPO’s stakeholders.
sational structure very close to a traditional
commercial organisation.

• The SPO has a business model that will

never become self-sustainable, with a char-
ity/NGO status.

• The SPO has the potential to build the

market and then become self-sustainable.
Don’t forget…
• The SPO has some profitable activi-
ties and/or products/services combined The in-depth assessment of the finan-
with a part of them that will never become cial needs of the SPO, based on the busi-
self-sustainable. In this case, the SPO ness model and the stage of development,
has a hybrid structure. is part of step 2 of tailored financing,
explained at page 70.

 INTRODUCTION I. SETTING UP AN ORGANISATION

74
INVESTING FOR IMPACT
Assessing the needs of the SPO for providing non-financial support

As for the financial offer, a first assessment of the The due diligence process will require cooperation
needs of the SPO concerning the non-financial support between investor and SPO, enabling each of them to
needed should have been made during the first screen- see where and how they can add value (it is a learning
ing, as shown in Figure 13 at page 71, and it is further process). Transparency is crucial at this stage, since
assessed during the due diligence phase.. many SPOs may not be familiar with practices that
the investor may regard as a standard way of working.
A complete assessment of the needs of the SPO is Being involved in the due diligence process also creates
crucial, as it lays the bases for the matching of the commitment and motivation for a positive outcome.
offer and the needs that will happen in the NFS plan. The extent of engagement during the appraisal process
The needs of the SPOs can be mapped using a “needs’ should be weighed against the level and form of
assessment tool”. The points to be assessed across the engagement the investor for impact will adopt during
three areas of development are summarised in the box the investment phase.
of pages 76-77.

Don’t forget…
The in-depth assessment of the needs of the SPO is part of step 2 of non-financial
support, as shown at page 71.

Resources
Report “Adding Value through Non-Financial Support - A Practical Guide” (EVPA, 2015) – see SPO’s needs’
assessment tool at pages 70-71

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STRATEGY PROCESS
75 
 Assessing the needs of the SPO, according to the three areas of development,
to come up with a potential NFS plan

Social Impact Financial Sustainability

• Theory of Change: it is vital to gain a detailed • Market: market size, growth, developments,
understanding of the current and expected segments; relevant other initiatives/compet-
social impact of the SPO. Not only does itive positioning. The appeal of a specific
it reduce the risk of making the wrong SPO can also make the investor for impact
investment, but it also creates a common overestimate the future development
understanding of the impact among all stake- of a market: the recommendation here is
holders and allows investor for impact and to try to be prudent when making predic-
SPO to ‘speak the same language’. If an SPO tions about it.
is claiming a certain outcome, then it needs
to prove it. If the SPO cannot deliver the • Sources of income: funding trends and
data, the investor for impact must consider funding mix.
whether it will bring in the expertise and
provide the necessary support so the data • Financial: history (results, previous financ-
can be collected, or question whether it is an ings); budgets and forecasts; funding
appropriate investment at all. gap/financial ask; co-financing; terms of
investment, financial reporting and control
• Impact measurement systems: track record of process in place.
execution; impact measurement steps; social
impact targets; monitoring and reporting on
social performance. It is useful, as part of the
due diligence phase, to check whether the
impact monitoring system the SPO already
works with is sufficient to meet the require-
ments of the investor for impact. Otherwise,
the investor for impact may need to contrib-
ute to improving it through non-financial
support, and these costs should be factored
in before making an investment decision.

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INVESTING FOR IMPACT
Organisational Resilience

• Organisation: legal structure; quality of

management; governance; transparency
of results, board quality. Dysfunctional
SPO’s boards are time-consuming and can
constitute a major problem. Extensive refer-
ence checks on the management team are
important not to overestimate the capabil-
ities and the entrepreneurial spirit of the
team of the SPO.

• Operations: what the SPO does to deliver

on its strategy, including details of the
organisation’s income-generating model,
if relevant. A technical review of the appro-
priateness and solidity of the product or
service the SPO delivers/performs may
be a part of the process.

NEST © Joan Bardeletti

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77 
 Developing an exit plan (I)

Finally, another consideration the investor for impact and

the SPO should start to consider at this stage is the exit
plan, which is explained more in-depth in the deal struc-
turing phase (see page 88).

The exit strategy process

Using the key exit considerations developed in It is an essential step because it includes building
step 1, the investor for impact and the SPO should the business case for the SPO, thus preparing the
start working together to co-develop the exit investee for the exit and making it attractive for
plan (step 2). potential follow-on funders. The exit plan starts
in the due diligence phase, but it is further refined
during the deal structuring.

Step 1: Determining key exit considerations

Developing an Determining Executing Post-investment

exit plan exit readiness an exit follow-up

Figure 15: Step 2 of the exit strategy process

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INVESTING FOR IMPACT
3) Investment decision and deal structuring
How to take an investment decision and how to structure a deal to avoid
surprises at a later stage

At the time of structuring the deal, a crucial factor • Does the board add value where needed?
is the relationship developed between the organisa-
tion investing for impact’s management team and the • Can the organisation investing for impact and
investment candidate. It enables the investor for impact the SPO work together?
to build trust and confidence in the SPO’s ability to
deliver during the investment phase. The interaction
with the potential investee will help answer certain key In many cases, there will be a need to develop and
questions, as displayed in the box below. review a business plan for the targeted SPO. This can
happen at different points in time, depending on the
Questions that will be answered thanks to the size and capabilities of the SPO. Larger, more estab-
interaction with the potential investee lished SPOs should be able to write their own plan.
This ensures (i) that the applicant maintains owner-
• Is the leadership truly and deeply motivated ship of the plan and the objectives it contains and (ii)
by the mission of the organisation? that the social mission is built into the organisational
culture – so that at the time of exit there is no incen-
• Is it focused on maximising the organisa- tive to discontinue it.
tion’s social impact?

• Does it have a clear vision of where the

organisation needs to be in three to five
years – and how to get there?

• Does the leadership have the critical compe-

tencies and skills needed to execute its plans
effectively?

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79 
 If the SPO is able to write its own plan, limited • This can limit risk and minimise failure.
commitment will be needed from the investor, and
the business plan will act as the starting point for first • Seeding multiple SPOs through small capac-
screening and discussions. However, other organisa- ity building investments or donations can
tions will require assistance with business planning. allow an investor for impact to ‘get to know’
the SPOs and test them without risking
The investor for impact should only assist in too substantial funds.
fields in which it can add value. In all cases, there
should be a sense of joint development and ownership Managing negative decisions is another important part
of the business plan, with objectives that incorporate of the investment process. The investor for impact
the perspectives of each organisation. Cooperation should build in several evaluation and decision-mak-
in business planning creates commitment and buy-in ing steps within the overall appraisal process, so that
from both sides. Co-developed business plans are it can, where necessary, refuse funding at an early
generally developed after the first screening anal- phase of the investment process. The applicant should
ysis and discussion has been completed (i.e. there be made aware of each step in the decision-making
has been a preliminary approval). process and the key criteria considered at each step.
A challenge in deal selection is to say (an early) no
When deciding on investments, the recommendation to appealing but unpromising ventures.
is generally to avoid: investments in sectors or geog-
raphies in which the investor for impact has limited If and when a positive decision on the investment is
expertise or where the risk of not creating impact made, understandings and agreements should be laid
is too high; investments done too quickly or only to down in an investment contract between the investor
fill quotas, without adding strategic value; or finally, for impact and the SPO. Before this is finalised, legal
investments in SPOs not ready for the VP approach. due diligence may be performed to eliminate, where
possible, the risk of any further obstacles or surprises.
To reduce the risks of failures in the deal selection,
the investor for impact should consider undertak- When the deal is structured, investor for impact and
ing stepped investments in target SPOs. The inves- SPO should work together to further discuss the
tor can ‘test the water’ with new organisations by impact measurement and management strategy, to
completing small investments initially as: choose the most appropriate financial instrument(s),
to co-create a non-financial support plan and to
continue developing the exit plan.

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INVESTING FOR IMPACT
 Inspire2Care – Karuna Foundation © Leonard Fäustle

II. INVESTMENT III. INVESTMENT IV. EXIT

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81 
 Discussing the IMM strategy (II)

During the deal structuring, investor and investee discuss

more in-depth the IMM strategy, focusing on the defini-
tion and selection of outputs, outcomes and indicators
(step 3 of the IMM process) and on the monitoring and
reporting of the results (step 5).

Regarding step 3, investors for impact strive for not only

measuring outputs but also identifying and measur-
ing outcomes. Outputs are the tangible products and
services that result from the organisation’s activities,
while outcomes are the changes, benefits (or dis-ben-
efits), learnings, or other effects (both long and short
term) that result from the organisation’s activities.

For what concerns step 5, it is essential that the inves-

tor for impact works with the SPO to develop an
impact monitoring system that can be integrated into
the management processes of the organisation, defin-
ing timings for each indicator, tools to be used and
responsibilities. The cost of supporting and maintain-
ing such a system (including personnel time and costs)
should be part of the SPO’s budget and hence the
negotiation should include how this cost should and/or
could be split.

© ROMANI Design

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 Impact Measurement and Management

During the deal structuring phase, it is impor-

tant to clarify who is responsible for measur-
ing what, which will be useful then to carry out
step 3 during the investment management. The
responsibilities of who measures what should
evolve over time as the SPO grows and devel-
ops, and should be reviewed on an annual basis.
For impact measurement, the expected outputs,
outcomes and impact, and the corresponding
indicators should be defined before the invest-
ment is made and agreed upon by the investor
for impact and the SPO.
in
g es
1. An
a
sta lysi
ke ng
ho
tt ctiv ld
je

ob e
S

er
2.
Reporting requirements (to be used in step

s
5) should also be agreed upfront between the
investor for impact and the SPO, preferably
involving co-investors in the decision-making
5. Managing
process to eliminate a multiple reporting burden Impact
M o n i t o r ti n
and re

re suring
for the SPO. Managing expectations about
o ri

ts
p

frequency and level of detail for reporting, and

a
sul
ng g

Me
the way the SPO reports, will reduce the risk of
problems later on in the process.
4. Verifying &
3.
valuing impact

Figure 16: Steps 3 and 5 of IMM

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STRATEGY PROCESS
83 
 Choosing the most appropriate financial instrument(s)

In the deal structuring phase, the investor for impact and Equity instruments should be considered when there
the SPO need to choose which financial instrument will is, or is likely to be, a market available for the SPOs’
be used to support the SPO. This comes as step 3 of the products / services / activities. For the investor, equity
tailored financing process. guarantees a participation in the financial upside of
the business but implies to also share risks and liabil-
Grants are particularly well suited to situations where ities with the investee. The return on investment may
the possibility of generating earned income is highly take place over a very long time period and may
unlikely, undesirable or difficult to achieve within the require significant amounts of other sources of capital
investment horizon of the investor for impact. Grants (e.g. grants) to achieve it.
are fundamental to creating a market or to financ-
ing a public good that no private investor would In addition to grants, debt and equity, investors for
support at any point in time. Grants help building impact can use hybrid financial instruments (HFIs) to
proof of concept at seed stage. However, grants have support their investees. Even though hybrid financial
the potential to create a situation of dependency of instruments can be very useful to better customise
the SPO, if not provided with adequate non-financial the support to SPOs, they require financially-literate
support to strengthen the financial sustainability and organisations to invest in, which can understand the
organisational resilience. Grants might give SPOs little way of functioning of such instruments. Moreover,
incentives to maximise efficiency of funds, scale oper- not all investors for impact may know how to struc-
ations, and reach sustainability. ture and deploy HFIs. In some cases, the term “hybrid
financial instruments” and what it entails may not even
Debt instruments are considered when the investor for be known, demonstrating that HFIs are still not easily
impact is looking for a fixed term and fixed return. For understood and used, both by investors and their inves-
the investor, they are “safer” than equity, but they do tees (Varga and Hayday, 2019).
not allow the investor to have any control over the deci-
sions of the SPO. Additionally, SPOs in the very early
stage of development might not have any collateral to
offer, which implies that the exposure of the investor
for impact might end up being the same as if it was
investing through equity.

 INTRODUCTION I. SETTING UP AN ORGANISATION

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INVESTING FOR IMPACT
 Tailored financing

Once the investor for impact has assessed the Figure 18 looks at how to match the financial
financial needs of the SPO, and considering the instruments the investor for impact has available
financial instrument(s) it has available, it can with the SPO’s financial needs according to its
decide whether or not to invest in the SPO. There business model.
can be two different scenarios: (i) the investor for
impact has the possibility to pick among a range of
financial instruments; or (ii) the investor for impact
can only use a single type of financial instrument,
e.g. due to its legal structure.

In the first case, the investor for impact should 1. 2.

Assess the Assess the
assess what is the best financial instrument to use, pre-conditions o f the financial needs
investor for impact of the SPO
among the different possibilities available, which
can be successful considering the assessments
made in step 1 and step 2. In the second case, the
investor for impact needs to assess whether the
only financial instrument it can deploy is really 3.
Match the investor
the most appropriate to effectively finance the for impact’s goals
with SPO’s needs
SPO and to match its own goals with the needs of
the SPO, or whether it would be more convenient
to find other SPOs to support and for the SPO to
look for other types of financing. Figure 17: Step 3 of tailored financing

Resources
Leaflet “Financing for Social Impact – Financial Instruments Overview” (EVPA, 2020).
Report “Financing for Social Impact - The Key Role of Tailored Financing and Hybrid Finance” (EVPA, 2017)
Report “A recipe book for social finance. Second edition: A practical guide on designing and implementing
initiatives to develop social finance instruments and markets”. (Varga, E., and Hayday, M., 2019)

II. INVESTMENT III. INVESTMENT IV. EXIT

STRATEGY PROCESS
85 
 Matching the financial instruments the investor
for impact has available with the financial
needs of the SPO

SPOs that will never SPOs Hybrid SPOs SPOs with a proven
be financially / with a potentially (with some of financially sustainable
self-sustainable financially / the products/ business model
self-sustainable services generating
business model revenues, but part
of the activities not
self- sustainable)

Engaged Grants Grants (seed/ Grants (for the Grants (seed)

grant-making market building) non-profit part)
Investor for impact

Repayable financial Repayable financial Repayable financial

instruments instruments instruments
Social (validation (for the income- (scaling)
investment and scaling) generating part)

Hybrid financial Hybrid financial

instruments instruments

Figure 18: Financial Instruments Matching Table

 INTRODUCTION I. SETTING UP AN ORGANISATION

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INVESTING FOR IMPACT
Co-developing a non-financial support plan

In the deal structuring phase, and once the in-depth For each development area that has been agreed
needs’ assessment is complete, the investor for as a priority to be tackled, the NFS plan should include
impact and the social purpose organisation (SPO) the baseline, goal, milestones, and target outcomes for
go together through a process of prioritisation and the SPO, across the dimensions of social impact, finan-
matching to guarantee that the non-financial support cial sustainability and organisational resilience. The
is correctly tailored to the needs of the investee. By plan should also include the details of the support the
matching the needs’ assessment and prioritising areas investor for impact will provide to the SPO to achieve
of intervention, they develop the non-financial support the planned milestones, and the concrete deliverables,
plan (i.e. step 3 of the non-financial support process). e.g. having a governance system in place.

Non-financial support
Map
investor
Both SPO and investor for impact should formally for impact’s
assets
engage in fulfilling their part of the non-financial
support plan, and should flag potential issues or
problems as they arise, allowing the plan to be flexi-
Assess
ble. As in all steps, transparency and communication the value
Assess needs
and impact
are essential. of NFS
of the SPO

It is a good practice to present the NFS plan as a part

of the documents signed in the deal structuring
phase so that it represents a ‘charter of engage- Deliver NFS Develop
the NFS plan
ment’, which can be used by both parties as a pres-
sure point towards the other to ask for delivery of
results or support.
Figure 19: Step 3 of non-financial support

Resources
Report “Adding Value through Non-Financial Support - A Practical Guide” (EVPA, 2015) – see tool for
implementing a non-financial support plan at pages 76-77

II. INVESTMENT III. INVESTMENT IV. EXIT

STRATEGY PROCESS
87 
 Developing an exit plan (II)

When structuring the deal, the investor for impact and Key elements of the exit plan:
the SPO should also discuss and co-develop an exit
plan upfront (step 2 of the exit strategy process), which • Investment goals of the investor for impact –
should have been already started during the due dili- as derived from the key exit considerations.
gence, as outlined at page 78 and figure 15. The exit
plan allows the two parties to clarify the key points • Goals of the SPO and milestones – as
related to the exit, which include the general goals of defined in the non-financial support plan,
the investor (related to the financial, organisational and used to help determining when exit readi-
impact milestones of the investment), the expectations ness is achieved.
of both parties and the timing of the exit. The aim is to
maximise the transparency of the relationship between • Timing of the exit – i.e. the investment hori-
the investor and the SPO and to clarify expectations. zon, which largely depends on the flexibility
offered by the financial instrument used.
The development of the exit plan is a joint effort of the
investor for impact and the SPO, and the goals and mile- • Mode of exit – including how and to whom
stones should be formalised and included in a Memo- to exit, both of which largely depend on the
randum of Understanding (MoU). The exit plan needs financial instrument used.
to be detailed and clear, including when the investor
for impact will exit, how and possibly to whom, but also • Resources – to monitor the investment and
needs to provide sufficient flexibility (and liquidity) to roll out the exit plan (should be included in
be able to react to deviations. the non-financial support plan).

• Exit market scenarios – in which the inves-

tor for impact tries to predict to whom will
Don’t forget… exit and how the market will look like at the
time of exit.
At this phase, the exit plan (step 2 of the
exit strategy process), started during
the due diligence and defined at page 78,
is further developed.

 INTRODUCTION I. SETTING UP AN ORGANISATION

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INVESTING FOR IMPACT
 Bednet © Raisa Vandamme

II. INVESTMENT III. INVESTMENT IV. EXIT

STRATEGY PROCESS
89 
 4) Investment management
How to manage a portfolio of investments, including the management
at the SPO level

Some investors for impact have a relatively small port-

folio of organisations that are being actively supported
at any given time. However, in choosing the size of their
portfolios, investors for impact are also guided by
the need of having a minimum number of investments
to provide a sufficient spread in terms of investment
risk and to demonstrate that their investment model
works in a variety of situations. A maturing investor for
impact will have an increased number of SPOs in its
portfolio, all of which should be operating within the
investor’s focus area. Investors for impact that have
been active for several years should acknowledge the
greater need for portfolio management rather than just
individual investee management.

As illustrated in the previous chapters, for what

concerns the management at the SPO level, the plan for
the investment phase engagement should have been
discussed and agreed with the SPO during the invest-
ment appraisal process, to ensure there are no surprises.

Bednet © Raisa Vandamme

 INTRODUCTION I. SETTING UP AN ORGANISATION

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Apply the Charter of investors for impact – Principle 7

• Take active ownership of the societal challenge and work

3. very closely with the social purpose organisation to tackle it.

… BE HIGHLY ENGAGED
• Look for solutions that have the potential to be impactful in
FOR THE LONG TERM,
STRIVING FOR LASTING the long term.
IMPACT
• Strive to support social purpose organisations that can reach
deeper social impact at scale.

II. INVESTMENT III. INVESTMENT IV. EXIT

STRATEGY PROCESS
91 
 Factors to consider when assessing the size of Aspects to consider when managing
the portfolio: the portfolio:

• The relationship between the investor and • Investor for impact’s impact measure-
the investee: is it limited to a single ‘invest- ment and management system: a common
ment round’ or will follow-on funding be ambition for investors for impact is to aggre-
needed? The term of the initial invest- gate impact data coming from different
ment and the stage of development of the SPOs. Thus, they face the trade-off between
investee can influence this question. co-creating impact objectives and indica-
tors with each SPO and finding common
• The cost (internal or external) of any non-fi- indicators to aggregate impact results at
nancial support to be provided to the SPO. portfolio level.

• The value of leveraging – exchanging knowl- • Flagship investments: selecting investments

edge and experience among portfolio in well-recognised and reputable SPOs can
organisations, which can lead to the crea- be a valuable way of building credibility
tion of significant added value with little or in the sector and providing leverage for
no additional cost. future investment activity. However, this
will prevent from investing in newly set up
• In general, a large number of small portfo- SPOs that might have a great potential in
lio companies will consume more support terms of impact.
costs (fund management costs) than a small
number of large portfolio companies, • Complementarity: it will enhance the
without necessarily generating any addi- mission of the investor for impact, as well as
tional impact. the prospects of individual portfolio SPOs,
when investments are made in organisations
that complement each other rather than
compete against each other.

 INTRODUCTION I. SETTING UP AN ORGANISATION

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INVESTING FOR IMPACT
 • Competition for resources: inevitably,
portfolio SPOs will compete for the inves-
tor for impact’s resources – both finan-
cial and non-financial support. Good
account managers can help minimise any
problems that arise.

• Facilitation: portfolio managers should be

encouraged to create links between portfo-
lio SPOs that have the same client base, or
that share the same suppliers.

• Feedback from SPO: investors for impact

can commission independent feedback
on the perceived effectiveness of their
investment model and portfolio manage-
ment practices.

• Investor for impact’s cost efficiency: it is

vital to track whether the investor for impact
uses its resources efficiently.

IntoUniversity © Caroline Cornil

II. INVESTMENT III. INVESTMENT IV. EXIT

STRATEGY PROCESS
93 
 Measuring and managing impact

As the impact management process is a circular process, intervals during the investment period or when signif-
the investor for impact should go through its five steps icant developments occur. It is advisable to get back
more than once during the investment management to the key stakeholders to verify whether their expec-
phase, and should do so considering the investor tations are being met. Results of the progress of the
level and the SPO level. Investors should also avoid SPO should be regularly measured (step 3) during the
burdening their investees with extremely complex and investment management phase. Some indicators may
unnecessary requests related to IMM, considering that be reported by the SPO more frequently than others:
the resources of any SPO are limited and that decisions output indicators can typically be captured more
will have to be made about the amount of time and frequently than outcome indicators. Verifying and valu-
resources that each SPO will dedicate to IMM. ing results (step 4) should also be repeated as a ‘reality
check’ at several points during the investment, in order
The setting of objectives (step 1) should be constantly to identify the impacts with the highest social value.
revised and, if needed, modified throughout the invest- Finally, investors for impact should monitor the impact
ment management phase. The stakeholder analysis (step 5), regularly assessing impact results against indi-
(step 2) may need to be repeated either at pre-defined cators and revising indicators if necessary.

Managing impact

g es
1. An
a
sta lysi
ke ng
Although the 5 steps of the IMM process should in
tt ctiv ho
ld
ob e je
S

already have been planned and prepared during

er
2.

s
the other phases of the investment process, it is now
that the framework is finally carried out. It is impor-
tant for investors for impact not only to measure but
5. Managing
also to manage impact. This means that investors for Impact
M o n i t o r ti n
and re

re suring
impact should continuously use the impact meas-
o ri

ts
p

a
sul
ng g

Me
urement process to identify and define corrective
actions if the overall results deviate from expecta-
tions. Therefore, they have to adjust their process as 4. Verifying &
3.
valuing impact
lessons are learned, additional data is collected, and/
or the feasibility of objectives is questioned.
Figure 20: The EVPA five-step approach to IMM

 INTRODUCTION I. SETTING UP AN ORGANISATION

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INVESTING FOR IMPACT
Delivering non-financial support

Non-financial support

The investor for impact delivers non-financial

support through a variety of delivery modes. Each
delivery mode has its pros and cons, which need to
be weighed before making a decision on how each
type of non-financial support is to be delivered. Map
The strategic factors that influence the delivery are investor
for impact’s
the investment focus, the co-investment policy and assets

the size of the investment.

Assess
the value
Assess needs
and impact
of the SPO
of NFS

Deliver NFS Develop

the NFS plan

Figure 21: Step 4 of non-financial support

II. INVESTMENT III. INVESTMENT IV. EXIT

STRATEGY PROCESS
95 
 Delivery modes of non-financial support • Can the investor for impact really add value
to the board and is it useful for the investor?

• Taking a seat on the board of the investee. • Does the investor for impact have the
capacity to do this?
• Providing coaching and mentoring.

• Organising trainings, The decision will often depend on the size of the invest-
workshops and boot camps. ment and its importance within the investor’s overall
portfolio. In addition, investors for impact considering
• Taking the SPO to conferences and other taking a board seat will need to think about how they
external events. will handle conflicts of interest (e.g. when re-invest-
ment is on the agenda). The investor for impact should
• Offering access to networks. try to anticipate such situations upfront and plan its
approach accordingly. Using different people to take
on the roles of portfolio manager and board represent-
ative can help. The EVPA Code of Conduct (introduced
Focus on the delivery mode: taking a seat on in section 1.5) can be useful when taking board seats.
the SPO’s board
Taking a board seat is not the only way to learn about
It is a common practice among European investors for or to guide SPO’s activities. In some cases, it may be
impact to take a seat on the SPO’s board in at least adequate to have an ‘observer’ seat on the board. This
some of their investments. This practice is especially can be a good compromise when there is resistance
extended amongst impact funds. Often, especially in from the SPO to the investor taking a full seat. An inves-
start-ups, investors for impact take an active board tor for impact may also be able to achieve its objectives
seat that can almost be likened with co-entrepreneur- by introducing external people to the board as opposed
ship. In such cases, investors for impact do not manage, to taking a seat itself. If a third party is appointed to
but are involved in all major decisions. Two key ques- the board through the investor’s introduction, it is
tions will drive the investors’ preferences on board important to spell out that person’s role: does he or
representation: she have any obligation to the investor for impact? Is
the board member a formal representative, reporting
on what happens at board meetings?

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INVESTING FOR IMPACT
Determining exit readiness

Exit readiness is defined as the moment in which the cooperates with the investor by providing informa-
goals set by the SPO and the investor for impact have tion on the status of development of the project and
been reached, and/or the investor for impact cannot the goals set in the plan. The monitoring is crucial, as
add any additional value and should exit. Although it allows the investor and the SPO to act in case of
the VP approach involves a medium/long investment deviations from the original exit plan. On the basis of
horizon and requires patient capital, there are concrete the monitoring, the investor for impact and the SPO
risks also in staying too long. On the one hand, the determine if exit readiness is reached relative to the
investee may become complacent as it knows it can planned date of exit. Once the SPO is “exit ready”, the
always count on the financial support of the inves- investor for impact needs to assess to which extent it
tor. On the other hand, the organisation investing is also “investment ready”.
for impact could be putting its financial and human
resources to better use pursuing other, more impact- It is important that the SPO reaches the goals on all
ful opportunities. For these reasons, determining exit three dimensions because a strong, self-sustainable /
readiness is a crucial step in the exit strategy process. financially viable organisation is the pre-requisite for
the long-term achievement of the impact goals. The
During step 3 of the exit strategy process, the inves- investor for impact also considers exit readiness from
tor for impact monitors the investment based on the the perspective of its own social impact and financial
exit plan co-developed with the investee. The SPO return goals.

Artbox London © Caroline Cornil

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97 
 The exit strategy process

When determining exit readiness, there are five 3. Readiness is reached or partially reached, and
possible scenarios: the investor for impact feels it can still add value
to the SPO. In this case, the investor for impact
1. Readiness is reached or partially reached, to the re-invests in the SPO taking it to the next level.
point that the investor can no longer add value to
the investee. In this case, the investor for impact 4. Readiness is not reached or only partially
can exit the investment according to the plan. reached and the investor for impact feels it can still
add value to the SPO. In this case, the exit strategy
2. Readiness is reached or partially reached, to the process needs to go back to its step 2: the inves-
point that the investor for impact can no longer tor and the SPO need to develop a new exit plan.
add value to the investee, but investment readiness
is not reached. In this case, the investor can: 5. Readiness is not reached and the investor cannot
add more value to the SPO. In such a case, the
• Invest more resources to bridge the investor needs to accept the failure and let it go,
gap between exit readiness and invest- while trying to minimise the loss of social impact.
ment readiness

• If there is no market for the SPO, let it go.

Step 1: Determining key exit considerations

Developing an Determining Executing Post-investment

exit plan exit readiness an exit follow-up

Figure 22: Step 3 of the exit strategy process

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 NEST © Joan Bardeletti

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 IV.
EXIT

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Bednet © Lieven Van Assche

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IV. EXIT

In most cases, the social purpose organisation’s funding

horizon will be longer than the investor’s investment
horizon. Hence, there will be a point in time where the
relationship between SPO and investor for impact will
end. This separation is called ‘exit’. The ‘exit’ takes place
either after a pre-defined time, when the investor for
impact can no longer add value or when the investment
objectives have been achieved.

Starting from the investment strategy and during the

investment process, the investor for impact should have
CHECKLIST
started the exit strategy process by determining key
exit considerations (step 1), developing an exit plan
(step 2), and determining exit readiness (step 3). At
the time of exit, step 4, which is the execution of the Exit management
exit, and step 5, a final evaluation and follow-up activ-
ities, take place.
Exit follow-up

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103 
 1) Exit management
How to manage an exit, when it comes

Step 4 of the exit strategy process is the moment in The investor for impact and the SPO should discuss how
which the exit strategy is executed in practice. At this much responsibility is placed on the investor to help
stage, the investor for impact determines how to exit the investee find follow-on financing versus this being
(mode of exit) and to whom to exit (follow-on inves- the responsibility of the SPO’s team. Additionally, the
tors), balancing the financial and social return. investor needs to assess whether the social mission of
the investee can create tangible value (mission lock-in)
The mode of exit depends on three main factors: the such that the acquirer is disincentivised from discon-
financial instrument deployed, the stage of develop- tinuing the investee’s social mission.
ment of the SPO and the context in which the SPO
operates. Table 23 at page 105 overviews the main exit Follow-on investors can be foundations, impact funds,
modes for each financial instrument used. financial institutions, VC/PE investors, corporations,
public funders, initial public offering (IPO), commer-
Whatever the choice of to whom to exit, the decision cial investors, and others. For example, if the inves-
needs to be guided by the objective of keeping the tee has generated track record and proven that it can
social mission of the SPO going, unless it has been generate financial returns alongside social impact,
demonstrated that the intervention of the SPO does not it is worth to look at, among others, investors with
generate sufficient social return to justify its existence. impact as potential follow-on investors (see section
2.7 at pages 57 and 58).
The assessment of the ‘fit’ of potential new investors
– including whether they share the same position on
the social mission, their anticipated financial return,
the desire for influence and the level of engagement in
the investment – is an important exercise to enable the
endurance of the social impact after exit.

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INVESTING FOR IMPACT
Modes of exit per financial instrument:

Grant Debt Equity

Find matching support (follow-on grant sought)

Endowment creation for the investee

Follow-on loan sought

Buy-back, sale or handover of equity stake

Strategic sale or merger of the SPO

to an industrial partner

Non-profit IPO

Let go (self-sustainability)

Not to sell equity  Stay on board

Franchise

Figure 23: Modes of exit per financial instrument

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 The exit strategy process

Step 1: Determining key exit considerations

Developing an Determining Executing Post-investment

exit plan exit readiness an exit follow-up

Figure 24: Step 4 of the exit strategy process

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 MyChild Solution © Nargis Rahimi and Shifo Foundation

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107 
 2) Exit follow-up
How to perform a final evaluation of the investment

Final evaluation

Post-exit, there will also be an evaluation of the invest- In terms of social return, an investor for impact should
ment (degree of achievement of investor’s and inves- aim to measure the outcomes of the investment against
tee’s objectives and learnings from the process), and initial objectives. The outcomes should be verified so
potentially a post-investment follow-up. The final that the resulting information can be used by the inves-
evaluation is essential because the lessons learnt will tor itself to assess its success as a highly-engaged inves-
inform the exit strategy and the key exit considerations tor and take away learnings for future investments. It will
(i.e. step 1) for future investments. also be used to report back to donors and investors on
the social return on their investment. The impact of the
The investor for impact evaluates the success of the SPO itself may also be a selling argument when ‘handing
project after exit in terms of financial and social over the baton’ to future investors.
returns, and the SPO determines how well it has achieved
its objectives across the three dimensions of social As part of the final evaluation, the investor for impact
impact, financial sustainability and organisational resil- should also measure how the investee perceives the
ience. Particularly, the investor for impact should also value of the non-financial support provided, to under-
evaluate how well it has succeeded in supporting the stand its value.
SPO in achieving its objectives.

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 The exit strategy process

Step 1: Determining key exit considerations

Developing an Determining Executing Post-investment

exit plan exit readiness an exit follow-up

Figure 25: Step 5 of the exit strategy process

Non-financial support Map

investor
for impact’s
assets
As part of the post-exit evaluation, investors for
impact develop mechanisms to assess the impact
of the non-financial support they deliver to the
social purpose organisation. In particular, they Assess
the value
Assess needs
assess (i) whether the NFS provided helps the and impact
of the SPO
of NFS
SPO achieve its objectives and (ii) how the SPO
perceives the value of the NFS received. At this
stage, engaging external, independent parties in
the perception evaluations increases the chances
Deliver NFS Develop
of collecting reliable, unbiased opinions from SPOs. the NFS plan

Figure 26: Step 5 of non-financial support

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STRATEGY PROCESS
109 
 Follow-up activities

The follow-up refers to all those activities that the

investor for impact puts in place to maintain a link with
the SPO after exit (offering additional non-financial
support, networking, etc.) to keep contact with the SPO
with the purpose of both monitoring and supporting
the achievement of the social impact goals after the
exit. Post-exit monitoring and support can be another
way to try to reduce the risk of mission drift and check
that the follow-on investor(s) is(are) continuing the
original/intended social mission/impact.

Don’t forget…
At the post-exit stage, investors for impact perform a thorough analysis of the impact
results against objectives – verifying and valuing reported results (step 4 of the IMM
process explained at pages 72-73), as well as monitoring and reporting the impact
(step 5 of the IMM process, defined at pages 82-83).

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 IntoUniversity © Liam Arthur

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 REFERENCES

Balbo, L., Boiardi, P., Hehenberger, L., Mortell, D., Oostlander, P., and European Venture Philanthropy Association and Social Value Inter-
Vittone, E., (2016), “A Practical Guide to Venture Philanthropy and national, (2017), “Impact Management Principles”, EVPA/SVI.
Social Impact Investment”. EVPA. Available at: https://evpa. Available at: https://evpa.eu.com/knowledge-centre/publications/
eu.com/knowledge-centre/publications/venture-philanthro- impact-management-principles
py-and-social-impact-investment-a-practical-guide
Gianoncelli, A. and Boiardi, P., (2018), “Impact Strategies – How Inves-
Boiardi, P., and Hehenberger, L., (2015), “A Practical Guide to Adding tors Drive Social Impact”, EVPA. Available at: https://evpa.eu.com/
Value Through Non-Financial Support”. EVPA. Available at: https:// knowledge-centre/publications/impact-strategies
evpa.eu.com/knowledge-centre/publications/adding-value-
through-non-financial-support-a-practical-guide Gianoncelli, A. and Boiardi, P., (2017), “Financing for Social Impact |
The Key Role of Tailored Financing and Hybrid Finance”. EVPA.
Boiardi, P., Hehenberger, L., and Gianoncelli, A., (2016), “Impact Meas- Available at: https://evpa.eu.com/knowledge-centre/publications/
urement in Practice. In-Depth Case Studies”, EVPA. Available financing-for-social-impact
at: https://evpa.eu.com/knowledge-centre/publications/impact-
measurement-in-practice-in-depth-case-studies Gianoncelli, A., Gaggiotti, G., Boiardi, P., and Picón Martínez A., (2019)
“15 Years of Impact – Taking Stock and Looking Ahead”. EVPA.
European Venture Philanthropy Association, (2020), “Financing Available at: https://evpa.eu.com/knowledge-centre/publica-
for Social Impact – Financial Instruments Overview”. Available tions/15-years-of-impact
at: https://evpa.eu.com/knowledge-centre/publications/finan-
cing-for-social-impact#overview Hehenberger, L., “The agents of change in social entrepreneurship”, in
Do Better, Esade, November 2019. Available at: https://dobetter.
European Venture Philanthropy Association (2018), “Expert Roundup – esade.edu/en/agents-social-entrepreneurship
Commit time, not only money. How SPOs grow through non-finan-
cial support”. Available at: https://evpa.eu.com/knowledge-centre/ Hehenberger, L. and Boiardi, P., (2014), “A Practical Guide to Plan-
publications/expert-roundup-commit-time-not-only-money ning and Executing and Impactful Exit”. EVPA. Available at: https://
evpa.eu.com/knowledge-centre/publications/planning-and-exe-
European Venture Philanthropy Association: “EVPA Code of Conduct”. cuting-an-impactful-exit-a-practical-guide
Available at: https://evpa.eu.com/membership/code-of-conduct
Hehenberger, L., and Boiardi, P., (2014), “Learning from Failures in
European Venture Philanthropy Association: “The EVPA Industry Venture Philanthropy and Social Investment”. EVPA. Available
Survey”. Available at: https://evpa.eu.com/knowledge-centre/ at: https://evpa.eu.com/knowledge-centre/publications/lear-
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ment-a-practical-guide

 INTRODUCTION I. SETTING UP AN ORGANISATION

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INVESTING FOR IMPACT
Hehenberger, L., Harling, A-M., and Scholten, P., (2015), “A Practi- The pictures displayed throughout this toolkit are retrieved from the
cal Guide to Measuring and Managing Impact – Second Edition”, EVPA success stories. These stories showcase how investors for impact
EVPA. Available at: https://evpa.eu.com/knowledge-centre/publi- have adopted the venture philanthropy approach to help SPOs create
cations/measuring-and-managing-impact-a-practical-guide social impact.

Jakimowicz, K., et al. (2017) “New financial instruments for innovation Read the success stories at: https://stories.evpa.eu.com/
as a way to bridge the gaps of EU innovation support”. European
Commission. Available at: https://ec.europa.eu/research/open-
By order of appearance, the success stories displayed in this toolkit are:
vision/pdf/rise/jakimowicz-osimo-mayer-mureddu-vigo_finan-
cial_instruments.pdf
• Callander Youth Project Trust – Inspiring Scotland

Oldenburg, F., and Struewer, B., (2016) “Full spectrum finance: how • Social-Bee – FASE
philanthropy discovers impact beyond donation and invest- • Inspire2Care – Karuna Foundation
ments” at Philanthropy Impact Magazine, Spring 2016. Available • Simplon – France Active
at: https://www.philanthropy-impact.org/sites/default/files/user-
• IntoUniversity – Impetus
uploads/pi_magazine_11_final_pgs48-50_lores.pdf
• NEST – Investisseurs & Partenaires

Varga, E., and Hayday, M., (2019) “A recipe book for social finance. • Eau et Vie – Trafigura Foundation

Second edition: A practical guide on designing and imple- • CottonConnect – C&A Foundation
menting initiatives to develop social finance instruments and • WARC – Cordaid Investment Management
markets”. European Commission. Available at: https://ec.europa. • AfB – BonVenture
eu/social/main.jsp?catId=738&langId=en&pubId=8251&fur-
• Living Well with Dementia – Genio
therPubs=yes&fbclid=IwAR2_awFx8yPgULhPS0JnwwFP3iht-
• ROMANI Design – ERSTE Foundation
8d7OlQ2hxwFigb38WySNM6YcVWZzH6A
• Bednet – King Baudouin Foundation

• Artbox London – School for Social Entrepreneurs

• Shifo Foundation – IKARE

II. INVESTMENT III. INVESTMENT IV. EXIT

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113 
 ABOUT THIS PUBLICATION:
Published by the European Venture Philanthropy Association
This edition: October 2020
Copyright © 2020 EVPA
Email: [email protected]
Website: www.evpa.eu.com

Please use this reference to cite this report:

Gianoncelli, A. and Picón Martínez A., (2020) “The Investing for Impact Toolkit”. EVPA.

Creative Commons Attribution-Noncommercial-No Derivative Works 3.0. You are free to share – to copy,
distribute, display, and perform the work – under the following conditions:
• Attribution: You must attribute the work as
The Investing for Impact Toolkit
Copyright © 2020 EVPA.
• Non commercial: You may not use this work for commercial purposes.
• No Derivative Works: You may not alter, transform or build upon this work.
• For any reuse or distribution, you must make clear to others the licence terms of this work.

Authors: Alessia Gianoncelli and Arnau Picón Martínez

Editing support: Caroline Cornil
Design and typesetting: Josworld CVBA

ISBN 9789464202120

EVPA is grateful to Fondazione CRT for the support to the Knowledge Centre.

This publication has received financial support from the European Union Programme for Employment and
Social Innovation “EaSI” (2014–2020). For further information please consult: http://ec.europa.eu/social/easi

The information contained in this publication does not necessarily reflect the official position of the
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 INTRODUCTION I. SETTING UP AN ORGANISATION

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The European Venture Philanthropy
Association (EVPA)

Established in 2004, EVPA is a non-profit, membership association gather-

ing organisations based in Europe and interested in or practicing venture
philanthropy (VP). These include social impact funds, grant-making founda-
tions, social investment crowdfunding platforms, corporate social investors,
impact investing funds, private equity firms and professional service firms,
philanthropy advisors, financial institutions or business schools. EVPA
currently gathers 280+ members from 33 countries, mainly based in Europe.

EVPA defines VP as a high-engagement and long-term approach through

which an investor for impact supports a social purpose organisation (SPO)
to help it maximise its social impact.

EVPA is committed to support its members in their work by providing

networking opportunities and facilitate learning. Furthermore, EVPA
strengthens its role as a European thought leader in order to build a deeper
understanding of the sector, promote the appropriate use of VP and voice
the concerns and expectations of investors for impact to policy-makers.

Rue Royale 94 T +32 2 513 21 31 EVPAupdates www.evpa.eu.com

B-1000 Brussels [email protected] evpa
@_EVPA_

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