What is an impact venture?

An impact venture is defined by a business model where impact is correlated with, and driven by, commercial success. A good litmus test that we use is—if you remove the impact, you remove the business, and vice versa.

This demonstrates one of the biggest fallacies around impact investing—that they aren’t viable businesses, they don’t have sustainable business models, and that they aren’t scalable. Quite the opposite—they have the potential to solve enormous problems and generate sizable returns in the process. 

There’s a popular framework in impact venture building—known as the ‘ABC of impact’:

• Acts to avoid harm—the venture is mitigating or reducing ESG risk, AKA negative outcomes for people and/or the planet

• Benefits all stakeholders—beyond just avoiding harm, the venture has a positive outcome for people and/or the planet

• Contributes to solutions—the venture is intentional about generating a positive, measurable change for people and/or the planet

We feed this categorisation into a scale, which shows the spectrum of investment opportunities that ranges from typical VC to philanthropy—with impact investment sitting at the sweet spot in the middle. It also demonstrates how traditional ventures can evolve in impact aligned and then impact-driven ventures. 

Given widespread consensus and external pressures around ESG, most products on the market today could be said to fit into the ‘avoids harm’ category—with some obvious exceptions (weapons, fossil fuels, addictive drugs, etc.).

Impact-aligned ventures go beyond avoiding harm and can generate positive social or environmental outcomes for a range of stakeholders (many people now refer to ‘stakeholder capitalism’ rather than ‘shareholder capitalism’). That said, impact here is not intentional or measurable, but rather happens as a side product of the business. 

Fitness app Fiit, for instance, could be said to have widespread benefits for users looking to improve their fitness or lose weight, with broader secondary effects around reducing obesity and contributing to a healthier population—although this might not quite meet the criteria of contributing to solutions. 

Byway could also fit into this sphere. They are a flight-free travel operator, connecting people with sustainable, slower travel experiences. While they might not be said to be actively contributing to a solution to unsustainable travelling, but rather offering a more sustainable alternative. 

Businesses meeting the ‘contribute to solutions’ criteria can be considered to be impact driven. This is the sphere in which we operate in the Mission Studio, looking to build businesses that creatively and compellingly solve problems with the scope for sizable returns.  

Take Ogma, one of the latest businesses to emerge from our Mission Studio. Ogma is an AI-powered platform for speech and language therapists (SLTs), widening access to therapy for children to overcome early stage speech and language problems—something that can affect up to 50% of children from underprivileged backgrounds. They are actively contributing to building a solution to overcome the huge bottleneck that restricts access to SLTs. 

Furbnow is another great Mission Studio example, a business that is building a comprehensive solution for home decarbonisation. They’ve identified an enormous opportunity to accelerate wide scale retrofitting of the leaky housing stock in the UK—currently 97% of UK housing—and are streamlining access to assessments, contractors, materials, and funding. 

Why is impact such a big opportunity?

We all implicitly know why impact ventures are a good thing. Sadly, that’s not a compelling enough reason to convince your typical VC to pour millions of dollars into a business. There are a few ways I try to spell out the size of the opportunity to invest in impact ventures. 

Firstly, I think there is a huge opportunity to sit at the sweet spot of traditional VC and charity/non-profit. Unlike non-profit ventures, impact ventures meet criteria that make them venture backable, meaning they can attract investment from VCs, growth capital, pension funds, and so on. 

Unlike charity, impact ventures are self-sustaining—they’re not reliant on grants or philanthropy. Their success not only funds the business but can also attract more innovation and investment into that sector. 

I describe impact as a horizontal, not a vertical. This means that it is not constrained by theme or sector, but rather by the criteria for which it could be considered impactful. Contrary to beliefs that impact investment is restricted, investors can open themselves up to a much wider range of opportunities. At Founders Factory, two key categories we focus on around impact are climate and health. In 2023, Europe saw $20 billion invested in climate tech startups, with around $6 billion invested in health tech startups. 

General consensus around impact investing is clearly shifting, but it still has some way to go. If we’re able to successfully convince investors that there are huge returns to be made in doing good, we’ll make tremendous progress.