Insights & Trends

What is impact venture building?

Insights & Trends

What is impact venture building?

Words Alexandra Simmons

April 18th 2024 / 8 min read

“Why would I invest in something that doesn’t make a profit?”

“It has terrible returns.”

“Isn’t that something charities do?”

Impact investing comes under a fair bit of fire in the world of investment. In some circles, it is almost verging on taboo, with alternative terms like ‘mission investing’ or ‘social investing’ showing just how much of a dirty word it has become. 

I believe this comes down to a fundamental misunderstanding about what an impact venture is. This misconception has compounded over years, and has resulted in much of the negative reaction that comes from traditional investors. 

At the heart of this is a catch-22. On the one hand, traditional investors might have the misconception that impact investments trade off profit in favour of ‘doing good’. At the same time, there is scepticism around whether an investment can truly be considered impactful if it generates reasonable profits. 

Designing new ventures for our Mission Studio, in partnership with UK impact innovation agency Nesta, I’ve spent a lot of time trying to change these misconceptions and show that impact ventures don’t need to trade off either profit or purpose—they can do both. This involves approaching the problem we are trying to solve through the lens of an investor, as well as the end user, and understanding where both interests intersect. This is crucial if we are serious about increasing the amount of investment that flows into impact-led ventures.

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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. 

How do we measure impact?

One of the more complex aspects of impact venture building is agreeing on the right ways to measure impact. 

There are a few core principles that we bear in mind here. Firstly, impact measurement should not be a burden, it should align with business metrics and help move the venture forward. Any measurement should be aligned to best practice frameworks, aligning our practices to industry standards and tailored to the requirements of each sector. Finally, any measurement should be stage appropriate, taking into account the different expectations for a business depending on stage. 

Industry best practice has largely coalesced around Impact Frontiers’ ‘Five Dimensions of Impact’, which categorise five ways that a business can impact people (either positively or negatively). These are:

  • What—what outcome the venture is contributing to, whether it is positive or negative, and how important the outcome is to stakeholders 

  • Who—which stakeholders are experiencing this outcome and how underserved they are in relation to the outcome

  • How Much—how many stakeholders experienced the outcome, what degree of change they experienced, and how long they experienced the outcome

  • Contribution—whether a venture’s efforts resulted in outcomes that were likely better than what would have occurred otherwise

  • Risk—likelihood that impact will be different than expected

Theory of Change (TOC) is a framework that helps you map out the logical sequence of events and intermediate outcomes required to achieve a desired impact. It involves defining inputs, activities, outputs, outcomes, and ultimate impacts of the venture. Given that impact can take years to generate, in the short and medium term the venture’s inputs, outputs and outcomes are the focus of what is measured.

Using a TOC and the Five Dimensions of Impact, we’ve developed a monitoring and measurement framework. This is stage appropriate, setting impact KPIs and identifies what data we will collect in order to measure each indicator. Data is crucial here—it helps you communicate progress to investors and key stakeholders, while also providing a valuable feedback loop for improvement. 

Our stage appropriate method defines expectations for ventures at five stages—concepting, MVP (pre-seed), early scale (seed), scale (Series A), and scaled (Series B+). 


  • Expectations: You should be setting out clearly defined objectives, essentially your ‘Impact Goal/Vision’. To do this, consider what are the expected outcomes of your venture’s activities? TOC helps show how these activities contribute towards the impact goals over time. 

  • Evidence: You don’t need to start collecting your own data yet—rather, you should draw upon existing data sets, reports, and research from other sources


  • Expectations: Set impact KPIs that are aligned to your business KPIs. Create an impact measurement framework that shows how you will collect data (and at what frequency). Establish a baseline metric (e.g. what is the status quo). 

  • Evidence: Collect a baseline and start tracking to collect your initial key results or expected timeframe of results (e.g. number of people worked with) 

Early scale

  • Expectations: Demonstrate that your intervention is causing impact and generating expected outcomes

  • Evidence: Impact report that includes key results, pre/post evaluation surveys, etc. 


  • Expectations: Your demonstrated impact is independently varied/replicated to confirm results. 

  • Evidence: Results are validated by independent evaluations


  • Expectations: You have a systematic approach to ensure consistent, ongoing positive impact that is regularly reported and verified

  • Evidence: Structure an approach to reporting of impact that includes depth and externalities

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. 

About Alexandra 

Alexandra Simmons is a venture designer at Founders Factory, generating & validating venture concepts for our Nesta Mission Studio. She is also co-founder of Timepeace, a platform fostering social integration for refugees and asylum seekers, and has acted as a business consultant for numerous impact ventures.

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