On Demand

Imagining a more flexible grid: 

Nesta Impact Investments invests in solutions which will accelerate the decarbonisation of UK households. We have been looking at the role of demand flexibility in supporting efforts to deliver a net zero grid, by tuning demand for energy to match increasingly variable weather-dependent supply. Grid flexibility will bring valuable benefits to householders through:

  • Lowering electricity system costs – and therefore all of our energy bills.
  • Allowing households to take part in demand flexibility provision by turning up/down their consumption to help balance the grid.

Nesta Impact Investments hosted a panel discussion on the challenges to scaling demand flexibility provision in the UK. We were delighted to welcome Marzia Zafar from Ofgem, Alex Howard from UK Power Networks, Alex Schoch from Octopus Energy, Jo-Jo Hubbard from Electron and Andy Regan from Nesta’s A sustainable future mission team, to share and discuss perspectives on the significance, scale and challenges of demand flexibility and the spread of potential economic benefits. 

Overall we found that there is growing importance being placed on scaling demand-side flexibility provision to help defer grid upgrade costs, whilst supporting the connection of more renewable generation sources. Current provision is approximately 60GW and sits, mainly at the high voltage (‘transmission’) layer of the grid. Panellists believed that >200GW would be required by 2050 to help balance the forecast growth in renewable generation sources against the increasing load from the electrification of heating and mobility. 

The panel reminded the audience that the electrical grid, particularly at the transmission level, has been dynamically balanced for decades, predominantly by flexing the supply of electricity. In a future of abundant but intermittent supply, the requirement to flex demand becomes more apparent. The panellists agreed that the greatest, and still mostly untapped, opportunity for flexibility was “behind the meter”, helping consumers to utilise their energy assets such as heat pumps, EV’s, batteries and other electrical devices to provide flexibility.

To unlock the potential scale of demand flexibility, the panellists felt certain key challenges needed to be addressed:

  • Clear price signals, incentivising the flow of energy to match when and where it is required in the network.
  • Standard market templates and protocols for the design and provision of flexibility services.
  • Half hourly settlement to allow more real time, granular assessment of network constraints, feeding back into price signals

To unlock end user participation in demand flexibility provision:

  • Accelerated smart meter roll out.
  • Embedding domestic devices that work together seamlessly, and can automatically participate in flexibility, so that consumers willing to turn up or down their consumption can do so easily.  
  • Consumer awareness and trust to help people understand the reason for and the  benefits of participating in demand flexibility.

If you are working in this area and would like to know more, please contact Alex Hook via askinvestments@nesta.org.uk.

Direct and indirect impact

What do we mean when we say we are looking for investments with impact? Here at Nesta we have been investing for impact for almost a decade. Over this time we have developed and adapted our thinking about what counts as impact when we are looking at investment opportunities.

Back in 2011, when we first started making investments from our fund, our starting point was to look for scalable business models that created what we might call direct impact. That is, there is a direct point of contact between the product or service in question (the intervention) and the people it is intended to benefit (the beneficiaries, to use an imperfect but useful term). From our portfolio, Sumdog is a great example of direct impact: Sumdog provides a gamified online maths platform (the intervention), which is used by school children, whose maths skills hopefully improve as a result. 

Having started with this approach, one thing that we have learned is that opportunities to make a difference don’t always fall easily into this basket, and that models with direct impact only make up a portion of the range of possible impact investment opportunities. There are plenty of other inspiring and exciting businesses that arguably create a positive impact, but it is indirect impact. We have made some investments that move in this direction. Arbor, one of our investees, provides a management information system (MIS) for schools. The MIS is used by teachers and administrators, which ultimately allows them to do a better job than they were before, which leads to a better education for the students at the school. This is an example of indirect impact – the ultimate beneficiaries, the students, only experience the impact because their teachers, thanks to Arbor, can change aspects of the way they do their jobs.

However, there are plenty of investment opportunities that are appealing to us where the impact is even more indirect or difficult to define. This blog puts forward some ideas for moving this conversation on a step.

Why does this matter?

For our team and for Nesta, we want to ensure we are making the most of the capital we have. We do not want to be too restrictive in our criteria for impact, such that we miss opportunities to make a huge, but less easily evidenced difference, but we also do not want to open the criteria so wide that anything counts. 

The implications go far beyond Nesta: this is about the risk of ‘impact washing’. The broader impact investing industry is very aware of this risk. If we are not clear and precise about what we mean by ‘impact’ then this growing market will simply be bloated by people using the language but not putting anything substantial behind their claims.

The target diagram

We have come up with a simple way of visualising the difference between direct and indirect impact.

The centre of the diagram is the company’s activities. The first ring out represents group A – the people who interact directly with the company’s product or service, and do something differently as a result. The second ring out represents group B – the people who are affected by the change in behaviour of group A. 

Sumdog’s impact, therefore, as an example of direct impact, is represented just with the first ring out. 

With Arbor, in contrast, we need both rings:

Crucially, this diagram tells us something about impact measurement: the further from the centre a metric is being collected, the more noisy and less reliable it will be.

This is not to say that Sumdog has an easy task generating evidence that its product is effective – this is always challenging. But it is more straightforward for Sumdog to investigate this question than it is for Arbor to draw connections between the use of its MIS and the attainment of the pupils at the schools. While it is conceivable that Arbor could make so much difference to the quality of teaching at a school that it improves student experience, there are so many other factors that feed into student experience that it is incredibly difficult to isolate the effect of improving the MIS. But our reason for investing – the ‘impact return’ we hope to achieve through this investment – is ultimately about improved education for students. It is worth noting that existing research, where it is robust and conducted by reputable organisations, is a valid source of information when thinking about these issues. In the case of Arbor we reviewed evidence around the problem of teacher workload, and the effectiveness of giving teachers access to better quality data, to help us understand the likelihood of their achieving the intended impact.

The target diagram therefore helps us to represent differences in types of impact within our portfolio. But it also helps us to be specific about the challenges that come with understanding indirect impact. In other words, it gives us a way of structuring our thinking about impact when there is no clear line through to a beneficiary group. 

The challenges of going beyond group A

Using the target diagram, we can see that the problem of defining indirect impact largely stems from the lack of information about the groups beyond group A. 

Challenge 1: putting boundaries on group B

In the Arbor example, it was very clear who is in group B: it is the students in the school that has implemented Arbor’s MIS. In this case, we do at least know who is in this group, and can find out a bit about them. 

Sometimes, it is much more difficult to define group B. Consider a company that uses artificial intelligence to improve the quality of content online. Their product is paid for and used by websites, who are better able to monitor the content on their sites. In this case, group A is the people running the websites, who use the product to do their jobs more effectively. Group B are the people who use the website. This group is much harder to define than a list of pupils at a school. This scenario can be visualised like this:

In this case, measurement is made very challenging by the unmanageability of group B. If we do not know who the people in group B are then it is very difficult to find out what impact they are experiencing. If some data is available, it is difficult to know whether it is representative of group B as a wider population. 

Challenge 2: the impact is even more indirect

Another possibility we have encountered is where a venture does something that requires several ‘rings’ or layers of people to change their behaviour before the ultimate impact is eventually achieved. Consider, for example, a company that develops a platform which brings together large pharmaceutical companies with the smaller start-ups that specialise in drug discovery. Ultimately, this venture could contribute to the more rapid and efficient development of drugs, which in turn would save people’s lives. 

In this case, there is a very long ‘chain’ of behaviour change – the startups use the platform to find the pharmaceutical companies, the drugs get taken through multiple further stages of development before finally being approved and made available to patients, for whom they may or may not work, depending in part on the behaviour of the patients themselves. A situation like this can be represented as follows:

Though we might be excited about the possibility of improving the success rate of drug development, and ultimately saving lives, we have little hope of really being able to connect such changes to the venture we are investing in. Any metrics collected with group D will reflect a situation that has been affected by so many other things they will be virtually meaningless in telling us anything about the effectiveness of the venture’s activities. 

Is impact just about impact measurement?

These diagrams help to lay out our options more clearly.

As an investor, the first option is to see the feasibility of impact measurement as central to the definition of impact. That is, if impact is so indirect that it is hard to even imagine how it would be measured, then we say that this does not really count as an impact investment, This would be the most rigorous way of defining what counts as impact, and also one of the most restrictive. This would mean sticking to investment opportunities like Sumdog.

The second option is to say that we want to look at indirect impact opportunities, and that we should do what we can to identify metrics, even though they are imperfect. We might frame this in terms of ‘impact risk’ – the difficulty of measuring indirect impact makes it a higher risk option, but we accept this risk because we believe in what the company is trying to do. This would mean expanding our scope to companies like the drug development platform, even though we know it will be very difficult to tell whether the ultimate impact is being achieved.

Both of these options tie the idea of impact together with the idea of measurement

There is a third option: we can pull these ideas apart and think of impact separately from measurement.

Focusing in

While metrics collected in the outer rings of the target diagram are noisy and less meaningful, metrics collected near to the centre will be clearer and more meaningful. In other words, the closer to the company’s activities we get, the more metrics will tell us. This is because the centre of the target diagram is where the company has control, influence and the ability to change things. Further out, where we are looking at changes in people’s behaviour several steps removed from the company’s activities, they have far less control and influence.

We can therefore turn the question of impact around. Instead of focusing only on the outcomes the company is trying to achieve, how about looking at whether their intended impact is informing the way they are running their business?

For example, the company that provides software that helps clients monitor online content will find it difficult to know whether internet users ultimately have a better experience of using the internet. If we focus only on impact measurement, we might end up trying to collect a few metrics that don’t tell us very much. 

If we turn the question of impact around, we start asking: what are the things the company can do to run its business in a way that maximises the chances of creating the biggest impact? This might include things like 

  • Ensuring they are clear about communicating what their intended impact is to clients, so that their clients are on board with these efforts. 
  • Asking clients to share data that helps them understand their impact, where possible
  • Hiring people who have the skills needed to understand impact, even if there are no external demands for this information
  • Bulking up the customer support function to ensure customers are really using the product to its maximum potential – even if this means going beyond what is necessary to keep customers happy

Some of these might be tracked through metrics, but they are more likely to be points of discussion, or changes that we would expect to see in their business plan. 

The point here is not to give up on the importance or worth of measuring impact. We will always push our companies to work to generate whatever insight they can. The point is to say that there is much more that can be done beyond focusing on measuring impact among (sometimes very far removed) beneficiaries. 

The companies we are working with are balancing commercial and impact imperatives. We work with them to understand how their plans for growth and commercial success tie together with their plans to create impact. We look for alignment between these things, but there is always more that can be done to make sure the company’s decisions are focused on impact as a part of the process, not just as an outcome. 


Should you be auditing your impact?

Today we are launching a report that takes a major step forward to increasing the transparency of our impact investment fund. It is a report about openness, about learning, about ensuring that we have as much positive impact on the word as we can, it is… an Impact Strategy Audit.

If you’re anything like me the mention of the word ‘audit’ on a hot July day will not get your pulse racing. But I promise you this is not a report full of accounts and numbers to make your eyes swim. The summary shows clearly where we are meeting our strategic goals, and where and how we could improve. We have found the process of opening ourselves up to independent scrutiny an extremely valuable one but is it right for you? Below I answer a few common questions to help you decide whether an impact audit would be right for you.

So what is an impact strategy audit? Last year we published our new impact strategy that sets out our ambitions for social impact and how we propose to achieve and measure that impact. The audit explored in detail where we are delivering on this strategy, where and how we could do better, and how our approach compared to others in the impact investing industry.

Why commission an impact audit? Our main motivation commissioning this audit were to increase our transparency and to be open about the strengths and weaknesses of our approach. We see this as being particularly valuable in the impact investment sector where many impact approaches are not shared or discussed. By opening opening ourselves up to independent scrutiny we hoped to learn about where we could improve. We also wanted to provide assurance to our investors and stakeholders that we really do what we say we do and that they can trust what we say.

Quite simply, if you think that social impact is as important as financial returns and every year you undertake a financial audit you should consider applying a similar level of scrutiny to your impact work.

What is involved? We opened up our impact processes, documents, tools to an independent third party, ITAD. ITAD had full and unfettered access to all investment, reporting and board documents under a non-disclosure agreement. In addition to desk research ITAD also interviewed the team, our Investment Committee and three of our portfolio companies. These companies were ultimately chosen by ITAD and our input into the decision was helping them to understand our past relationship with those companies.

Why didn’t we do an evaluation? What’s the difference? The big difference as we see it between an impact audit and evaluation is that an audit does not try to assess the impact of fund, instead it focuses on whether we are well set up to deliver impact and the integrity of our processes. There are two big reasons why an audit was the right choice for us:

  • We wanted an approach to transparency that was cost-effective and would be of interest to the impact investment industry as whole. This audit approach was twice as expensive as a financial audit so if undertaken every two years we think that these are reasonable costs to absorb in an impact investment operating model. A good quality evaluation would cost many times this.
  • Our strategy is very new, it is unlikely that there would have been much front line impact to evaluate at this stage. For us the impact audit does not preclude an evaluation in the future but actually makes it likely that one would be more useful by allowing us to course-correct an fine-tune our model.

Who might it be useful for? We believe this approach could be useful for any impact investment fund or grantmaker. We believe the value of the audit is increased if you are accountable to external stakeholders, such as investors. We also believe this is an approach that would be useful to front line organisations delivering impact. An audited impact approach may help to strengthen the case that organisations need only produce one report for all of its funders rather than providing bespoke reports for each.

What were the challenges? Inviting scrutiny on what were previously purely internal processes is always going to come with challenge. Now that the world can see our weaknesses as well our strengths this gives more urgency to our need to improve. In particular developing an exit strategy for impact, considering the unintended impacts of our investments and making the application and updating of our tools more systematic.

It is also worth noting a big practical challenge: our knowledge management system was not set up in such a way that made clear sense to an external observer. This made sharing documents much more challenging than it might have been.

How do you go about commissioning an impact audit? Each organisation has its own procurement processes but we recommend working the following steps into any commissioning process:

  • Get clear on the primary purpose of the audit. As described above there are many potential purposes and knowing what your priorities are will help you to balance tradeoffs.
  • Talk to potential suppliers so that you get a feel for what is realistic at what price.
  • Talk to other people who have undergone audits to get a sense of what they did and didn’t get out of it. This is a new area and we need to learn lessons from each other.
  • Bring together a panel of stakeholders to help select the auditor and feed in during the process. We didn’t do this but we will seek to do so next time as we believe this would further increase the validity of and buy in for the findings.
  • Keep the brief relatively open and allow different firms to propose their own approaches. This is an evolving field with many high quality potential service providers so make sure you are giving them the freedom to propose latest best practice.


In short the process of having our impact strategy audited was low cost, low burden and enlightening. At Nesta across all areas of our work we are trying to increase transparency in our approach to understanding impact (read more about this work here). We need to demystify these processes, open up and be willing to talk critically if we want to move forward, both in the impact investment and foundation worlds.

If you are interested in talking more about whether this approach might be right for you or want to hear more about our experience please don’t hesitate to get in touch!

This blog orginially appeared on the Nesta website here: https://www.nesta.org.uk/blog/should-you-be-auditing-your-impact/

*Full reports available here.

Is there a holy grail of a single impact metric?

What do ‘improving older people’s fitness’, ‘making pre-surgical risk-assessment smarter’, ‘helping children learn mathematics’ and ‘matching young people to apprenticeships’ have in common? The answer: they are all outcomes that businesses in our portfolio are aiming to achieve.

The challenge of adding up impact across a diverse portfolio was one of the big themes to come out of our impact round table in November. Simple headline figures were recognised as being very compelling and good for engaging people in the potential for impact investing to improve lives; however, there was a legitimate concern that these aggregated numbers tend to oversimplify and are not necessarily a good basis for decision making.

At Nesta Impact Investments, we believe in taking a tailored approach to understanding impact. For each business we invest in, we understand its unique theory of change or strategy for impact, and select indicators to track based on that theory of change. While we always seek measures that are robust and meaningful, we do not prescribe a predetermined list of indicators. We take this approach because small, growing businesses will not measure and learn from their impact unless they are measuring what is useful for them and their business.

At the same time, we have investors who want to understand the overall impact of our portfolio. How has their investment changed the lives of people for the better?

That leaves us with 14 different businesses with 14 different sets of KPIs and not one common measure that we can aggregate in a meaningful way. How do we square this circle? How can we be responsive to investees but also accountable to our investors?

Trying a new approach

We are currently piloting an approach, set out in our recently published impact strategy, that seeks to give a portfolio view of impact, without forcing businesses to take on measures that are not relevant to their core operations. We give each business an ‘impact return score’ based on:

  • the number of people they reach

  • their level of need

  • the amount of positive change they achieve for their target outcome

The chart below shows where our portfolio is now, and where we would like it to be at exit in terms of this impact return score and potential risks to impact. This is an approach which tries to bring consistency and rigour to our understanding of the impact of our portfolio and of potential new investments. However, it is also highly qualitative and there is plenty of room for judgement. So, is it meaningful? We believe so. Of course, this return score is not a literal reflection of the truth, but it does help us to make decisions.

By comparing a potential new investment to our current portfolio, we can ask whether the expected impact is in line with our expectations for the fund. If an investment is very risky on the impact side, because of low levels of evidence or a complex theory of change, we can ask whether the expected returns justify these risks. It also allows us to set ourselves a baseline against which we can set targets and judge our performance.

One early insight from using this framework came from decomposing the return score into ‘depth’, which combines the level of need in the population reached with the amount of positive change achieved, and ‘scale’, which is the number of people reached. By plotting depth vs scale for our portfolio, it became clear to us just how quickly depth drops off with scale. This analysis clarified that an exciting impact proposition for us is not necessarily about huge scale or very high depth – it is about finding something that can reach tens of thousands of people that really need help, and showing some impact on their outcomes.

Is there an aggregation model that works for everyone?

There was consensus at the round table that aggregation of some sort would be useful. The reality is that we need to make decisions between very different types of investment, and we know that some investments will change lives more than others –  although the factors affecting the level of impact are often subjective and may resist quantification. As Michele Giddens asked the room, is impact actually more like risk than return, composed, as it is, of several qualitative components rather than one number? There may be no holy grail of a single impact metric but it is still possible to analyse and manage impact in a systematic way.

The approach we have outlined above is tailored to our particular needs as venture capital investors in aligned for-profit businesses. We do not think that it would work for everyone and, indeed, we are still piloting it for ourselves. It is based on just 14 investments and is sure to be challenged by situations we encounter in the future.

We are keen to work with other investors in the industry both to refine and improve our model but also to experiment with different approaches to aggregation for different purposes. We recognise the importance of confidentiality when sharing data around impact measurement and suggest the use of confidentiality agreements that will protect our cultures of experimentation, iteration, and learning from failures. Only by working with concrete examples will we start to see what works best for what purpose. Please get in touch if you are interested in collaborating.

This blog was originally published on the Nesta website:https://www.nesta.org.uk/blog/there-holy-grail-single-impact-metric

Measuring the impact of investments: a question of scale

It is a truth universally acknowledged that people hate filling out forms. From tax returns to job applications, forms force us to represent ourselves in ways decided by anonymous bureaucrats who know nothing about us. They frustrate us by asking for information we don’t have or presenting a set of options, none of which seem right.

But they do have one thing going for them: they are good at collecting data at large scale. In the world of impact investment, forms are proliferating as we seek to collect more data on social impact from frontline organisations. We are aware that our industry will face a crisis of credibility if we cannot demonstrate that our investments are having a social impact, and asking organisations to fill in forms about their impact seems like a good place to start.

Outside the box
But more is not always better. The problem is that data on social impact often doesn’t fit into neat pre-defined boxes. The myriad of organisations receiving money from social investors are all working with different people in different ways to try to improve their lives. To make matters worse, the quality of data collected on impact is highly variable and poorly understood. Even the most thoughtfully designed forms frustrate investees as they are asked for information that just doesn’t feel relevant. Investors are frustrated too: it is often unclear what conclusions can be drawn from all of this data if we don’t know how it was collected. This data isn’t helping anyone to make decisions.

This crisis of credibility leaves social investors focusing on the easy metrics like numbers reached or the number of loans approved, leaving a real examination of whether lives have improved to one side.

It is one of the great joys of my job that I don’t have to subject our investees to anonymous forms. As a venture capital investor, our model is one of high engagement and our portfolio is small. I have the luxury of time to be responsive and structure metrics around what each organisation needs. We work together to find an approach to data collection that both tells us what impact is being achieved and also helps the investee manage its business.

The resulting mix of metrics and approaches requires judgement when communicating the impact of our fund to investors. The important questions are difficult to answer. But that’s OK. That’s my job and I am resourced to do it.

Bridging the gap
When I listen to the challenges faced by my colleagues in social investors that work at 10 times or 100 times the scale that we do, I realise what a gulf there is between these two worlds. They simply do not have the time to apply what I would regard as best practice approaches to impact measurement to every grant, loan or investment in their portfolio.

It isn’t helpful for me to say that good impact measurement requires sitting down with your investee, talking through the theory of change and reviewing the existing evidence on best practice. They know that. There just isn’t the resource in either the investors or the investees to do it.

Intermediaries like us sit in the middle of competing desires, on the one hand there are the investees who want any reporting around impact to be tailor-made to their needs; on the other there are the asset owners who, understandably, want a compelling account of the impact their money is having in aggregate. If we can’t square this circle and convince asset owners that we really make a difference, and social-purpose organisations that they should want our money, we will cease to exist.

How we improve our account of impact is an important conversation, and intermediaries of all kinds are getting better at sharing their approaches. But the problem of improvement at scale is not simply a case of learning from best practice. Especially when best practice is most commonly found at small scale. How do we scale up a deep understanding of what achieves impact when budgets and time are constrained?

I don’t know what the answer is, maybe some hybrid approach where large-scale operators randomly select a proportion of investments for more in-depth evaluation. Or as automated data collection and processing becomes increasingly widespread, technology may be part of the solution.

One thing I do know is that we won’t find the answer unless people like me, with the luxury of small portfolios, recognise that the answer is not simply to scale up our high-intensity approach, and people at the other end of the spectrum recognise the urgency with which we need to demonstrate impact in a more credible way that justifies its existence as a separate asset class.

Standardised forms are not the (whole) answer, but what is?

– See more at: http://www.nesta.org.uk/blog/measuring-impact-investments-question-scale#sthash.dPfuuF4M.dpuf

How to measure impact – learning from practice

Two and a half years ago we launched Nesta Impact Investments. We boldly stated that we would scale innovative solutions to social issues and at the same time measure impact in a robust way according to our Standards of Evidence framework. We envisioned a world of investments where growth, commercial success and evidence of effect were all positively aligned – something that is not always easy to find in this space. Today we launch our paper, Impact measurement in impact investing – learning from practice that discusses how we have implemented evidence and impact measurement into our investment process and support for investees. Our portfolio is now at a point where they are integrating impact measurement into their day to day activities and balancing impact with the commercial aspects of running a company. Our report presents five key lessons that we have learnt from this process:

  •        The importance of flexibility: In a start-up environment, the venture will naturally develop and innovate as they grow. Impact measurement needs to be flexible enough to allow for innovation and robust enough to measure meaningful results.
  •        The importance of an impact lead and expert input: Ventures need to invest in a point person to lead on impact and partnerships with academic researchers to make more progress on impact measurement
  •        Avoiding mission drift: Impact measurement can ensure that the company considers its mission in making decisions about what markets and revenue streams to pursue
  •        Taking a staged approach: Ventures most often run an evaluation, learn about works and repeat this process before investing in a higher rigour trial
  •        Balancing the commercial and social: Some ventures have seen commercial success before focussing on evaluation, and vice versa. This means we focus support on wherever a company is falling behind – so that in the long run, we see a balance in commercial success and impact success.

One of the key things we have learnt as an investor is the importance of flexibility and iteration when it comes to impact measurement. Our investees are all developing new approaches to social issues and will refine their products and services as they learn about what works best and for whom. The evaluations they run need to be similarly iterative. For example, Oomph!, a social enterprise running innovative exercise classes in care homes, has trialled a number of pre-post evaluations to learn about what works and what kind of results they are achieving. They will then feed this learning into the design of a more rigorous trial when they are ready.

Recent years have seen an incredible level of interest and activity in the impact investment space. If the ambitions of impact investing are to be realised, the sector needs to focus on measuring and articulating its value in a robust way. We hope this paper adds to this conversation and offers a starting point for ventures and funds that are interested in evidence and evaluation.



Eibhlín Ní Ógáin






6 tips for growing your business once you've raised investment

This article is part of a series of blogs offering our tops tips on surviving the process of raising impact investment. Investment raising is difficult and time consuming, and the process can seem daunting if it’s your first time.  We have written this series of blogs as a way to share some insight in to what impact investors are looking for.

NII_icons_RGB-02You’ve had months of presentations, meetings, knock backs, negotiations, then finally a ‘yes’, followed by a legal completion process which always feels harder than it should.

But what happens after the investment has been raised?  Are there any lessons about how you make that capital really deliver on impact and value?

Every organisation is different, every entrepreneur is different but after 20 years of investing, first in the venture capital field and now in impact investing, there are a few common observations that I can make:

1. Building your product 

Spend wisely on product development and engage with your target customers as early as you can.  Lean Startup guru, Eric Ries, highlights the importance of the minimum viable product. Essentially, don’t waste money building a product or service that users don’t want – test, get feedback, iterate until you have something that delights users and then look to scale

2. Don’t hire in a hurry 

A large proportion of invested capital is used to hire and build up a team. Hopefully you will have identified your next hires already and know them well but getting the right team takes time and getting it wrong can be costly. So hire with caution and from networks you trust

3. Think carefully about marketing 

Don’t waste too much capital building demand if the product isn’t ready. Really think through the marketing mix to make sure that when you are set to go you can reach your market cost effectively

4. Capture data 

Monitoring and responding to trends – as well as ensuring you record what investors, customers and your own team need to run the organisation – is really important

5. Be honest and open with your shareholders

They have backed you, your team and your idea. Share challenges and successes with them – the worst thing you can do is surprise them with bad news.  The sooner an issue is shared, the sooner you can work together to make changes

6. Track the money carefully

Be on top of every pound, who owes you money, what your commitments are and plan with rigor. It may seem obvious but I have seen many early stage organisations with small but growing revenues, suddenly finding that the cash is flowing out pretty quickly. If you can’t do the accounting and planning then find someone who can.

This list isn’t exhaustive and with every new investment I still learn lessons. But remember the amount of time it took to raise money: investment capital is precious and you really only want to raise it again when you have delivered impact, grown value and have investors calling you!


By Matthew Mead – Nesta Impact Investments


Social Impact Investment: are we nearly there yet?

Yesterday morning, the final report of the snappily titled “UK National Advisory Board to The Social Impact Investment Taskforce Established Under the UK’s Presidency of the G8” has been published. You are forgiven if you haven’t read it yet; but if you are interested in Social Impact Investment you probably should find time to give it the once over.

The two line synopsis is this: (i) it charts the development of social impact investment in the UK over the past 15 years; (ii) it makes some recommendations for next developments. It is similar in style and approach to the Social Investment Taskforce, also chaired by Sir Ronald Cohen, which set the direction for the field of social investment in the UK in the early 2000s.

Social impact investment is a field I’ve worked in for ten of those 15 years, and reading the report I felt the story it tells is an interesting example of how long it takes for radical systemic innovations to take hold, and some of the features that lead to progress (not yet success, it is still a field in its infancy!)

When I stumbled into social impact investing in 2005, none of my friends or family could get their head around what on earth it was I was doing. They generally assumed I was some sort of fundraiser for charities. Frankly, we still struggle to explain to the general public what social impact investment is all about (the first question to Sir Ronald Cohen on the Today programme this morning was ‘what is it?’). But look harder at Social Impact Investing in 2014 and you’ll see activities and innovations at all levels necessary to change the way organisations delivering social impact are financed:

  • a range of new organisations have entered field with innovative approaches (for example Bridges Ventures, Big Issue Invest, Venturesome, Social Finance, Bethnal Green Ventures)
  • product innovation has also been highly significant: e.g. from social venture capital funds, social incubators, charity bond issues, and the misnamed but smart social impact ‘bond’ 
  • process innovation has also been necessary: significant developments in approaches to the use of evidence (what works) and impact measurement approaches (NPC, SROI Network)
  • regulatory and legal model changes have been necessary: from Community Interest Company, the Social Value Act, to the recent Social Investment Tax Relief
  • and in my opinion, most vitally, the field has benefitted from a high degree of committed leadership and entrepreneurialism. I’m not just talking about big cheeses here (although high level representation, lobbying etc, has been important) but the field has been advanced by some genuine and passionate entrepreneurs who have taken risks with their careers, livelihoods and sanity (Jonathan Jenkins, Geoff Burnand, Caroline Mason, John Kingston, James Perry, Rod Schwartz, Daniel Brewer to name just a few).

Finally, a brief moment of personal indulgence. I’ve had the privilege to work in the industry for a long time, and with two organisations that I consider to have been the most radical and risk taking in their contribution to the field over 15 years – Venturesome and Nesta.

At Venturesome we saw it as our mission to test new approaches, to learn and to publish our learning – good and bad – in order to develop the field; our approach was always to try and be humble, seeing development of the field as a whole as the measure of our success, not what was attributed to us.

For the last four years I’ve seen first-hand how Nesta has fulfilled its risk-taking role, championing innovation in social impact investment. Many of the organisations and individuals I’ve mentioned have benefited from Nesta’s support. Nesta has often been one of the first to commit to the key initiatives cited in the G8 report from Bridges Social Entrepreneurs Fund, to pioneering work on investment readiness with Unltd, to the prototypes and early research that framed the plan for Big Society Capital.

For Nesta, and for me, the focus of our interest in social impact investment is now on delivering direct impact by investing in ventures like Oomph!, Ffrees, Ai-Media. we’re using the strong system of social impact investment that now exists in the UK to help new ventures take social innovations to people who need them. So, we’ve only just begun…..

By Joe Ludlow – Nesta Impact Investments

Investing for measurable impact

It certainly is an exciting and interesting year for impact investing. The government is working to make the UK a global hub for social investment, a new tax relief has been announced and investment banks like Goldman Sachs and Morgan Stanley are entering the market. The most recent Impact Investor survey published by GIIN and JP Morgan also shows positive progress with market growth, investor collaboration, impact measurement practices, and pipeline quality.


But how do we know if investments are really creating a positive social impact? While the GIIN and JP Morgan report highlights promising progress I can’t help but wonder if impact investing is living up to expectations?

When it comes to measuring impact, the recent survey revealed that a quarter of all impact investors are indifferent to or prefer to avoid impact measurement post-investment. Great progress has been made in the last few years with many using impact standards and metrics like the Global Impact Investing Network standards or the BSC matrix. However, it seems that in practice fewer investors than we might expect measure these outcomes in a robust and systematic way. For many, merely stating that an organisation works to achieve outcome x or y is enough to show that impact is being achieved. Indeed, Clearly So and NPC’s investment readiness report found that most investors focus first and foremost on understanding the financial return of investments and social return comes as an afterthought. A 2013 LSE report concluded that the state of measurement was far from satisfactory. They found a lack of consensus over definitions and methodologies and, as a result, major differences between funds.

So, where does this leave us? Are we making well-meaning investments that look good but may not be changing anything for anyone? Research has shown us time and time again that great sounding things do not necessarily lead to positive impact or worse can do more harm than good. There is a growing realisation of the importance of measurement among investors but this needs to be backed up by impact measurement in practice.

Of course, this is easier said than done. Many investors (such as ourselves) back early stage ventures that are trying out new and innovative ways to tackle social problems. For these ventures, evidence will be hard to come by and the organisations are unlikely to have run a high quality impact evaluation. That is why it is essential to have a staged approach to impact measurement.

The NESTA Standards of Evidence for Impact Investing does exactly that. The standards on a 1-5 scale begin with organisations having a clear articulation of how their product or service leads to positive social change. As organisations grow and develop, we expect them to start gathering evidence to back up their initial understanding of their impact. Over time, we will work with organisations to understand whether that change was truly down to their activity, and finally, we hope to use this information to begin replicating the product in a number of different locations and contexts.

The five levels of NESTA’s Standards of Evidence for Impact Investing

For example, one of our investees, Oomph! delivers specially designed group exercise classes for older people in care homes to improve quality of life and physical health. Their impact story argues that interactive classes, specially designed for older people, are more successful in engaging residents. As a result, older people not only increase their level of enjoyment but over time improve their physical health and range of movement. Oomph! has used academic research to show that regular physical activity leads to improved life satisfaction, reduced cognitive decline and a reduction in falls. We are now working with them to gather evidence to see if this impact story rings true. So Oomph! is gathering data on the well-being and physical health of older people before and after exercise classes. This kind of data will allow them to reach level 2 on our standards of evidence. Over time, we will work with Oomph! to measure any difference between their participants and older people who did not attend the exercise classes. This way we will know if any change is purely down to the Oomph! classes.

Supporting our investees to start simple and increase the rigour of their evidence over time is crucial to our mission as an impact investor. Indeed, we will be judging our own impact as a fund on how well our investees do at delivering and evidencing impact as well as their financial success.

So, I would argue that as impact investors we need to worry most about what happens on the customer side of our investments. How many people is a venture working with? Who are they? And what kind of change are they seeing? Without asking these questions, we risk creating an elaborate house of cards—one that will begin to crumble if these fundamental questions remain unanswered and unmeasured.

By Eibhlín Ní Ógáin – Nesta Impact Investments
This blog was originally published on Philanthropy News – Alliance Magazine
Read the original blog


Impact – it’s not academic

I learned this week that academics are suddenly worried about their impact, driven by the inclusion of impact as a criterion in the Research Excellence Framework. As explored in Tuesday’s Guardian, there appears to be a trend in academia to associate impact with increased media profile, case studies and generally good PR for the individual.

That doesn’t seem right to me, especially from an ‘industry’ typically associated with rigorous evaluation, or at least an understanding of the concepts of good evidence. So I wonder if academia can learn something from the public and social sectors here….

Over the past 5 years we have seen a significant focus on defining, and measuring impact by charitable foundations, social enterprises and charities and social impact investors through initiatives like Inspiring Impact; the impact measurement work of the Global Impact Investors Network; or theSROI Network. And a new breed of institutions focused on gathering and promoting evidence of what works (what has impact) in different fields is emerging, from the Education Endowment Foundation,National Institute of Clinical Excellence, or the Early Intervention Foundation.

So there is a wealth of material out there that academics could draw on, too much to assimilate here, but I offer just a few tips for nervouse professors from the approach we take with our investment fund Nesta Impact Investments

  1. Think of your impact as your intended effect on the world (your effect on other people, the environment, government policy, etc)
  2. Recognise that you will have an intended impact (you discover a radical new strong material) and you may have some unintended impact (it requires huge amounts of fossil fuels to make it)
  3. Build an impact plan: state at outset what change in the world you are working to bring about, and how you intend to measure that and to assess any unintended consequences. Then measure those things, analyse and report your findings and use that information to help you and others improve.

There’s lots of scope for PR about your impact; it’s just that the PR itself isn’t your impact.

Joe Ludlow – Director, Nesta Impact Investments