Step 6: Assessing and Achieving Performance

Another key part of the investment process is assessing and achieving your performance goals through the investment. While the ultimate goal of an impact investment is to achieve financial returns alongside social impact, we will discuss the two objectives here separately. Still, in most successful ventures, these two objectives are highly interdependent. Three key focus areas for achieving performance include:

1. Setting clear targets for social and financial performance
2. Managing financial returns
3. Managing impact

1. Setting clear targets for social and financial performance.

a. Start with the end in mind. One of the most important aspects of achieving performance is having a clear notion of what level of performance you want to achieve. Your success will often depend on that notion being clearly communicated amongst the entrepreneur and other stakeholders so that when choices arise, you, the governing board and the investee are pointed toward the same vision of performance.

b. Financial targets. On the financial return side, you want to have a clear understanding of what kind of return equals success to you, and attempt to manage toward that. This will be specific to your type of investment vehicle. Managing financial targets means that as seed investor, you may need to assist the enterprise in identifying the next round of investors and, if and when appropriate, an exit or harvest.

c. Impact targets. On the impact side, you want to build in with the investee a clear, shared notion of success, in terms of overall theory of change (what will happen as a result of our intervention?), interim indicators (what are the metrics we can track to be sure that is on the right path?) and ultimate social impact (how will we know we’ve succeeded?). In most businesses, it can take some time to get to this level of common understanding and actionable measurement.

Successful social venture exits can be enhanced by “locking in” mission commitments before exits occur. Companies do this in various ways—some through their by-laws, some by building it into their brand, some by certifying their impact through a product or a companywide certification, or new form of incorporation, such as Benefit corps or L3C’s in the US or Community Interest Companies in the UK. The B Corporation certification in the US was started in no small measure to help protect the mission interests of companies through merger, acquisition and IPO. Cathy Clark’s research has shown these kind of impact certifications correlate to better financial performance then other impact-oriented firms, at least in the US, where they are most widespread.

2. Managing financial returns

The overall strategy of managing financial returns can depend on the instrument you used for the investment. Maintaining an active ownership role enables you to keep a clear line of communication with the entrepreneur and activate your network of resources if necessary.

a. For debt and debt-like investments, if the company meets its payment obligations on time, you have your return. Management issues arise when the company does not have the required cash flow to service its debt. Refinancing, fire sale and/or write-off or partial write-off are the key options. Toniic members point out that waiting too long to decide among these options can force the choice into a write-off.

b. For revenue and profit-sharing investments, the financial return expectations are tied to the revenue or profits, i.e. they go up and/or down based on company financial performance, and are usually capped to a negotiated maximum return and/or might include a potential further upside based on revenue and/or profits. Incorporating specific reporting expectations through the term sheet development can be a plus to providing visibility into revenue and profit.

c. For equity and equity-like investments, exits can be through merger and acquisition, IPO or management buyout. The most common exit for impact enterprises is a merger or acquisition, especially globally. And the process of engaging and managing suitors is complicated, time-consuming and a key role that an investor can play. Generally, equity exits are scarce but increasing for early-stage impact investing. For example, Toniic member Bob Pattillo counts seven successful exits among the 24 earlystage investments he has made through his fund, First Light Ventures. Similarly, impact investor Josh Mailman has had three exits from the 55 early-stage deals he has completed through Serious Change L. P., and sees clear signs of progress: “More than 15 of our investments are no longer early-stage, and we see more mainstream venture investors joining successive funding rounds for deals we have led, ranging from organic foods to education and mission-driven online ventures”. The Grassroots Business Fund has had three successful exits. Tim Radjy of SocialAlpha Investment Fund has had one successful exit and is completing one more. In the domestic US market, there is a longer track record, as Investors’ Circle reports over 35 mergers and acquisitions and IPO events for its members’ investments in early-stage impact enterprises since 1992.

d. What an investor can do. As an investor, you can help evolve the ecosystem by contributing to the creation of more appropriate term sheets for the risks of your investments, such as considering convertible debt, so you can still reap a return even if there is no equity opportunity. Or use a revenue sharing model like Demand Dividend, with a floor and cap on returns. As an example, John Kohler, on the advisory board of the Global Social Benefit Incubator, and a Toniic Board Member, is working on impact term sheets based on his work with over 200 global social enterprises. Work with your peers to cultivate later-stage investors as an exit strategy for successfully nurtured early-stage enterprise.

3. Managing impact

Toniic Institute has published a guide on impact measurement based on member feedback with a focus on early-stage impact metric challenges and opportunities. We recommend checking out this guide in full at Toniic’s E-Guide to Impact Measurement. Following is a brief on critical lessons from members.

a. Current practices. Investors tend to bring their own practices and opinions to the table when they consider investing, so it will come as no surprise that the impact measurement principles we’ve seen throughout the network are diverse. The current range of practices is represented in Figure 7, below.

b. Why Bother? Although some investors get by without measuring anything and rely on anecdotal evidence only, for those more public about their portfolios, this is one of the more frequently asked questions from their peers. More and more, both investors and investees see the value in and want to devise a way to easily and meaningfully measure impact Why? Because: • Incorporating impact measurement serves as a powerful communication tool between investor and investee, as well as between investee and beneficiary. It clarifies expectations, establishes accountability, reveals areas of need, and showcase progress. It also aligns investor and investee around what is important to both. • It allows investors to compare the impact performance of an investment over time, or compare performances between investments, and even across sectors. • Strong measurement can help promising enterprises attract new capital from a market of investors who want to be able to show both financial and non-financial success. Anecdotal data is not sufficient.

c. Toniic members’s approach. While the Impact Reporting and Investing Standards (IRIS) from the Global Impact Investing Network (GIIN) are a critical new tool within the impact investing ecosystem, the 450+ indicators included in the database can get overwhelming, particularly for early-stage investors. Toniic members have identified a short-list of frequently reoccurring metrics they use for most investments. Check the Toniic E-Guide on Impact Measurement for specifics. Also, Toniic members typically combine financial and sector metrics with anecdotal stories of impact to provide a more nuanced picture of an investee’s impact. For a primer on how to use IRIS, check out this new publication by GIIN.

d. Additional advice from experienced investors. When asked to reflect on impact measurement, Toniic members had the following insights.

  • Early integration improves communication. It is never too early to start a conversation around impact measurement and reporting. Maintaining this conversation throughout your process will ensure that you are fully aligned with the entrepreneur.
  • Output plus outcome does not always equal impact. Data outputs like IRIS plus a measurable outcome or consequence do not necessarily equal the targeted impact. Establishing whether an output is or is not a decent proxy for the impact desired requires some up-front investigation, design work, and research. If that is skipped, the impact investor and venture use the output to gauge “potential impact” at their peril.


  • Check-lists can lead to narrow vision. A check-list metric process can result in a failure to see critical business challenges when those challenges do not fit in the narrows of the selected metrics. Rather, investors should collaborate with investees in order to agree upon what is feasible and satisfactory to both parties.
  • Keep it short and simple. Key indicators need to be carefully vetted and shortlisted in order to reduce the reporting burden for both investor and investee.
  • Variety of data leads to a better understanding of impact. Collecting and analyzing cross-sector, sector-specific, and enterprise-specific data can paint a much better, broad picture of an organization’s impact. Focusing on only one or two of the three types can leave gaps in the impact story.
  • Syndication brings efficiency. By syndicating, Toniic members can share resources and ideas, leverage each other’s capital, and require a singular set of data from all of the group’s investees. Unless the investor has very few formal measurement requirements, this can simplify the due diligence process and lighten the burden of impact reporting for both investor and investee.
  • Trust but verify. Since impact is currently mostly self-reported, it is important for investors to corroborate through field visits, meetings with the entrepreneur and staff, and inputs from others like customers, venders, and competitors.
  • Accountability. How do you know the enterprise is serving actual needs of its intended beneficiaries? Does the enterprise have mechanisms in place to ensure this ongoing communication?

For more detail on impact measurement, consult the Toniic E-Guide for Impact Measurement