Earlier this year, an EU report showed that 42% of companies are exaggerating their level of sustainability. This “greenwashing” is now so widespread that an organization has launched a platform to calculate the real environmental impact of companies and avoid misleading marketing.
Today’s global impact investing market is valued at $ 715 billion and growing. But while VCs, Angels, and Celebrities scramble to invest their money in businesses that do good, they don’t do enough due diligence.
For some founders, focusing on impact is a way to play on trends and get noticed by investors. This is why some people identify as “impactpreneur”.
There’s a fine line between impact and promoting a story for marketing purposes, and misjudging a startup’s authenticity can cost investors money as well as their reputation. While working with thousands of startups, I saw these three signs that a startup is using impact to gain traction in the public arena – not to make real change.
They don’t record and track impact measurements
If a business doesn’t measure the impact it claims to focus on, that’s a red flag. Startups that are really looking to make an impact will have a clear definition of their goals, how they’re getting there, and metrics monitored along the way.
At the Founder Institute, we’ve defined several “impact KPIs” that help startups track their incremental impact milestones.
For example, a female-led acceleration program that hopes to increase the number of successful female founders might have metrics on the number of female participants per month per year, the number of participants starting a business, and the funding received by these companies. No impact is created overnight, but by breaking the journey down into granular chunks, companies are demonstrating that they are determined to build and refine their path to impact.
Follow-up actions also force companies to be fully accountable for the impact they advertise. Companies that release their metrics even when they are not positive tend to delve into what went wrong and put plans in place to remedy the situation.
A good example is Duke Energy, who shared a report acknowledging that he failed to meet the team’s diversity goals last year. To improve metrics, the company hired a new diversity and inclusion manager and committed $ 4 million to advocate for equality in the communities it serves.
We investors also need to make sure that metrics are present throughout the company – that startups practice what they preach. If a company has said it wants to improve access to education for more people, the founder should be able to provide metrics regarding internal training programs, course offerings, development plans, and promotions.
If they don’t have this information, it could be a sign that the business impact is only targeting lateral goals and not being built into internal operations.
The CMO is responsible for the impact strategy
The impact should ultimately fall on the CEO’s shoulders. It might seem obvious, but if the Marketing Director is the go-to person for impact conversations and reporting, that’s a problem.
When impact only exists in the marketing arena, it can be easy for people to have an accidental or practical impact – where they look back at the data and celebrate successes that weren’t the direct result of a strategy. impact. For example: a startup claims to have reduced its carbon footprint by 10% in 2020, when in reality the decrease was due to the closure of operations during the pandemic.
Likewise, if a startup’s impact goals sound too good to be true, they usually are. Marketing departments get big when they want to make a splash (see: Theranos), but with impact, companies need to act at ground level before they aim for the moon.
Take ExxonMobil, which advertised its experimental algae-based biofuels as a way to cut emissions from transportation. Consumers were quick to point out that the company made no promises of net zero carbon emissions before looking for “sexier” impact alternatives.
It’s about projections, not progress
It’s only natural that when founders raise funds, they focus on their most disruptive advantage. Whether they can end poverty, close inequality gaps or reduce the effects of climate change. These promises may raise investors’ eyebrows, but they must be rooted in the How? ‘Or’ What.
Every investor knows the feeling of ignoring financial projections in a startup pitch deck. It’s not so much the numbers that matter, but the process behind them. It’s exactly the same with impact.
If the whole identity of a startup is the future number of its impact goals, investors should be wary. The methodology is much more revealing than the statistics.
For example, GSK has announced ambitious plans to be net zero carbon by 2030, but its breakdown of key activities such as the switch to renewable electricity, electric cars and green chemistry is what confirms that the he business is really heading towards that impact. If the company does not achieve total net zero status, the intention is still clearly there and progress will be made, but perhaps at a slower pace.
If Theranos has taught us anything, it’s that businesses understand the allure of impact when raising funds. For investors, being able to see the real impact of marketing ploys not only protects them, but also helps their capital go to places that can make a real difference.