Editor’s Note

This article was adapted by EUVC from an original insight published by Better Society Capital.

Read the original article.

Assessing an impact-focused venture manager asks an LP to test two disciplines at once: whether the team can invest well at the earliest stages, and whether it can pursue and evidence meaningful impact. When definitions vary, track records are short and common frameworks remain incomplete, much of that judgement depends on careful qualitative diligence.

Better Society Capital’s approach is to examine four connected dimensions: values and motivations, impact intent, impact practice and impact performance. Together, they help an investor move beyond a manager’s impact narrative and assess the substance behind it.

“Impact venture” does not have a single, universally accepted definition. Before assessing managers, an investor therefore needs to decide what impact it is seeking, which outcomes matter and what threshold an investment must meet to qualify.

In the original framework, Better Society Capital, then known as Big Society Capital, described impact venture as investment in early-stage businesses that intentionally contribute to solutions to significant social problems in the UK. The focus was on purpose-led businesses whose products or services target positive outcomes that are meaningful to people experiencing the issue.

That definition also emphasised accessibility and affordability, particularly for people who are not well served by existing solutions. Health, education and financial inclusion were cited as areas where venture investing could play a role.

The practical lesson is not that every LP should adopt the same definition. It is that manager assessment becomes more credible only after the investor has made its own impact lens explicit.

Impact claims are easier to test when diligence separates the manager’s motivation, stated intentions, working practices and evidence of results.

What drives the manager’s investment thesis, and does that motivation align with the LP’s values? Better Society Capital looked for qualities such as purpose, rigour and respect.

This assessment continued throughout diligence rather than being confined to a questionnaire. One-to-one meetings, references and observations of how the manager behaved all formed part of the evidence.

Does the manager have a clear and articulated intention to create impact? The diligence should examine whether the manager has defined impact goals and a credible thesis for how its investments could achieve them.

Intent is necessary, but it remains a statement of purpose. It should be treated as the starting point for further testing rather than proof of impact.

Does the manager have, or is it working towards, a rigorous approach to managing impact? The question is not only whether a framework exists, but whether it improves investment decisions and adds value in practice.

Better Society Capital tested this more deeply as diligence progressed. That allows an LP to compare what the manager says with how the team actually evaluates opportunities and supports portfolio companies.

Has the manager delivered impact, or is there credible evidence that it is likely to do so? For an established portfolio, this means assessing companies against the LP’s definition of an impact startup. For a newer manager, the pipeline may provide earlier evidence of how the thesis is being applied.

A related discussion on how LPs build conviction in emerging managers offers additional context on combining qualitative evidence with an incomplete track record.

Managers may frame their impact story differently for investors with different priorities. That makes impact-washing, including greenwashing, an additional diligence risk: the language can change more quickly than the underlying investment practice.

There is no shortcut to assessing alignment. LPs need enough time with a manager to understand whether its stated impact thesis is consistent across conversations, references, investment decisions and portfolio evidence.

Useful questions include:

Impact venture remains a relatively young field. Many managers therefore have limited evidence against both financial-return and impact-return targets.

The challenge is that a manager needs early-stage investing skills and impact management skills. Better Society Capital’s roundtable participants observed that teams often showed strength in one but not both.

Investors differed on how to respond. Some were willing to accept less financial track record where the manager showed sufficient depth of impact expertise, particularly when the LP could act catalytically and help an emerging manager build a record. Others preferred established venture managers with proven financial experience who were beginning to approach impact more deliberately.

Better Society Capital pursued both routes: working with established venture managers that were values-aligned and thoughtful about impact, and backing newer impact venture managers early in their development.

This is not a choice that a framework can make for the LP. It depends on the investor’s objectives, risk tolerance and willingness to play a catalytic role. A related resource on venture fund performance benchmarking and LP expectations provides further context on why early quantitative evidence needs careful interpretation.

Without a consistent approach, comparing managers becomes difficult. Yet frameworks developed for other forms of impact investing may not translate cleanly to early-stage venture, where companies, products and evidence are still developing.

As a result, LPs may continue to rely heavily on qualitative assessment of manager alignment. Better Society Capital argued that collaboration can improve this process: investors can test views, strengthen references and work with managers to identify practices that are both rigorous and useful.

A common framework should not remove judgement. Its value is to create a clearer basis for comparison while preserving the context that early-stage strategies require.

The four-part framework can be used as a sequence:

The central point is simple: impact credibility cannot be established from positioning alone. It emerges from the consistency between a manager’s motivations, intentions, practices and results.

Better Society Capital is the UK’s leading social impact investor. The organisation was formerly known as Big Society Capital and adopted its current name to reflect its mission more clearly.

Learn more about Better Society Capital’s work connecting social need, policy and investment opportunity.

This article was adapted by EUVC from an original article published by Better Society Capital.

Read the original article.