Editor’s Note

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

Read the original article.

Mission-driven startups often build for people who are underserved or vulnerable. The problem is that the people who benefit most may be unable or unwilling to pay enough for the product or service to support venture-scale growth.

That can force a false choice between commercial scale and impact. Nicholas Andreou’s argument is that founders should look beyond the end user and identify a third party whose incentives align with either the outcomes created or the activities that produce them.

If a startup assumes that the end user must also be the customer, it may have to choose between serving people with a greater ability to pay and reaching those with the greatest need. Either choice can constrain the business: prioritising access may weaken the investment case, while prioritising revenue may narrow the intended impact.

The alternative is to separate the user from the payer.

A third-party payer model is a revenue model in which an organisation pays for a product or service used by someone else. An employer paying for an employee benefit is one example.

For an impact startup, the model works when the payer has a credible reason to fund the service. Andreou identifies two broad patterns: the payer values the outcome, or the payer values an activity that produces the outcome.

The first route is to identify an organisation that benefits when the startup achieves its intended social or environmental result.

Government can be a viable payer because it has a direct interest in public wellbeing. In healthcare, for example, a public system may fund preventive support when better outcomes can reduce pressure elsewhere.

Second Nature illustrates the pattern. Its behavioural programme helps people at risk of diabetes manage their weight. A consumer subscription made the product available to those who could pay, but risked excluding lower-income users. By partnering with the NHS, Second Nature could extend access while building a different route to revenue.

Employers can play a similar role when employee wellbeing also affects organisational performance.

Wagestream offers financial-wellbeing services through employers. One product is earned wage access, which lets employees draw down wages they have already earned before payday. Employees may gain flexibility and reduced financial stress; employers may benefit from improved retention and productivity. The business model depends on that alignment between the user’s outcome and the payer’s interests.

Sometimes no obvious customer is willing to pay for the impact itself. The second route is to identify an organisation that already pays for an activity associated with producing that impact.

Olio enables people to share unwanted food in their communities, helping to reduce waste and address hunger. Those outcomes matter, but they do not automatically reveal a willing and able payer.

Food businesses, however, already pay to dispose of surplus food. Olio recognised that it could serve that operational need regardless of whether a business was primarily motivated by the social or environmental outcome. The activity created a viable customer relationship while preserving the impact mechanism.

Oyster uses another established purchasing dynamic: companies pay for HR services that help them hire and manage people remotely.

Its impact ambition is to widen access to employment by encouraging companies to consider talent beyond established labour markets, including people in emerging markets. The customer pays for a familiar business activity, while the product can expand opportunities for workers who might otherwise be overlooked.

The examples suggest three practical questions:

For investors, the central question is not only whether an impact model is credible, but whether it is connected to a scalable source of revenue. A well-aligned third-party payer can improve the commercial case without requiring the company to reduce its impact ambition.

For additional context on how another venture investor evaluates impact alongside commercial potential, see the related 2150 Impact Framework.

Impact potential alone does not create a venture-scale business. The challenge is to connect a valuable outcome with a payer that has both the incentive and the ability to fund it.

Third-party payer models offer two routes: find a customer that values the outcome, or find one that values the activity producing it. When that alignment is real, founders can expand access, strengthen the investment case and scale impact alongside financial performance.

Nicholas Andreou is Head of AI at Better Society Capital. His background includes academia, international development and impact consulting, and he helped set up ImpactVC.

Learn more about Better Society Capital’s work supporting impact ventures.

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

Read the original article.