What It Means To Be An Impact Investing Fund
Can investors achieve both positive impact for the planet and society while also outperforming the market? At True North, we believe Yes.
In the recent years, a variety of purpose-driven investments have grown from being niche to being at the forefront of importance in the biggest funds in the world. Catalyzed by the Covid-19 pandemic, increasing concern over climate change, and historic levels of social inequality and unrest, investments focused on environmental and social benefit in addition to financial returns have quickly become topical for mainstream investors. ESG (environmental, social and governance) investing, SRI (socially responsible) investing and impact investing have all become popular buzzwords, based on the notion that investors are uniquely positioned to use their capital not only to generate financial returns but also to enable societal and environmental impact at scale. True North is an impact investment fund: our mission is to both create above-market financial returns for our investors, while also simultaneously investing in companies that have a positive impact on society. We are bringing to market this mission in a big way this year with our Digital Health & Wellness Fund.
From day one of the investment lifecycle, both impact and financial soundness are at the core of the conversations and analyses driven by our deal team. The main consideration when setting impact targets is to define an approach to measure and compare impact in a transparent way. Some impact investors take a best-in-class approach, cherry-picking the best performers within an industry or, alternatively, cutting the worst. At True North, impact for us serves as much as a hurdle as a target financial return. In other words, if a candidate company does not have impact integral to its business, meaning that the business incentives are not aligned with the impact incentives, then in the long run, there will always be a trade-off for the candidate company between financial and impact returns, rendering it unsuitable for our portfolio. Past this initial hurdle, our in-house impact scoring, designed with inspiration from some of the best practices we currently see in the industry, assess three key areas: completeness of vision, ability to execute, and impact return on investment. While the first two are largely subjective regarding the scale and feasibility of a candidate company’s impact goals, the impact ROI is the metric that is pivotal to how we look at portfolio building. Just as every dollar invested has a projected financial ROI, we seek to quantify the impact of every dollar invested as well and incorporate this into the due diligence process of all candidate companies. As an investor, our quantification allows a radical degree of transparency into how we think of a company’s impact, and it enables us to also calculate just what good your investment is creating in the world.
Our focus on impact is not limited to deal flow and deploying capital. For us and our investors, growing the value and impact of our portfolio venture partners is an on-going priority. Like leading VC firms, True North offers in-house strategy and business development services to accelerate our partners’ growth. Uniquely however, is our strong emphasis and institutional expertise on realizing and amplifying impact. Starting with the impact findings of our due diligence, we will work with our ventures to not only develop ESG strategies and plans, but also how to realize, monitor, and report on their progress—impact that is not effectively communicated loses its value as a growth driver for a venture. When paired with our institutional strengths in building equity stories, optimizing revenue models, and commercial excellence topics, our in-house business development capabilities help our venture partners drive for both value creation and impact.
Throughout the investment lifecycle, we commit to radical transparency based on measuring, monitoring and reporting the impact achieved by our portfolio to our investors the same way we disclose our financial performance. Peter Drucker’s famous saying comes to mind, “You can't manage what you can't measure”, consequently we use our proprietary impact scoring not only as a snapshot during due diligence, but as continuous monitoring with quarterly reporting to hold both us and our ventures accountable ultimately to our investors. The business justification of this is clear: we can flag trends early on and collaborate with ventures to course-correct as necessary. At the same time, we know that this radical transparency is vital to achieve the lasting impact on the environment and society that is core to our mission and important to our investors. The results of our impact monitoring are disclosed quarterly, along with the regular financial reporting, ensuring that our investments are on target to achieve their Returns on both dimensions.
At True North, impact is woven into our DNA, starting from the initial conversations with candidate ventures, through deal making, and value creation. Just like our portfolio ventures, impact is integral to our business and is a competitive advantage throughout the lifecycle of our investments. For more information about our investment thesis and the True North Digital Health & Wellness Fund, please contact our fund manager Kai Chen (kai@truenorthimpact.com).