Impact investing has always been focused on creating positive social and/or environmental outcomes.  At some points, Impact Investing has struggled to define itself as compared with philanthropy. Both require measurable positive outcomes, and some philanthropies accomplish outcomes that startups cannot while some startups accomplish outcomes that philanthropies cannot.

How are we to choose?

One way to choose is to consider Donor Advised Funds (DAF) as a part of your impact strategy.

The way a DAF works is that the investor gives a tax deductible contribution to the DAF that is set up in their name or through a foundation or fund.  This contribution is much like giving a donation to a non-profit in that it will not provide a return like an impact investment would, but it allows the donor to plan and grow the funding base that they will have for their future giving strategy.

DAF donors are more intentional about their giving than most people.  DAF donors think long term and typically have specific causes that they want to support vs. someone who responds to requests that may randomly come to them over time.  A DAF is like a personal Foundation in that it allows the donor to set funds aside to give to their causes over a period of time, but it is unlike a Foundation in that it does not require a five percent minimum donation amount each year.

Once money is in a DAF, it can grow by being invested in Funds or companies that match the donor’s values, but also return market rate returns.  For example, if you wanted to give $100,000 to the American Cancer Society, you could put $30-50,000 into a DAF and allow it to grow 2-3 time in size, and then allocate that those returns should be disbursed to the American Cancer Society times three.  

By investing in a DAF with investments in impact related investments like the Rockies Impact Fund, the investor gets a multiplier effect on their investments.  First, the Rockies Impact Fund invests only in companies that create Primary Impact in Social or Environmental spheres. This means that the investment themselves are causing significant measurable impact. Second, those investments give back up to two to three times the initial capital to the Donor Advised Fund.  Third, the DAF may now donate the profits from those investments to the American Cancer Society, or to a suite of causes specified by the donor.

Clearly DAFs are not designed for those who are focused on growing personal wealth since the returns must be designated for non-profit programs, but for those who have a long term giving plan, DAFs are a great way to both increase impact by investing in Impact Funds, and then being able to give two to three times more to causes that are important to them.

To learn more about setting up your own DAF, contact Ed Briscoe at Impact Charitable.

To learn more about DAFs as a part of your Impact Investing strategy for Family Offices, High Net Worth Individuals, Corporate Social Responsibility, or Fund of Funds, please contact Peter Adams, Dave Harris or Sue Stash at Rockies Impact Fund.

Measuring Impact has become a major challenge for impact investors.  The main reason is that for all their good intents, organizations that develop impact metrics ultimately end up trying to fit a square peg into a round hole.  Impact metrics systems struggle to compare apples and oranges in order to demonstrate that the social and environmental benefit can be measured in the same way that financial benefits can be.  As our Impact Landscape canvas shows, “impact investing” is not a vertical market. It is futile to try to compare the metrics for bringing education vs. clean water to a community. Both are important and someone will focus on each.  Ultimately, the metrics for both must be different. 

A lot of great work has gone into developing metrics for impact.  There are templates, sample measurements within various verticals, and thoughtful approaches to measuring impact without drawing too much energy away from the impact organizations whose outcomes are being measured.  

Our metrics thesis is not superior to nor a replacement of other metrics. We appreciate the values and intents behind GIIRS, B Corp Certification, IRIS, Guide Star, SOPACT (Actionable Impact Management), GRI and the SDGs, as well as gender lens metrics, diligence metrics, reporting metrics, performance metrics and others.  These are all great frameworks for a Rockies Impact Fund portfolio company to use in determining the best key metrics for themselves to use, along with their investors and stakeholders, to guide their actions.

Regardless of the metrics system used, one important principle is to think of metrics as something that happens on the front-end of a transaction, not just one of measuring whether the outcomes were successful or not.  Students of business process will remember the revolution that occurred in American manufacturing when W. Edwards Deming studied manufacturing process and found that in the 1950’s people were engaging in “quality control” by culling out the defects at the end of the manufacturing process.  He envisioned building quality in from the beginning of the process and greatly improved efficiency of American manufacturing.

What if we applied those same principles to impact investing metrics?  Instead of making investments and waiting to see if they produced the outcomes we had hoped for, we build impact metrics in from the beginning?

We view metrics in two ways.

Inbound Metrics – Is it an “Impact Investment” According to our Thesis?

Impact companies do not always present themselves with an “impact” label and it is important for us to be able to determine which companies from the flow of deals will qualify as “impact” investments. As such, we expect many companies approaching the Rockies Impact Fund and qualifying for investment will not need to present themselves as “impact companies”.  They may be focused on health, education, environment or other impact causes, but they present themselves primarily as a business enterprise. Because of this and because the Rockies Impact Fund will invest across multiple markets ranging from healthcare to education to agriculture, the Fund’s managers do not arbitrarily choose any one system to measure whether something is an impact investment or not.  Most existing impact metrics systems have a hard time telling us whether it is better to invest in a company that can provide education to one hundred students or to provide clean water to those same people. Instead the Fund’s Management uses a simple version of metrics based on Utilitarian Ethics founded by 17th century philosopher Jeremy Bentham[1] in which the moral choice was one that benefited “the greatest number of people with the greatest good.”  Rockies Impact Fund managers have added a venture capital twist to make it a three-fold metric that includes “…at the greatest financial return.”

The Rockies Impact Fund intends to measure each incoming opportunity against these three criteria of number, impact and return, each scored on a one to ten scale.  A company needs to have a score of 19 or greater, without a large standard deviation among the three scores to qualify for investment. For example, in the “financial return” category, potential for a 10X return in five years falls at “7” on the one to ten scale.

IMPACT
ASSESSMENT
SCALE
# of peopleDepth of ImpactFinancial
Return
(Multiple)
1UnknownNegativeNone
2TensNone0-1
3HundredsVery Low2-3
4ThousandsLow4-5
5Tens of thousandsLow Medium6-7
6Hundreds of thousandsMedium8-9
7MillionsHigh Medium10
8Tens of MillionsHigh20
9Hundreds of MillionsVery High30
10BillionsCritical50+

Rockies Impact Fund’s managers have evaluated their past investment portfolios and have found that approximately fifty percent of the portfolio companies under management in the Rockies Venture Fund I (32 investments) and Rockies Venture Management (40 investments) would qualify under these measures as being Impact Investments. The Rockies Impact Fund will invest in impact opportunities using these metrics where companies qualifying score at 19 points or greater.  Our goal is to create consistency in determining the amount of impact so that investors and Limited Partners can calibrate with a scale that is understood to all.

By “beginning with the end in mind” we believe that we can maximize social and environmental impact in the investments we make.  With a clear path to outcomes and pre-established metrics, we can create an “Impact Proforma” that we use just like the financial proformas that model future revenues and expenses for a Venture Capital Portfolio company.  By using the impact proforma we can help companies to adjust their strategies to maximize impact while also pursuing 10X investment returns.

Post-Investment Metrics – Is the Company’s Execution Creating Good in the World?

We develop post-investment metrics for each portfolio company based on their Primary Impact.  We use guidelines from existing metrics systems such as GIIN’s IRIS+ Thematic Taxonomy (Global Impact Investing Network) which provides suggested metrics for many, but not all impact types. 

We’ve struggled, as many have, to develop or select an existing single set of metrics for impact companies which we believe is impossible. One simply can’t use the same metrics for edtech and agtech and metrics that CAN be applied to both, would be Secondary metrics about how the company operated, thus ignoring the most import Primary impact output that the company creates. At the end of the day, we’ve determined that each company needs to set its own metrics for impact as a part of the Key Performance Indicators (KPIs) that they measure on a regular basis as a part of managing their business. That being said, using a consistent set of metrics, when available, such as IRIS+ can be useful, ultimately, each company has its own outcomes that it tracks and by focusing on Primary Impact, investors will settle on investment metrics that are based on the individual company’s outcomes.

So, for example, a company that uses telemedicine to reduce the cost of healthcare by keeping people out of emergency rooms and to increase access to health care by underserved and rural populations might set about measuring:

●        Number of people diverted from the emergency room (and the cost savings because of that)

●        Number of people in rural communities served.

●        Number of other underserved communities who gain access to healthcare.

Because the Rockies Impact Fund focuses on Primary Impact, these mission specific metrics make sense.  Each company is creating good by what it does when it carries out its mission. Additionally, these company-specific metrics are also their commercial raison d’etre, and thus, should be measured as part of their commercial KPIs even if they are not demanded for by the Fund.

The Sustainable Development Goals categories, for example, provide a good framework for understanding the scope of most impact investments. The metrics that fall under these categories will be well understood among investors who are analyzing various investment opportunities.  The Rockies Impact Fund’s management finds these categories to be useful and comprehensive and therefore we strive to work within this framework, while measuring each investment individually.

At the end of the day, impact investors want both a significant social and/or environmental impact, plus market rate returns.  Impact investors who develop inbound metrics find that they are investing in companies that create significant outcomes which can be modelled using an impact proforma.  Others who invest based on passion and cause alone may find that the impact they create is not as great as they had hoped.

All impact investing can be divided into primary or secondary impact and impact investors should understand the difference.  We define “primary impact” as impact that is caused by the company carrying out its mission.  Whenever a primary impact company sells its goods or services, there is social and/or environmental good that comes from it. Secondary impact companies, on the other hand, are measured by their practices rather than their business product.

We make the distinction between primary and secondary impact by noting that primary impact is created by “what” the does as opposed to “how” they do it. For-profit companies that have positive environmental impact by creating carbon-free energy, for example, create impact by the very act of carrying out their business and reducing carbon emissions. The more that the company grows and carries out its mission, the more positive impact there is in the world. 

Many impact investors focus on secondary impact, or “how” the company carries out its mission, than the mission itself. Certified B Corporations (B Corps) are a good example of this.  The qualifications to be a B Corp focus primarily on metrics surrounding business operations such as diversity, pay disparity, green business practices, etc.  These are laudable goals and are accompanied by rigid sets of metrics to assure compliance. 

Socially Responsible Investing (SRI) became popular in the 1970s and was known more for what investors did NOT want to invest in. An example of this is the elimination of investment dollars by SRI funds into the tobacco, alcohol and other industries perceived as negative by SRI practitioners.  ESG, or Environmental and Social Governance strategies, are more sophisticated and believe that companies that intentionally measure and act with environmental and social outcomes will do well in the long run.  Many practitioners however have found ways to meet the standardized ESG metrics while not passing the “sniff test” of more discerning impact investors.  Examples include British Petroleum, Slumberger, Clorox, Coca Cola, Conoco Phillips, Nestle and XCEL Energy. Clearly, there’s something that could be improved with ESG metrics and the companies that can manipulate the data to fit them while potentially harming society and the environment.  This practice of using metrics and certifications to make carbon generating companies like British Petroleum and Conoco Phillips is called “greenwashing” and impact investors should keep their eyes out for true impact vs. greenwashed impact.  By distinguishing between primary and secondary impact, we eliminate much of the opportunity for greenwashing.

Measurement of primary impact,  tells us what the company does and how it impacts communities, economies and the environment.  Take, for example, PharmaJet.  This is a company that makes a needle free injection system for vaccines.  The PharmaJet injector is small, requires no batteries or electricity to run, can be operated with minimal training and can be used thousands of times before replacement is needed.  The PharmaJet capsules that hold the vaccine have no needles, so every time one is used, there is a diminished likelihood of needle pricks suffered by health care practitioners.  They also cannot be reused by drug abusers or reused by healthcare practitioners in undeveloped countries.  Other benefits include PharmaJet’s more efficient delivery which cuts the amount of Polio vaccine needed by up to 30% for each injection.  Given the world-wide shortage of Polio vaccine, the impact of being able to inoculate 30% more people with a given amount of vaccine is significant.  The time to administer a shot with PharmaJet’s system is almost half of that of using needles, so healthcare workers can provide twice as many vaccinations in a community in a given period of time.  Additionally, many people are needle-phobic and they fail to get regular vaccinations for influenza and other diseases, leading to global health vulnerabilities when significant populations are unvaccinated.  The pain free, needle free PharmaJet system eliminates the excuses for these people to avoid vaccinations and can have massive impacts in global health outcomes. 

These are all Primary impacts that come from using PharmaJet’s system.  The company is not B Corporation, SRI or ESG certified, but it does more good with each unit sold than BP does in a year.  If we are going to understand what we mean by impact, we will need to distinguish between Primary and Secondary Impact, because they are clearly very different metrics and will have very different impact outcomes.

To be clear, ESG, SRI and B Corporations have done good things to raise the bar for business practices in many companies but impact investors should understand the risks or relying too heavily on these metrics.  But a company can do both primary and secondary impact – Just because a company creates primary impact through carrying out its mission does not mean that it cannot also carry out secondary impact by following best practices for sustainable practices within its organization.

 By focusing on primary impact, impact investors could avoid the challenges of ESG metrics systems and the potential for greenwashing that they enable.  Investing in companies whose primary mission entails doing social and environmental good avoids the greenwashing and self-justification that dated metrics systems could allow. 

Rockies Impact Fund - Venture Capital Fund focusing on full market-rate returns on early stage Primary impact companies.

If you’re interested in learning more about impact investing in your portfolio, are an accredited investor, fund, foundation, family office or CSR investor, please contact us about becoming a Limited Partner in the Rockies Impact Fund.  The Rockies Impact Fund is a full market-rate return targeted Primary Impact Venture Capital fund that targets early stage private impact companies in the UN SDGs focusing on healthcare, education, agtech, economic development and sustainable cities.

Peter Adams is co-author of Venture Capital for Dummies and serves as the Executive Director of the Rockies Venture Club, the longest running angel investing group in the U.S. 

Peter serves as an Officer on the Board of the Angel Capital Association, the North American association of professional angel investing groups.

He also runs the Rockies Venture Fund, an early stage venture capital fund and Rockies Impact Fund, investing in social and environmentally oriented companies. 

Peter is also the founder of The Rockies Venture Institute, the Women’s Investor Network, and BizGirls.org, a non-profit CEO Development Program for young women.

“New Space” is what we’re talking about.  It’s not your granddaddy’s aerospace that was government controlled, cost billions of dollars and was top secret national imperative sort of stuff.  Rockies Venture Club is pursuing its first Aerospace Investing program May 7th in hopes of raising our awareness of this booming “new” category of angel investing.

Yes, aerospace does include billion dollar projects, but now, more than ever, there are micro opportunities that angel investors can make a significant impact on.  Another way of looking at this is that outfits like SpaceX are so significantly reducing the cost of getting payloads into space, that startups can now put their projects into space for relatively low cost.  Getting a satellite launched now can be as little as $250,000 today with SpaceX vs. millions of dollars just a few years ago. Mic Black, an Australian entrepreneur from Queensland recently launched a meat pie into space for under $50,000, showing that low cost space projects are not just a pie in the sky idea by showing that he could launch a pie into the sky for much less than it cost Elon Musk to launch a Tesla into outer space.

On a more serious note, the low cost of getting projects into space opens up myriad possibilities for entrepreneurs that have not previously existed.  This is reminiscent of those who sold the picks and shovels during the gold rush era. Entrepreneurs may not be building billion dollar space projects, but they are providing solutions to the thousands of problems that new space programs present.

One with a creative mind can see many possibilities – and challenging implementations:

  • Space “as infrastructure”;
  • Space mining for rare minerals or those not available on earth;
  • Productive World policy for Space Usage – and Sanctioning bodies, Weapons in Space Policy (US SASC), International Space Law (Ownership, Rights, etc.) beyond Maritime type Law;
  • Solar Energy in space transported back to earth (something akin to wireless??);
  • Robotics for Space (Truly, Humans don’t do well in Space via current capabilities);
  • Deep Space Travel and Exploration;
  • The long-term future of Space colonization (so complex);
  • Chemistry/Biology in Space and New Product and Health Solutions;
  • 3D Printing, and Manufacturing in zero-G;
  • Govt/Private Economics for Space endeavors;
  • Etc.

So, what does this have to do with angel investors?

Angels and VCs are rapidly jumping on the space bandwagon.  There are thousands of startups working on small parts of the space ecosystem and some of them have big solutions that they have creatively broken into smaller tranches with achievable milestones that can be funded with $1 million or less.  Space-specific angel groups have formed such as Space Angels, EBAN Space, GEN Space, Seraphim Capital and more. Angels and VCs poured more than $3.25 Billion into space in 2018, a 29% increase over the previous year. With a large number of corporate entities rapidly acquiring new technologies developed by startups, there is an active exit environment which is crucial for angels and VCs.  International competition for space is also driving the speed of growth in this sector. Europe, China, Australia and other countries are growing their space entrepreneurship programs to keep competitive.

There are about 534 venture capital funds that have invested in space since 2009 with 114 of those making their first investment in 2018.  This is a place that angels should be investigating and getting in on the ground floor.

Rockies Venture Club first ever signature series themed “Aerospace Investing” will take place on Tuesday, May 7th 5-8pm at the CSU Denver Center. Join Us as we explore this interstellar field!

With 2019 in full swing, we at Rockies Venture Club want to, first and foremost, wish everyone a happy new year. With everyone back from the snow and the holidays, we thought we would start the year off strong.

Blockchain had a red hot year in 2019. For many, the technology is synonymous with cryptocurrencies after 2018’s tumultuous Bitcoin rollercoaster. As a result, blockchain is nothing but buzzword nonsense to a lot of folks.

Built as a technology to make things trustworthy, blockchain makes things ‘immutable‘. As such, blockchain is here to stay.

The top of the list? Voting, healthcare, and financial services, along with supply chain management, are all in the running to receive top impact from a technology designed to make trust easier.

Other industries that might see major shake ups land all across the board. For example, utilities may be able to switch out smart meters for sensors that utilize IoT and blockchain technologies.

Ohio decided that it would adopt the future with its major cities adopting major blockchain policy. McKinsey forecasted the impact by industry of blockchain (which investors may want to check out here to know when blockchain is an important part of an investment, or just a buzzword).

Read Ethan Harden’s outlook here to get the full picture.

As the gift giving season is now in full swing, everyone has something different on their holiday wish list. Here are a few holiday gift ideas from RVC‘s portfolio companies so you can get your friends and family the perfect gift while supporting our local economy and startup community.

Bitsbox: The smartest way to introduce curious kids to coding. Crazyfun coding projects with new concepts sent directly to your door every month!

EnVision Meditation: Do you know someone that is already planning their New Year’s Resolution? Help them visualize success in 2019 with EnVision Meditation. In just ten minutes a day, EnVision brings you more confidence, self awareness and the ability to be more intentional about your life through guided meditations utilizing visualization to help you be at your best each day.

Felt: Make the holidays extra special for your loved ones by sending personal, handwritten cards for the modern world. Sealed, stamped and mailed — All from your iPhone.

mcSquares: mcSquares makes dry-erase collaboration products for businesses and educators. They will help you get organized, inspire team creativity, and cultivate group collaboration. Tablets and stickies are designed to facilitate learning and help teachers engage students.

Recoup Fitness: Recoup sells innovative hot and cold therapy products trusted and tested by professional athletes in all 4 major leagues. Great for the athlete in your family!

Rockies Venture Club MembershipRVC Memberships are perfect as a last minute stocking stuffer for the Investor or Entrepreneur in your family! As a member of the Rockies Venture Club you have a front row seat to the growing, developing, accelerating world of the Colorado Entrepreneurial Ecosystem. Over 100 events, workshops, and classes held each year. Help your loved ones move their business forward in the new year!

Sheets & Giggles: Try Sheets & Giggles absurdly soft and eco-friendly eucalyptus bed sheets. Last chance for guaranteed delivery by December 24. 15% off and free shipping for all orders in December!

Vortic Watch Co: Vortic Watch Company produces custom, handcrafted, 100 percent American-made mechanical watches that build on the legacy of classic railroad era watches.

Happy Holidays!

-Rockies Venture Club

With the Colorado Capital Conference right around the corner, we had Ethan put together an outlook on Colorado alone. The Give First ecosystem is rapidly advancing on the global scale for startups, with Colorado coming in 6th for startups nationwide. The report contains information ranging from the impact of our strong collegiate ecosystem and Colorado’s density of STEM sector specialists. Overall, this paints a great picture for Colorado investors. A high density of the young and ambitious combined with a high density of innovative, groundbreaking technologies to be commercialized sounds like a recipe for great investments to us. Other key takeaways? Namely, Colorado is one of the best places for female entrepreneurs. Hopefully this will translate to being a top location for female investors, too!

You can read Ethan’s Colorado Outlook here.

Inspiring both controversy and the imagination, like many innovation before them, drones were built first by the military, for the military. Interestingly, the technology that enables drones, and drives their proliferation, also comes from the military. The internet and social media have pushed drones into the mainstream consumer’s life, with vast numbers of people being reached by drone-driven content daily. Additionally, the Internet of Things has helped further the applications that make drones so useful today.
Where else do we see drones? Farmers, as it turns out, are pretty good customers of drones. From crop surveillance to precision agriculture, drones, like other autonomous vehicles, have revolutionized various processes for farmers.
More you ask? Well there are professional drone races with racers pocketing a cool 6 figures for their efforts. They deliver packages, although your pizza is probably going to take a while before it learns how to fly.
Learn more in Ethan Harden’s Drone Industry Outlook here.

According to the U.N. and the World Bank, the world population is set to reach just shy of 10 billion people by 2050. While a lot of focus has been put on the urban housing crunch that will create, as well as questions about employment in the face of growing populations and the rise of smart machines, a larger question looms: how do we feed that many people? With 795 million people reportedly not getting enough food in the world already, how do we feed 40% more people? And how do we do this while meeting our environmental goals?

A number of startups are sowing those seeds of innovation and disruption already. Aquapod is taking fish farms to a new level: they put fish farms in the ocean. Tortuga is building smarter farms for a hungrier future. Biopac’r builds machines that break down grass and all the chemicals sprayed on it, creating safe feed sources. Companies like the Rocky Mountain Micro Ranch are innovating the western diet with microlivestock: edible insects that use less land and less feed per pound than our meatier sources.

Now, the savvy investor has a unique opportunity to get ahead of the harvest, producing opportunities to reap what’s being sown. Seed companies need seed rounds, too, leading to the coming RVC AgTech Investing event.  Our keynote speaker, Paul Hoff, is the COO of Agribotix, a company enabling a technique known as precision agriculture through the use of drones. Join us for an early evening (snacks and drinks included), learning more about what opportunities exist to harvest the rewards of feeding the future. If you need more information, you can read RVC’s Ethan Harden’s industry outlook on AgTech to better understand the bunches and bushels of opportunities out in the world.

What does sequencing the wheat genome have in common with corn that makes its own nitrogengeodesic spheres for fish, and figuring out just what in meat makes meat taste meaty? They’re all agricultural and food technologies, or AgTech, the wave of innovative concepts with the goal of feeding the world for the years to come. From precision agriculture and crop engineering to tiny robots that pick strawberries, AgTech solutions bridge the gap between the rapidly expanding tech sector and the hard earned knowledge of generations of farmers. You’ll hear the scientists behind parts of this movement say things that may sound extremely strange, such as calling cows “obsolete food technology“, while others are breeding so called “supercows” and investing in the future of cowtech. To be frank, it’s about time, considering that the major breakthroughs in ‘modern’ farm science, up until about 10 years ago, have been Round Up, artificial fertilizers, and autonomous tractors. So what’s, quite literally, in store for the future? Will our produce be grown above our supermarkets and be picked by robots as we make selections on tablets? Perhaps scientists will learn how to grow bread in a petri dish, although petri dishes are more likely to make animals obsolete before wheat. From software to vehicles to the future of seeds, read the outlook here for more info.