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.

In light of the recent SCOTUS ruling, we thought we would talk about an economic model that helps us understand discrimination and voting with your dollar. How your preferences affect the price you’re willing to pay for a product or service directly correlates to a business’s ability to stay open. You wouldn’t go to a burger joint that was dirty or had terrible service if the burger place a block away had the same prices and was clean or had better service, and we can explain it with economics.

Bakers Green and Blue

Anyone who has sat through Economics 101 knows this graph. It’s a basic supply and demand chart with two bakeries and the market of buyers. Bakery Green is charging Y more than Blue Bakery for reason A. In a normal scenario, Green must lower their price or go out of business as Blue takes all the business they can handle (Blue could, in theory, raise prices to match Green, but that model gets complicated as we factor in behavioral economics and the price elasticity of demand.). In the traditional, basic model, Green just has higher costs. Maybe the owner wants a higher salary, maybe the business had to take out loans at a higher rate, with the result being costs that are higher. If that price is as low as Green can charge, then Green will eventually go out of business.

Now let’s abstract a little. What if reason the price is difference, Y, is not a dollar amount? Common examples of this would be that Green is further from town than Blue, or perhaps Blue is able to keep the line short while Green has a 30 minute wait. In this case, we’ll say that Y is difference in beliefs between you and Green Bakery’s management. In some cases business will fail slowly as a result of this type of disagreement as social norms shift, while in some cases firms go out of business rather quickly. For some customers, Green will not have this additional cost Y and will cost the same as Blue. For some customers, Green’s preferences could even align with theirs, adding to business, but so long as a critical mass of Green’s existing customers have beliefs and a demand function like the gray one above, Green will lose business to Blue and be forced to shutter their doors. In this case, hinging on the critical mass of disagreement, the free market at work will reduce business for Green until the day they no longer breakeven.

We see a similar story in the allocation of venture capital. Plenty of research has shown that women executives and female CEOs outperform the indexes of male dominated companies. Women are managing to be a better bet than men by as much as a factor of three, and yet they only make up about 6.5% of Fortune 500 CEOs and only 20% of VC deals, or 2% of all venture capital. They drive additional value, outgrowing their male counterparts by 63% in the case of First Round Capital. In other words, women founders cost VCs less, earn them more, and yet, they still don’t receive equal funding. This is a lot like our bakers Blue and Green. Blue is the VC funds putting capital towards women founders and seeing results. Green is the funds that follow the industry standards and miss out on the returns of investing in female founders. Angels and venture capitalists are suffering a huge opportunity cost in not servicing the demands of female founders.

Various reports of discrimination in the community help to explain some of this. In some benevolent cases, discrimination occurs as an accident, as Katrina Lake outlines in conversation with NPR, pointing out that many VCs have pitch requirements that could exclude the growing industry of so-called mompreneurs. The offices are highly male dominated, with only 6% of VCs being women as recently as 2016.

Compare these averages to the Rockies Venture Club. Of our 31 portfolio companies, over half star female founders running companies ranging from tech solutions for kitchens to FinTech answers for any early stage startup. Enter RVC’s Women’s Investor Network, or WIN for short. Headed up by Director Barbara Bauer, WIN was founded to increase the number of active female Angel’s working with RVC. Something Barbara has identified, and highlights regularly at RVC events and talks, is the need to fund female entrepreneurs to make sure that women have the capital and the experience to be informed Angels. As an experienced entrepreneur with a background and education in science and engineering, Barbara represents the best of the best to lead RVC and the venture and Angel communities as a whole towards a better, more diverse future.

Know someone interested in working with Barbara as a WINtern? Have them send a resume to info@rockiesventureclub.org!

Women make up the fastest growing community of angel investors and it’s changing the face of Angel Capital for the better.

Angel groups like Rockies Venture Club have been beating national averages for investing in women and minority led companies with 54% of our portfolio consisting of women and minority led companies vs a national average of just 14%.  But in order to balance the ecosystem it’s important not just to invest in women led companies, but to engage women angels who can help mentor startups and who can gain experience serving on the board of directors of some of the startups they invest in, thus paving the way for increasing the number of women on corporate boards at all levels.

Research shows that companies with women on boards out perform those with no or few women.  Companies wit

RVC Women Investor Network

h the highest percentages of women on their boards outperform their less diverse peers by 66%.  We have certainly seen these trends in our portfolio companies and are committed to developing further diversity in our community.

We have launched the RVC Women’s Investors Network  (WIN), led by Barbara Bauer.  The network has had several well-attended events that focus on angel education and making connections.  The group is based on four principles that play on women’s strengths:

Engagement: Programs that allow people to work together and share wisdom of crowds to make good decisions and great investments.

Give Back: WIN members have years of business experience and they want to be more than just a check – they like to mentor and coach up and coming companies.

Act From Knowledge: Women like to understand the landscape before they jump in and invest.  No more “fake it until you make it” – that can cost thousands for new angel investors!

Education: Classes, workshops and “get to know an angel” events provide deep venture capital knowledge to get WIN members up and going quickly and confidently.

If you’re interested in engaging with the group, volunteering, or just learning more, consider attending the WIN Luncheon at the Angel Capital Summit, Tuesday March 21 on the DU Campus.

Click HERE to register

If you’re interested in learning more about Angel Investing and Venture Capital, you should definitely attend the full Angel Capital Summit.  Tuesday-Wednesday March 21-22 in Denver.

Click HERE for more information and to sign up.

Want to learn more about Rockies Venture Club?  Check us out at www.rockiesventureclub.org

Rockies Venture Club has funded 14 deals in the past year, bringing its portfolio mix to include 55% companies which are female and minority led vs. the national average of just 14.4%. Read more

Finding capital is no easy task. Lots of start-ups struggle early on with where to find the capital they need to bring a great product (or service) to market or to tend to a broken technology in need of some work.  Funding Your Dreams: Calling All Entrepreneurs, a panel at this year’s WILD Summit, covered just this.  Once you’ve determined how much capital you need, how do you put together your fundraising strategy?  Who do you ask for funding and are you offering something in return?  What do you need to know before you start? Read more

10.10.10 is an innovative program that combines 10 wicked problems, 10 prospective CEOs, and 10 days together in Denver. The bigger the problems the bigger the opportunities, and they’re intent on finding the most massive problems out there and empowering CEOs to create solutions. The first program launches in August, 2014 and is the first of its kind. Read more

 

BizGirls CampEvery year Biz Girls gets better and better.  We’ve evolved from the first year’s amazement that the girls could actually complete the program and get their companies live within the tight time limits of the program to this year’s re-branding of the program from “Biz Girls Camp” to “Biz Girls CEO Development Program.”

While the Biz Girls CEO Development Program works on the same values and principles as the “camp”, we’ve raised the bar on what is expected of the girls – and interestingly – they have raised the bar on what is expected of us.  In response to this, we implemented three new parts of the program this year.  We couldn’t have done this without the volunteer effort of Louise Campbell-Blair, who joined us as Biz Girls’ CMO to get our marketing program in place, but who ended up doing much, much more.  The three new programs include a Mentorship program, advanced workshops and sponsorships to help with tuition, allowing us to achieve our diversity goals.

Mentorship Program:  Each girl is given the option to have a mentor who will work with them after the program has completed.  In the past we’ve had challenges with getting continuity and providing a way for the girls to continue their businesses on into the school year.  We’re hoping that by providing a mentor who can give advice, help set realistic goals and monitor progress, will improve the chances that these young companies will continue to grow and thrive well after the summer ends.

Advanced Sessions in Web Design, Pitch Development and SEO.  This year we brought in a number of experts who helped by offering afternoon programs on three of the program days with advanced sessions covering web design, pitch development and marketing the web sites.  The results were amazing.  The pitches this year were great and included full powerpoint presentations.  The web sites were much more sophisticated and filled out with graphics and logos, especially in Boulder where the girls decided in their strategic plan that developing logos was important to them.  And finally, the SEO worked better than anyone had expected with Rachel from casetaste.com getting her first order the day after the program ended!  Rachel ended up on a CBS TV program as a result of her success!

Finally, we added a program for donors to sponsor a Biz Girl.  This was a tremendous success as it allowed us to pursue our objectives for diversity and make sure that no girl was denied a spot in the program because of an inability to come up with the tuition.  Thanks so much to the generous individuals who supported these girls!

For those of you who haven’t been involved, here’s a summary of the companies that we formed this year:

Denver:

Casetaste.com
Denverdusting.com
Tealpoppies.com
Tenniscoachfinder.com
Upcyclethreads.com
Boulder:
Writerslam.com
Bocodesigns.com
hannimals.com
inspiralook.com
fandomcentral.com

Women investors are under-represented in private equity investment and folks are starting to notice. This month the Harvard Business Review posted an article by Sarah Granger about women in angel investing. She notes that there are a number of groups and organizations devoted to getting women more involved. She discusses Pipeline, Golden Seeds, Astia, 500 Startups that are all either entirely focused on women investing and advising or are well-balanced in their gender diversity. That’s great, but it’s rather sad when an organization is newsworthy because they are gender diverse.

The fact is that very few investing/advising groups are gender diverse. This is true in VC firms and also among angel investors playing with their own cash. The Kauffman Foundation has put together a white paper about all about it.

One explanation that I’ve heard many times is that women are too risk averse for private equity and this is why we don’t see more of them in the high tension world we sometimes call “risk capital”. A recent US Trust study of ultra-high net worth individuals found that women are 5% more likely to report feeling nervous while making investment decisions and 8% less likely to feel smart.

Yet, I’m comfortable arguing that risk aversion is not the problem here.

I manage an angel group and I’m a woman. I’ll be the first one to tell you that I get lonely sometimes in investor meetings when I realize that I haven’t seen a woman across the table in what feels like months. I too, have wondered why we don’t have 50% or even 25% women in investor meetings.

At Rockies Venture Club, we have 209 self-identified investors (both angels and VC fund managers) on our mailing list. Only 19 of those are women. A whopping 9% of our investor group is female. Come on ladies, I’m dying out here!

There has been plenty of research that identifies women as wealth holders in the US. In 2005 women held $14 trillion, which was 51.3% of the wealth in the US. By 2007 the value had risen to $19 trillion. Maybe women really are afraid to lose that capital in high-risk early stage investments.

I still don’t think so.

Let me tell you a little about Rockies Venture Club Investor Forum. We are very friendly to the uninitiated accredited investor. In 2012, we did not charge investors a cent to attend meetings, and we don’t require a minimum investment. There is very little barrier to entry to get involved with our group. For a year now, we have had flexible rules to help neophyte investors meet and make friends with experienced investors. In general, the investors who come to the table have made an investment within 6 months. Not ALL of them, mind you. Some are still learning, absorbing, and waiting for their interest to be piqued enough to write the check. But most.

If women are risk averse, then I would expect the women on our list to attend investor meetings and absorb, learn, and wait.

But what really happens is a very different story. RVC women investors don’t behave like you’d expect risk averse people to behave. They invest. Often quickly.

Of the 206 current investors on our mailing list, 44 have attended an investor meeting since August. Eight of those attendees were women. Let me put a finer point on it. I’m saying that over 40% of the women who self-identify as investors on our mailing list physically show up at meetings. The male show-up-rating is only 19%.

It goes farther than that. More than 20% of the women on my list aren’t just showing up to meetings. I know they are ponying up the cash when it comes time to close a round. I don’t have final numbers for the men yet, but using a non-scientific mental survey, I’ll hazard a guess that it’s also around 20%. Roughly, the same percentage of our male and female investors are cutting checks.

Now we aren’t talking about chump change here. Rockies Venture Club Investors have invested at least $6 million this year making us one of the most active angel groups in the country. Final numbers are still coming in and final investments are still closing so the total for 2012 will likely rise closer to $7 or 8 million. Further, we’ve leveraged those dollars so the closed-deal-tally is more than $14.6 million invested in RVC companies this year.

The real difference between the men and women in our group lies in engagement. There are 187 male investors and only 19 female investors who are involved in RVC deeply enough to identify themselves as investors. How many accredited women are on my list who haven’t checked the investor box identifying them (privately) as an investor? Why haven’t they done so?

Frankly, we don’t have enough information to answer that question. They might not know they are legally accredited investors [accreditation means you had an income of $200K last year ($300K if married) and expectations for the same this year OR $1M in assets not including your home].

Some women may choose to invest in a more traditional, public portfolio. Maybe they follow the instructions laid out by their wealth managers who are not allowed to suggest private equity (it’s called ‘selling away’ and it puts wealth managers’ careers at risk). Or perhaps they are giving a substantial amount to non-profit charities for a tax break each year. Maybe fewer women have been involved with start-ups, small business, and fundraising and therefore aren’t even aware of the opportunities of angel investing. I will mention, as a caveat, that some women invest as part of a couple and send their husbands to investor meetings. These women are not being counted in my data since I never see their names on meeting rosters or their faces in the meetings.

One thing is for sure, the women in our group are just as likely to invest at the men. The old standby explanation of risk aversion is simply not describing this scenario. I think it’s time to look deeper to see why women are not engaging in angel communities and private equity at ratios equal to men.

At RVC, we cannot passively allow our investor groups to remain unbalanced. Women make 85% of the purchasing decisions in the US. This accounts for $3.7 trillion in consumer spending and $1.5 trillion in business spending. We run the risk of a disconnect when one demographic is so heavily involved with product purchasing and so uninvolved with the formative years of company development.

To begin balancing the gender scales we have created our own women’s group to invite the female side of our membership to get involved with private equity investing and mentoring. We encourage all accredited investors (even newbees!) to attend an investor meeting and see what we do there. In 2013, we are adding extensive educational content for investors and entrepreneurs to get savvy with private equity investing.