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We 💖 Flyover Country

By Jessica Droste Yagan

In past blog posts, we’ve written about the next generation of social entrepreneurs in Chicago, why impact entrepreneurship is thriving in Chicago, and the newest players on the Chicago impact scene. published a piece recently that said when it comes to social entrepreneurship and building companies with the intention of a greater good, there’s no better place to be than Chicago. Still, we get a lot of questions from investors on the coasts about why we’re based in “flyover country” — as if it’s a disadvantage.

Actually, it’s a point of pride and advantage. Being in Chicago doesn’t prevent us from investing in coastal entrepreneurs (who make up 39% of our current portfolio and, in several cases, held rounds open for us because they valued our participation as a member of their investment syndicate). But we also see a lot of startup companies in between the coasts led by great entrepreneurs with innovative and impactful business models, that get overlooked by investors on the coasts. We think being here means we get the best of both worlds.

We’re always happy to remind people why we love being based where we are.

Booming Tech

Over the last decade, the middle of the country has cultivated a community of thriving tech entrepreneurs and startups. We’ve seen the startup scene transform Chicago, bringing excitement and optimism, renewing our creative culture, and inspiring innovation. As Yazin Akkawi recently wrote, “the entrepreneurial spirit in Chicago has never been more alive…Chicago attracts get-shit-done, no-nonsense leaders.” Steve Case agrees with us: […]

By |July 12, 2017|
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Impact Tech Opportunity Series (Pt. 1): Economic Empowerment

By Tasha Seitz and Elizabeth Coston

As active impact investors, we’ve had the privilege of meeting hundreds of entrepreneurs doing incredible work across each of our four areas of focus: education, health, economic empowerment and resource efficiency. We’ve learned a lot about what opportunities exist to leverage technology for good and how various companies are solving these problems. As we approach our five year anniversary, we thought it would be valuable to share some of our observations with the broader impact investing field. This overview of what we’ve seen in economic empowerment is the first of what will be a four-part monthly series where we will cover each of our focus areas in turn.

We have identified five broad themes in economic empowerment.

Access to Jobs

One of the biggest issues we’ve noticed is a gap in the middle skills labor market, which requires education beyond high school but not a four-year degree. Candidates are being left behind, while some companies struggle to fill positions due to a mismatch of need and talent. Millions of Americans struggle to find jobs that meet their skill sets and only 25% of high school graduates feel they have the skills needed in the workplace. 98% of CEOs identify the skills gap as an urgent concern to business. In a market where $72B is spent on recruiting, $55B is spent on continuing education, $475B is spent on higher education, and $164B is funneled into corporate training, there is a huge opportunity for startups to address the skills gap.

We’ve seen many startups using technology to identify core competencies for job roles, to test candidates, and to provide learning modules […]

By |June 28, 2017|
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What Does 100% Impact Look Like?

By Jessica Droste Yagan

Last month, Impact Engine hosted breakfast with Richard Muller of Toniic Network, a global action community for impact investors from over 22 countries. Muller shared results from the T100 Project, a multi-year study of the portfolios of Toniic Network members who are committed to investing 100% of their portfolio for impact. The T100 project came out of a need for quantitative and qualitative data as a way to inspire and enable others to accelerate their impact investing journeys as well as to demonstrate a growing market for impact products and services. To date the group has deployed $2.6 billion of $4 billion committed to impact. The study reveals new insights from over 50 portfolios and highlights the various paths towards 100% impact (to read the entire report, click here). Below we’ve shared key takeaways from the report and answer the question: what does 100% impact look like?

100% impact portfolios are achievable today.

Early findings from 51 Toniic portfolios committed to 100% impact are promising: impact investments making up an average of 64% of all portfolios, with one-third of portfolios with over 90% deployed into impact. These impact investments include 36% thematic investments (see below), 19% sustainable investments (investments integrating environmental, social and governance factors into the decision-making process) and 9% responsible investments (investments screened for conflicts or inconsistencies with personal or organizational values, codes of practice, or other impact performance criteria). For thematic investments, Toniic shows the breakdown of the following impact areas on average across portfolios, including 32% environment, 12% poverty alleviation, 9% financial system, and 7% health.

100% impact portfolios can be constructed across all asset classes.

Another […]

By |June 1, 2017|
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Chicago: The Homegrown Impact Investing Hub

This article originally appeared in Social Innovations Journal: Issue 33 Chicago Edition on April 24, 2017.

From early conversations in 2011 to the deployment of our $10 million impact fund today, Impact Engine has grown and evolved in parallel with the companies in our portfolio driving innovation and impact. Today, we operate as a venture fund that invests financial and human capital in early-stage, for-profit technology businesses improving education, health, economic empowerment and resource efficiency. Our fund is backed by a group of engaged, like-minded impact investors who support our expanding portfolio of impact companies. Our strength is in our dedicated, supportive and engaged community of impact entrepreneurs and impact investors in Chicago. We’ve shared our journey here in the hopes that other communities may learn from our path.

At Impact Engine, we have worked over the past several years to build a market for impact investing around these two firm beliefs: (1) there are many talented entrepreneurs using for-profit business models to tackle social and environmental challenges that are also large, profitable market opportunities, and (2) there are a growing number of individuals that are realizing the power of their investment dollars and seeking to direct that power toward positive social and environmental outcomes at scale. We have approached this journey with a learning mindset, an openness to change, and a lot of scrappiness.

Our founders, Linda Darragh, then Director of Entrepreneurship at the University of Chicago’s Booth School of Business, and Jamie Jones, who was leading the social entrepreneurship program at Northwestern University’s Kellogg […]

By |May 31, 2017|
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Philanthropy as Risk Capital: How Foundations are Supporting Impactful Startups

By Tasha Seitz

For those of you interested in how foundations are thinking about impact investing, we highly recommend checking out the Mission Possible Series from Stanford Social Innovation Review, a 10-week series that recently concluded with the announcement that the Ford Foundation will commit $1 billion from its endowment to impact investing. Many leading foundations are thinking about their funding as having the potential to play a catalytic role in providing risk capital, allowing organizations to gather “proof points” and attract other types of capital. This is true of across all types of impact investing, including the very early stage. In the words of Clara Miller, President of the Heron Foundation and a pioneer in impact investing, “success requires a chorus rather than a soloist,” and in that spirit we wanted to share ways that our portfolio companies have benefited from philanthropic capital.

Grants for Product Development

Most foundations will provide grants that award money to support the development of a specific tool or product. Unfortunately, most still limit applicants to 501(c)3 organizations, but some are branching out to support for-profit social entrepreneurs. ThinkCERCA, a member of Impact Engine’s portfolio, was awarded a $250k grant from the Bill & Melinda Gates Foundation through the Literacy Courseware Challenge. This initiative awarded $6 million to 29 organizations focused on building tools to help students in grades 4 through 8 improve their reading and writing skills. ThinkCERCA was already building an online platform for creating personalized critical thinking lessons and utilized the grant money towards expanding their online resource and lesson library. In this case, ThinkCERCA’s mission and pre-existing software platform was well aligned with the […]

By |May 1, 2017|
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Please Communicate With Your Investors!

By Jessica Droste Yagan

Many entrepreneurs don’t prioritize communicating with their investors… and that’s a mistake. At Impact Engine, we know how important the investor-entrepreneur relationship is. We have our own investors in our fund, dozens of investments in portfolio companies, and have supported many entrepreneurs in managing relationships with their other investors. We also know that when investors are out of the loop, they can get disengaged or frustrated. When something inevitably goes wrong in your business, investors will be more skeptical about your ability to handle it, and less likely to re-invest. On the upside, when investors are in the loop and engaged, they can add a lot more value. Many investors will go out of their way to help if they know what you need.

We’ve observed some best practices in investor communications that we thought would be valuable to share. If you’re an investor, you could share this with CEOs that may not be communicating well. If you’re an entrepreneur, we hope you can take something valuable from this and use it to your advantage.

Err on the side of transparency (at a high level).

While there really are no rules about what should be included in an investor update, there are definitely some key pieces of information that you should be communicating. First, always include the quantitative metrics that actually drive your business. Information like bookings, revenues, customer engagement, and customer retention (depending on your business) are required. Generally, there’s no need to include level of cash flow and runway with those outside of your board, but you should give investors a heads up if you will need to […]

By |May 1, 2017|
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Measuring Impact for Social Entrepreneurs

By Tasha Seitz

Financial investors weigh risk, return and liquidity in their investment decisions; impact investors weigh all of these factors, plus impact. Intentionality and measurement are fundamental aspects that define impact investing, yet impact measurement is an extremely difficult challenge.

Impact can be defined in many ways, and different investors may have very different goals and interests. Some types of impact may be “easy” to measure (i.e. how much have unbanked or underbanked customers saved by using this fintech service vs. incumbent solutions?); others much more difficult (i.e. how has this advocacy platform influenced public policy?). Counting “lives touched” is unsatisfying, yet the cost of conducting randomized control trials that serve as the “gold standard” for measurement can be lengthy and prohibitively expensive. And given the variety in the types of impact across a portfolio, and across funds, how do you “roll up” impact measurement in any kind of meaningful way?

The challenges are many, and measurement has been an important discussion in the field of impact investing for many years. In a recent articlein the London School of Economics Business Review, Brian Trelstad, Partner at Bridges US, argues that impact management — articulation of an investor’s impact objectives — is an important precursor to effective measurement.

At Impact Engine, we sit down with entrepreneurs during our due diligence process to talk about the impact they hope to achieve, the target populations they want to serve, and how they might measure and report on the impact they’re having, both now and in the future. We often see a […]

By |April 4, 2017|
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Impact Due Diligence: The Questions We Ask

By Elizabeth Coston

Impact Engine’s Chief Investment Officer Tasha Seitz recently wrote about the evolution of term sheets and the growing trend of investors requiring alignment of values or commitment to specific impacts. We ask entrepreneurs to sign a mutual commitment to impact, which comes towards the end of the investment process, but we also integrate an impact “deep dive” earlier in our due diligence process. In addition to alignment with our core areas of focus, we evaluate specific criteria to make sure each company we invest in is making a sustainable, lasting impact in its designated impact area. We’ve outlined a few of the questions we ask of ourselves and of prospective companies below.

+ How aligned is the impact with our core areas of focus where we believe we can make the best judgments and provide the most support?​Our focus is in education, health, resource efficiency and economic empowerment. When selecting our portfolio companies, we want to make sure we have the experience, resources and connections to provide valuable, effective support for the entrepreneurs we invest in, so alignment is key.

+ How “baked into” the business model is the impact? We make sure that impact is an integral part of each company’s product or service offering, so that impact grows hand in hand with revenue. We want the impact to be very difficult to decouple from the business, and highly likely to survive a corporate acquisition. This means that we do not invest in “buy one give one” models, where revenue generation is separate from […]

By |April 4, 2017|
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Can Financial Advisors Embrace Impact?

Impact Engine has been fortunate to work with a lot of first-time impact investors. While we may be their first introduction to impact investing, we very much want to support them in doing more, and often share content or host events meant to introduce them to the range of possibilities across asset classes and impacts.

Unfortunately, because impact investing is not (yet) broadly embraced, investors can find it challenging to get started by working with their financial advisors. While some advisors are strong advocates for impact investing and very knowledgeable, many are not jumping up and down to help, either because they don’t know what to do or don’t want to do it, or both. If you’re not one of the lucky few who has great support from your advisor, here are three approaches that we’ve seen work.

Convince your advisor to learn.

While not all financial advisors understand or offer impact investing options, some of them will put in the effort to learn if you push hard enough. If they are willing to make the effort, you may want to be patient and be a partner in exploring with them: you could learn together and perhaps create even more impact by supporting the development of expertise and products that could then be offered to other clients, thus moving even more assets in the direction of positive impact. If you want to go this route, try showing them why it’s in their interest or that it’s been around long enough to demonstrate competitive financial returns. Once they’ve indicated they might try, you could share articles like “How Wealth Advisors Can Facilitate Impact Investments” […]

By |February 28, 2017|
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The Future of Term Sheets

For those of you less familiar with the venture capital world, a term sheet is a document detailing agreed-upon terms under which an individual or firm will invest in a startup. Traditionally, this document describes the economics of the deal, control provisions, information rights and provisions for investor liquidity. Today, as investors and entrepreneurs are increasingly interested in the social and environmental impacts of their businesses, we are seeing the term sheet evolve in parallel. In particular, we are starting to see investors requiring alignment of values or commitment to specific impacts.

In January, Obvious Ventures announced its “World Positive Term Sheet”, a concerted effort to help entrepreneurs articulate their values so entrepreneurs and investors are aligned and those values can drive business decisions. This term sheet challenges entrepreneurs to describe their companies’ policies in four main categories: core values; diversity, equity & inclusion; sustainability; and pledging & giving. While each term sheet will be tailored to the individual company, Obvious Ventures emphasizes the need for companies to outline specific statements for each category. For example, will your company create an equitable corporate structure or become a B Corp? Can your product or service be manufactured more sustainably? What are your company’s policies on recruiting for diversity or equitable benefits for maternity/paternity leave? The World Positive Term Sheet is an important anchor for companies, and a way to root business practices in values and ethics that can serve as a litmus test for both entrepreneurs and investors down the road.

A year ago, Kapor Capital launched the Founder’s Commitment, a “road map for startups to create a culture of diversity and inclusion […]

By |February 27, 2017|

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