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 in their early stages of growth”. The commitment consists of four actionable steps rooted in investing in underrepresented entrepreneurs and building diverse and inclusive teams. In fact, Kapor Capital notes that its portfolio companies (including Edovo, which is also one of Impact Engine’s portfolio companies) inspired this Commitment by expressing an interest in improving diversity. Now, companies receiving investment from Kapor Capital agree up-front to establish diversity goals, organize volunteer opportunities for employees to engage with underserved communities, and utilize resources and trainings to integrate more inclusive recruitment and hiring policies. Kapor Capital believes that this is more than just a feel-good requirement, but that the more a company values diversity of opinion and background, the more likely this diversity will have a positive impact on the future success of the company.

At Impact Engine, we execute an Impact Commitment as part of each investment. We sign the Commitment along with the founders of the company we are investing in. It confirms our shared belief that positive impact is built into their business, will stay built-in as the company evolves, and will scale as a direct outcome of their business success. The Commitment also includes an agreement by the entrepreneurs to regularly report impact metrics to us: we work together to define those impact metrics in a way that is in line with our hypothesis of the impact that is driven by the business and captured in key performance indicators. For us, the Commitment is a way to confirm for ourselves and the entrepreneurs that impact investing is more than just about feeling good, it’s about being committed to measurable outcomes in addition to profit. This also allows us to track impact across our portfolio and report back to our investors so they know how their investment is driving impact in addition to financial value.

We couldn’t be more excited to see this evolution in term sheets and to continue to learn from what other investors are doing to embrace the discussion of, and commitment to, impact. What other interesting models have you seen? Please share!

Did you like this post? Sign up for our newsletter and we’ll send you the latest impact investing and Impact Engine news each month.