Impacting investing: trends, issues and capabilities
The European Venture Philanthropy Association (EVPA) has recently published A Practical Guide to Measuring and Managing Impact (the “Guide”), a hands-on manual providing guidance to social investors who want to measure their own impact as well as that of the organisations they support. Claudia Leißner, Project Manager of Auridis, a German venture philanthropy organisation investing in early childhood development, and a member of the Impact Measurement expert group which provided input for the Guide, explains how they measure and manage impact and how the Guide helps them to do that.
As a venture philanthropy foundation supporting organisations focusing on early-childhood development, at Auridis we are aware of the difficulty in measuring any immediate impact, as the effect of our investments can only be seen some time later.
Indeed, when we started out we just talked with potential investees about their impact and basically took their assessment at face value without really using the full potential of that information. Yet, over time, we have become much more focused on ensuring that impact is at the heart of our investment management process, a point that is emphasised and practical suggestions provided on how to do so in the Practical Guide to Measuring and Managing Impact published by EVPA.
The Guide provides an easy to understand and implement process for measuring impact, focused on 5 steps (step 1 - setting objectives, step 2 – analysing stakeholders, step 3 – measuring results, step 4 – verifying & valuing impact, step 5 – monitoring & reporting) that reflect what social investors and the organisations they support can and should be doing in practice.
The 5-step process of impact measurement
For Auridis, impact assessment starts with the investee: we are trying to understand what they are doing, what are their goals and how are they planning to achieve them? In the early stages of an investment, as part of the due diligence process, a large number of our questions are focused on impact. As we work with organisations in the business development phase, we expand on what is included in the Social Reporting Standard (a standard form for reporting on social activities, which Auridis and other organisations in Germany have developed) to ensure the organisations are thinking about impact as well as the stakeholders who effect or are affected by their activities as they build and develop their business models; a process that is effectively encompassed in step 1 – setting objectives and step 2 – analysing stakeholders. The Guide encourages social investors to manage impact by integrating impact measurement into the investment management process.
This means that when we get to step 3 – measuring results, the selected indicators are based on a shared “impact logic” that assesses what has been done so far to solve the problem and how the organisation is adding value. We try not to specify in too much detail what indicators an organisation should use as we are convinced that the organisations know this better than we do. We track output indicators for each individual investee, such as how many children, families or kindergartens have been reached, and the number of federal states the organisation has been scaled up to. This investee-focused approach to impact measurement, however, means that we cannot meaningfully aggregate the results to measure the impact of the overall portfolio level, since that would be a bit like comparing apples with pears.
We also pay a large amount of attention to the information management systems in place (as emphasised in step 5 – monitoring & reporting of the Guide), providing support where necessary, so that relevant data can be collected, analysed and used for organisational learning purposes. That way, investee organisations can “close the loop” and learn from the information they have collected so as to increase impact.
Impact measurement also cuts both ways. We believe it is important to understand how an investee perceives the support we provide, so we can amend and adjust it as relevant. To do this we ask the investees to assess our support through a survey run by an external consultant. Questions include how much investees value financial and non-financial support, how they experience the business development phase, and what fears they have of Auridis leaving them. We try to keep the questionnaire lean though, keeping it to a half-hour interview and conducting it every other year. This is in line with step 4 – verifying & valuing impact, which reinforces the concept that this step should be carried out at the level of the social investor’s impact on the organisation they support as well as cross checking the impact of the supported organisation.
The EVPA Guide distils and structures a multitude of experiences, tools and methodologies into a “hands-on” and “how-to” manual. Participating in this project has helped Auridis improve our own impact measurement systems. We will also be using the Guide to teach our portfolio organisations to understand better how to measure impact and incorporate it into business processes.