Guest Articles

August 17

Varad Pande / Twinkle Malhan

From Impact Investing to ‘Impact-First’ Investing: 
Seven Ways Investors Can Take a Holistic Lifecycle Approach to Impact

As the world grapples with complex societal problems ranging from weak health systems to climate change, impact investing is playing an important role in creating an alternative path to addressing them. By intentionally focusing on market-based models that create social impact, impact investing has unlocked new approaches, many of which have scaled and created strong social and financial returns. The Global Impact Investing Network estimates that the industry reached $715 billion in assets under management in 2020.

But one of the critiques of impact investing is that the sector’s focus on impact is not holistic. That is, while most impact investors do a good job of identifying impactful sectors or themes when developing their fund strategy, and most conduct some impact diligence while vetting deals, the focus often stops there. To address this issue, there has been a growing emphasis on the concept of “responsible exits,” – i.e., ensuring that impact investors sell their assets to another “responsible” investor who will continue to focus on the assets’ social impact. However, this is hard to implement in practice, given the often-limited choice of buyers at exit.

We believe that the above efforts, while important, are inadequate. Impact investors can aim higher. They need to take a holistic lifecycle approach to creating and sustaining impact. Based on learnings we’ve gathered from our work at Omidyar Network India (ONI), we propose a seven-point framework that can guide investors in strengthening the impact-centricity of their portfolios. We’ll discuss these seven points below, which fall into three focus areas: sourcing higher-impact deals, supporting investees’ efforts to enhance and sustain their impact, and raising the bar on impact through a regular feedback and learning loop.


Sourcing higher-impact deals

Identifying high-impact opportunities is a natural starting point in an impact investor’s journey. Yet it is often easier said than done. We have found two guiding principles – illustrated below – to be useful in sourcing the most relevant and high-impact deals. 

Point 1 – Ensuring “founder fit”: A clear alignment between the founder’s vision and the investor’s impact thesis is a crucial determinant of success. A transparent dialogue and a clear articulation of this alignment can go a long way in sustaining a shared vision of impact that works for both parties. Based on our experience, there are four specific beliefs on which impact investors should aim to align with founders. These are:

  • The founders are intrinsically motivated to address the underlying societal problem
  • The founders’ goals are aligned with the investor’s impact thesis
  • The founders have a realistic sense of the pathway to achieving their intended impact
  • The founders are receptive to working with the investor to advance their business’ impact

At Omidyar Network India, we have codified our approach to ensuring this alignment as part of our deal diligence process, making clear guiding questions and examples available to deal teams to ascertain mutual alignment on these beliefs, so that they can provide a clear point of view to our investment committees.

Point 2 – Maintaining a high bar on the “impact fit” of deals: It is important to have sharp clarity on what constitutes a “fit” when viewing potential investments from an impact lens, which means the investee’s mission and model should clearly align with the investor’s impact thesis. At ONI, our core target segment is India’s Next Half Billion (NHB), the country’s 500 million first-time (smartphone-led) internet users, who usually come from the bottom 60% of India’s income distribution. We use “serving the NHB” as a touchstone to assess the impact fit of a deal. To make this assessment as objective as possible, we seek to classify deals into the following categories:

  • NHB-Central: This includes businesses built primarily to serve NHB users today. In the ONI portfolio, businesses such as Kaleidofin, MyUpchar, GramCover and Sitara would be examples of NHB-Central models.
  • NHB-Integral: This includes businesses that are mixed income models, which have a fair share of non-NHB (i.e., relatively more affluent) customers today, but which we expect to “go down the income stack” and predominantly serve the NHB in the next 3-5 years. In our portfolio, these businesses range from financial services providers like Indifi and Neogrowth, to ed-tech businesses like Vedantu, and emerging tech businesses like IntrCity and Hexa Health.
  • NHB-Potential: This includes business that will primarily have non-NHB customers. We invest in these only if we are convinced that they can truly shape their sectors – for example, by creating market infrastructure, inspiring new NHB-centric “imitators” or being true impact pioneers in some other way. Our recently exited investment in WhiteHatJr (which pioneered coding for kids in India) or Scripbox (which has pioneered wealth management for the mass market segment, and spurred imitators) are good examples of this category.


Supporting investees’ efforts to enhance and sustain impact

Investors’ strong focus on impact should not be limited to sourcing impactful deals. We believe there is a massive opportunity to work with investees to enhance their impact focus, and we have identified practical ways of doing this, as seen in the following points.

Point 3 – Customer insights and “growth hacking”: Impact investors can offer insight generation and “growth hacking” support to help investees better serve their target segments. These can often be enabled through offerings like Lean Data surveys that really help investees drill down on customer experience, quality of life improvements, etc., and by offering them a roster of growth and customer centricity-focused consultants.

Point 4 – Impact measurement and articulation: Helping investees to measure the impact they are creating and determine how best to articulate their impact thesis can be a powerful tool to inspire founders and teams to double down on impact. We have found that this support from an impact investor is quite appealing to many founders, who possess deep purpose, but are often bogged down by operational realities and find it hard to free up the bandwidth for these activities. ONI offers an impact measurement toolkit to our investees every year, and we go deeper on impact measurement with specific investees where there is an appetite to do so. For example, we are currently working with investees to generate business- and impact-related insights from end-customers based on a new interactive voice response tool. We have also worked with our investees to sharply articulate their impact thesis and put this information out in the public domain.


Raising the bar on impact through regular feedback and learning loops

It’s critical for investors to continuously harness learnings from their portfolios and the broader ecosystem, in order to evolve and enhance their impact centricity. To that end, we have found three practices to be particularly helpful.

Point 5 – Reflect on impact at key milestones, like funding follow-ons and exit: It’s important for investors and their investees to have a formal discussion on the impact journey relative to the impact thesis, and follow-on funding discussions at the end of the funding process provide a good milestone to formalize this. In addition, ONI has recently supported “exit impact assessments” of three of our recently exited businesses. Done by an independent third party, these assessments highlight the impact that was created by our investees, our contribution to this impact and any missed opportunities.

Point 6 – Conduct sector-level impact assessments: In addition to investee-level impact measurement, it is important for systems change- and sector-focused impact investors to step back and take stock of whether and how much they are “moving the needle” on the system or sector as a whole. Working with an independent evaluator and an external advisory group, ONI has recently concluded this exercise for two of our sector-focused portfolios. This has helped us challenge some of our long-held assumptions on our theory of change, and chart a more focused path forward.

Point 7 – Learn from peers and ecosystem partners: The impact investing space is still early in its development, so it is constantly evolving, and no one can claim to have all the answers. That’s why creating regular forums to engage with and learn from other impact investors is critical. ONI has found both the India Impact Investors Council and the Global Impact Investing Network to be very useful forums for this. Experience sharing and collaborative initiatives such as sector landscaping, measurement benchmarking, etc. can be particularly useful to advance the field.

In conclusion, our key learning is that the journey to impact-first investing is a continuous one. If impact investing hopes to deliver on its promise of creating and sustaining large-scale societal impact, there are valuable levers across the investment lifecycle through which investors can keep pushing the envelope. The seven-point framework discussed above provides one approach to taking such a holistic lens.


Varad Pande leads strategy, impact and new initiatives at Omidyar Network India (ONI), and Twinkle Malhan is an MBA student at Oxford Saïd Business School and was part of the Strategy & Impact team at Omidyar Network India (ONI).


Photo courtesy of Akil Mazumder.


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Impact Assessment, Investing
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