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For more than two decades, pioneers in the field of impact measurement have worked tirelessly to create the tools that investors can use to quantify their positive impact on society. They dreamed of the day when those tools would steer massive amounts of private capital into market-rate funds for social good. Now it’s actually starting to happen.

TPG’s Rise Fund, a $2 billion impact investing fund now reportedly raising an additional $3.5 billion, recently described in Harvard Business Review (HBR), how it is using a new analytical tool called the Impact Multiple of Money (IMM) to make investment decisions. As a leader of The Bridgespan Group’s team that works with Rise on impact underwriting, I live this day in and day out, and I can attest that it’s very real. Here’s what it looks like.

due diligence on Good Intentions

TPG has deal teams around the world that continually hunt for good investments. Once they find something that they want to bring to the investment review committee, we at Bridgespan work alongside the deal team and Y Analytics—a new independent organization Rise recently spun out to help develop impact underwriting tools—to begin impact diligence. The range of ways these companies want to change the world is truly inspiring. Some examples: using insect proteins to substitute for less sustainable protein sources, using drones to deliver medical supplies to remote areas and employing women to sell and repair solar lanterns in “last-mile” locations. Several times a week, Rise sends Bridgespan and Y Analytics information on a new potential deal that intuitively sounds like a win for the world—and investors.

But after the numbers are crunched per the detailed methodology laid out in HBR, sometimes the estimated IMM (a measure of social return on investment) is not high enough for Rise to invest. Perhaps the best available research estimates less impact than one would intuitively infer, or perhaps the impact is high, but the required capital to invest in the company is even higher. When deals like this die, on the surface, it’s sad. But if we pull up and really think about what’s happened, it’s actually unsurprising. Market-rate capitalists who would invest in companies based on anticipated financial returns choose to walk away from a deal because it falls short of attaining desired social or environmental returns. Impact, in short, is influencing capital.

The methodology that Bridgespan and TPG have developed for Rise builds on social return on investment techniques that others have developed for the social sector. IMM translates impact into dollars as a means of getting apples-to-apples results across sectors, putting the metric in the language of the people using it. Other impact investors may choose a different metric upon which to base their decisions. But TPG is large and diverse enough that the only common language of its most senior decision makers is dollars. We have observed first-hand how effective it is to communicate that way. For example, if we tell a Rise deal team that the best research-based estimate of the social value created by an investment is $100 million, they use that estimate it to inform their decision making about how to structure and evaluate a potential investment.

Impact on the Rise

One question we’ve encountered is: Should the IMM estimate, which is laden with assumptions, have that much influence? The way we look at it, the widely used IRR (Internal Rate of Return) metric, which Rise uses to evaluate a deal’s expected financial return, also is driven by assumptions. But it’s nonetheless critical to Rise to have the best possible financial return estimate on the table based on available information, as well as historical experience and lessons learned. Throughout the deal evaluation process, Rise maintains transparency about the assumptions that go into both IRR and IMM, which allows for thoughtful iteration and yields informed investment decisions.

Once Rise has the received the IMM calculation, it has clear decision processes for what will happen with the measurement estimate. In my years of social sector consulting, I’ve been in a lot of situations in which I’ve reported metrics to a leader at a foundation or NGO without a clear understanding of where the report would go or what decisions it would inform. With Rise, the follow-up is not ambiguous. The numbers get put into the packets that go to the TPG Monday morning investment review committee meeting. Every time a deal team presents the financials behind IRR, they also have to present the impact calculation produced by IMM. If the impact return is less than 2.5X (i.e., less than $2.50 for every dollar invested), the committee passes. Deciding how to measure is only important if you decide how you’ll use the result.

In addition to quantifying impact underwriting, Rise has demonstrated, through the creation of Y Analytics, a commitment to continue to advance impact measurement methodology. By grounding their work in research and creating an independent organization to serve others, the fund continues to advance the way people think about integrating impact considerations into their investment process.

Every day I get to watch as the world’s largest impact investing fund uses impact measures to dictate where their capital flows, and it’s pretty amazing. I’m hopeful that this will become less amazing, and more the norm, in the months and years to come.

Stephanie Kater is a partner at the Bridgespan Group’s Boston office. She co-leads the Bridgespan team that works with Y Analytics to evaluate potential Rise investments for impact. 

Image courtesy of eberhard grossgasteiger.