What is an impact thesis and how to form one 👉 for new investors, even if you know nothing about impact

I will try to explain very simply what this very important tool is and how you can use it.

Forming your impact thesis will help you focus your investment efforts, time and money where it matters most for you. It will not only help you, but also the companies that approach you, even if you do not invest in them.

Unfortunately, most investors start their journey without one and lose a lot time, and sometimes money.

Your impact thesis will focus you on what matters

An impact thesis, put very simply, as the articulation of what you like.

There can be several dimensions to it. Once you articulate what you like, you will be able to seek the opportunities in the right places, avoid losing your time (and wasting others) where it does not matter for you, and hone in your due diligence skills.

You will then make investments that matter to you and to which you can contribute with more than just your money.

Here are some of the dimensions and criteria that might help you get started:

• Any particular one of the 17 Sustainable Development Goals that matter to you? Do you care about clean energy, reducing poverty, early childhood health, education?
• Geography. Do you like to create impact where you are? Are you place based investor or do you like to solve global problems? Or where problems are most acute?
• Your risk/return appetite. Do you like early stage companies which may carry higher risks but potentially higher returns? Do you care more about impact and would settle for less than market returns?
• Time horizon. Are you after a quick exit? If then you need to go after later stage companies. Or are you part of the “patient capital movement”, where the impact return motivates you.

There are many other criteria you can develop. The ideal is to have a balance so you know what you want, but you don’t crowd out all the opportunities out there.

And remember, if you are an early stage investor, a very critical rule for success is sufficient diversification.

Your impact thesis will evolve over time.

As you invest, you will learn more about what’s out there and what excites you. The journey will fine-tune your criteria, and that’s ok. Eventually, maybe you will form your own Theory of Change, a topic for another essay, in which you will articulate how your approach to investment will bring about your intended and desired impact and financial results.

Starting somewhere is important, and forming your impact thesis is a great place to do just that.

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