In the past three years working as the Director of Impact for Pomona Impact, it has been my personal mission to take on the task of creating an impact measurement system for our investments. When I first started back in 2015, it seemed like the impact investing and social entrepreneurship fields were exploding, with lots of excitement around creating impact using a profit-minded model - the best of both worlds some said in terms of the development field. I saw the challenge in creating a system that would be useful both to us, as well as our entrepreneurs - measuring impact so we could be transparent about what we were creating through our investments, as well as help our entrepreneurs to measure the impact they were creating directly through their product or service. But I also realized through this experience that while impact investing and social entrepreneurship may not be that new in a historical sense, measuring the impact created in this industry certainly was. This realization led to a desire to continue to learn how to improve not only our own systems on measuring impact but also my own personal growth and understanding of the topic. I have now started interviewing major players in the impact field to get their perspectives on a variety of themes related to impact, starting with the basic question of “how are we measuring impact and how can we improve as a sector in terms of being transparent in the impact we are creating.”
I was able to sit down with one of the managing partners of Wakami Guatemala, now having exited the company and starting her own investment fund, Ligia Chinchilla, to talk about how we are measuring impact in this field as opposed to the non-profit or international development field that I was part of before joining the Pomona Team. I wanted to get her insights after working in the development sector for many years, helping to manage a hybrid model business, as well as her new transition to being an impact fund manager. Ligia and I first started talking about this topic of impact creation when we worked together on the Nexo VIVA project, which comes out of the VIVA IDEA organization in Costa Rica, a type of think tank, research-based organization that aims to build up thought leadership in the impact space. Ligia and I were both selected to be “professors” as part of a larger effort to train entrepreneurs how to think more socially from the beginning of starting their business. We have trained over 50 social entrepreneurs (Ligia has trained even more), during their annual retreat in November for the VIVA IDEA entrepreneurship program, on topics ranging from mission building and alignment to impact investing, and different investment instruments and structures. This training got us talking about how much impact is really created in this field and how do we really know, as investors and as social entrepreneurs, that we are creating positive, sustainable impact? The following text is a shorter version of the longer conversation we have started and I hope there will be many more opportunities to continue speaking on this topic. I have translated it for this English version of the blog post and I have reworded and paraphrased when needed:
“I feel like when we are talking about the different sectors, private/public, NGOS and businesses, that there is very little rigor when we look at the impact that can be proved that each sector/business is creating because measuring and analyzing impact is expensive - both in terms of resources, methodology, as well as in time and overall knowledge of how to do it. Impact takes a lot of time to create - in terms of moving from creating results to actually creating impact. When I used to work at Wakami, it was very difficult to say what the impact we were creating really was in terms of the long-term impact of changing lives. There were a lot people (mostly women) who would enter and leave our programs all the time because they didn’t want to work with us until we could prove to them that our model worked as a sustainable way to make a livelihood. This made it very difficult to measure impact and on top of that, we had to measure everything by hand until we got a donation to buy a program that helped us to collect and analyze that data. But this program, which ended up being extremely useful to use, was very expensive and we wouldn’t have been able to use it if we hadn’t gotten a donation for it. Then there’s the personnel costs you have to take into consideration in terms of who is collecting this data, and then organizing it and analyzing it and reporting on it. And in the end, we can’t say for sure what the overall, long-term, sustainable impact is just based on the data, because the impact we are aiming for is a cultural and behavioral shift - which can take generations to see the real impact of our work.
In my role now as a fund manager, I try to measure impact in terms of the mission of each entrepreneur and see what their overall passion and desire is in terms of creating and scaling their venture. They have to see the importance and the value of measuring the impact they want to create, because if they don’t have that passion and drive to create impact, they will only measure to report, not to actually create impact. This drive to create and measure impact has to come from them and not because a donor or investor is asking that information of them. A lot of people think (here in Latin America) that you have to have money to create impact, like being a philanthropist, and they don’t know a lot about how impact is created, how to measure it, and are a little afraid to talk about it. People know how to determine whether something is economically strong and creating a return but in terms of social/environmental impact, they have no idea. That’s why it’s so important for me as an investor that the entrepreneur show their desire and passion for creating impact and has that as a focal point of their business model - that it’s linked with measuring impact because they want to know if they are creating impact or not.”
Ligia echoes the thoughts that a lot of other fund managers and social entrepreneurs have voiced in conversations I have had with them over the years. In my role at Pomona Impact, one of the ways I have tried to address this balance of creating social impact vs financial return through our impact measurement framework and having one on one conversations with all potential and actual investees. One of the most important foundations for us at Pomona was to ensure that every metric we collected from our entrepreneurs linked directly to the impact goals we had for the fund. Thereforet we would be using this data to make decisions as well as use metrics that would also be useful and important for the entrepreneurs to measure their own success and growth of impact. We work one on one with all of our investees to ensure that they understand the importance of measuring impact and using that data to create a story of how they are working towards changing lives through the product or service that they are selling. We review our metrics system annually to ensure that it is the most up-to-date tool we can be using, and that all the metrics we are collecting are still relevant in terms of overall goals for the fund and the sectors we are or are aiming to invest in. This flexibility allows us to shift our reporting requirements to adapt to the new enterprise we find and invest in so no one entrepreneur becomes burdened with reporting on data they will never use and simply collects to report to us. These one-on-one conversations with entrepreneurs as well as internal Pomona team debates on impact are critical for keeping impact systems alive and fluid to evolve with the growth of the fund.