The last year has seen a lot of interest and growth in the social investment market. We now have 20 funds operating in the UK and a global market worth £12bn. But, is impact investing worth all the excitement?

Key to the development of this new market is being able to understand and articulate the difference of this type of investment. This is something we think a lot about at Nesta Impact Investments. We place evidence and evaluation at the heart of our decision making and support to enterprises. Embedding social impact in this way, while making commercial decisions, is no easy feat. Our new report discusses what we’ve learnt from taking this approach over the last two years.

If you’re a charity or social enterprise that’s already working with a social investor, or even if you are thinking of taking on investment, these lessons may be useful. Knowing what an investor will be expecting when it comes to measuring social impact, and what you will need to think about, could help you decide if social investment is right for your organisation.

Get to grips with the problem you are tackling: both for social impact and commercial potential, it is crucial to identify a problem that is not being addressed and understand how you can fill this gap. We look for ventures that know the scale of the problem and how their enterprise will address this. This convinces us a) from an impact perspective that we are tackling an area of unmet need and b) from a commercial perspective that there will be demand for what you are selling.

Think about where you are innovating: innovation is essential when thinking about impact. Are you doing something unique? Are you offering something over and above the status quo? Again, this is an area where we believe there is an overlap between financial and social impact success. If you can offer something new and different, there is likely to be more interest from customers/commissioners. Innovation is also important for social impact as there are many social problems where the status quo evidently hasn’t worked and we need to try new approaches. It is important to consider any research and evidence on which interventions work best for different social problems and incorporate this into your enterprise.

Using impact measurement to avoid mission drift: combining social impact with commerciality can often be a difficult area to navigate. There can be pressure to focus on revenue generating activities that may not wholly align with the organisation’s social mission. We believe that having a clear theory of change for what you are doing and a clear plan for impact can ensure that impact remains core to your strategy.

Be flexible: we have learnt that taking a flexible approach is important when implementing evaluation. For example, Oomph!, a social enterprise delivering exercise and activity programmes in care homes, has tested different ways of measuring the impact they are having on older people. They have learnt about what works and will use this to inform a more rigorous trial when they are ready.

A start-up environment means that social ventures will change and develop as they grow. This poses a challenge for impact measurement as it needs to be flexible enough to allow for innovation but robust enough to meaningfully measure outcomes. This is the same when it comes to charities that often adapt their services in response to the needs of the people they help. Having clear targets and evaluation is important to measure progress, but it is equally important to regularly reflect on whether you are measuring the right thing – especially in an environment where you may need to adapt your services.

We hope our new ‘Learning from practice’ report offers a useful starting point for organisations that are interested in social investment and want to ensure that impact remains at the heart of what they do.

Eibhlin Ni Ogain is insights manager at Nesta Impact Investments

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