Questions to ask before making an Impact Investment

The questions vary depending on the specific interests and priorities of each impact investor, but they generally revolve around understanding the startup’s mission, impact measurement, scalability, financial viability, risks, partnerships, and accountability.

Here are some questions you may ask:

1. What is the mission and purpose of the startup? Investors need to understand the company’s core values and the specific social or environmental issue it aims to address.

2. What is the potential impact of the startup’s product or service? Investors need to know how the company’s offerings can contribute to positive change and create meaningful social or environmental benefits.

3. How does the startup measure and track its impact? Investors are interested in understanding the metrics and methodologies used by the company to assess and report its impact. They want to ensure the startup has a rigorous and transparent impact measurement framework in place.

4. What is the size of the target market and the growth potential? Investors need to evaluate the market opportunity and scalability of the startup’s impact. They want to understand if the company has the potential to reach a large number of people or create significant environmental improvements.

5. What is the business model and revenue generation strategy? Impact investors need to know how the startup plans to generate sustainable financial returns while delivering positive social or environmental outcomes. They want to assess the viability and long-term sustainability of the business.

6. Who are the key stakeholders and partners involved? Investors are interested in understanding the startup’s network of stakeholders, including customers, beneficiaries, suppliers, and strategic partners. They want to evaluate the company’s ability to collaborate and create synergies with relevant organizations.

7. What are the potential risks and challenges in achieving impact? Investors need to identify potential obstacles that may hinder the startup’s ability to achieve its intended impact. They seek to understand the company’s risk mitigation strategies and the management team’s ability to navigate these challenges.

8. What is the exit strategy for the investor? Impact investors often seek to understand the startup’s plans for future liquidity events, such as an IPO or acquisition, to ensure they can eventually realize financial returns on their investment.

9. How does the startup ensure accountability and transparency? Investors need to know how the company ensures accountability to its impact goals, stakeholders, and investors. They may inquire about governance structures, board of directors structure, impact reporting, and the company’s commitment to ethical practices.

10. Has the startup received any third-party certifications or recognition for its impact? Investors may be interested in knowing if the startup has obtained certifications or awards from reputable organizations that validate its impact claims. This can provide additional assurance and credibility.

These are the questions that SWAN digs into before investing. SWAN makes a first investment in 6 to 8 companies per year. A team of 10 volunteers publishes a twenty -page deal memo for each investment opportunity. Joining SWAN as an Angel or Associate member and helping with a deal memo is a great way to learn how to assess an impact-startup investment opportunity.

Impact Assessment, YES! ESG Assessment, not yet!

The SWAN Impact Network now has a Director of Impact reporting, Meagan Packard. Meagan is doing a wonderful job of advancing our Network’s understanding of how to assess and document the impact potential of a company before our angels invest. She is also coaching companies on how to measure impact in ways that creates actionable information that helps the CEOs to maximize the impact delivered.

Meagan pointed me to a well-written article that supports what I have been saying for years. SWAN  focuses on impact investing, and not on ESG (Environmental, Social, and Governance). Impact investing comsiders a company’s business primary product or service offering. ESG considers how the company’s operations interact with society and the environment.

You can read more in the Stanford Social Innovation Review at ESG is Not Impact Investing and Impact Investing Is Not ESG.

Weathering the Uncertain Investment Environment

A Perspective from Bob’s Desk.
Executive Director, SWAN Impact Network

Likely you have seen headlines, such as the Wired article, “The Bad Times are coming for Startups”. The article starts with these words, “Last week, the employees of Cameo, a startup that sells personalized videos from celebrities, gathered for an all-hands meeting. The news was not good: Nearly a quarter of the staff was being laid off.” And the article goes on to say, “Soaring valuations and booming IPOs made startups seem like a safe bet, inspiring hundreds of new venture funds. Now, the party seems to be over.”

Concerns about the economy (inflation, possible recession, delayed IPOs) are causing VC to give their portfolio companies tough-love advice. “Cut spending. Conserve cash.” These words are a complete turn-around from the Silicon Valley message to companies: “Grow as quickly as possible to create or disrupt a market. Gain market share by raising and spending as much as possible and don’t worry about getting profitable.”

This shift in mindset influences how we, who are most often the first investors in pre-seed companies, should think about investing.

How should early-stage startups think about all of this?
Starting a company during a time of economic uncertainty has a number of advantages. Fewer startups are created, so competition in your niche market may lesson. Hiring becomes less difficult when other companies have layoffs or hiring freezes. Service providers need to shore up revenue, and may be more accessible. And most importantly, when the economic outlook improves, which it always does, the VCs will have fewer companies at your stage of development to invest in, since your class of startups will be smaller.

How should early-stage angel investors think about all of this?
Since we think of a five-to-seven year window for return, companies starting today should exit in a much stronger economic environment. We should continue our search for promising companies. And we should place a greater emphasis on cash-efficient companies. And, we should require first closing investment amounts to be sufficient to carry the company for two years. Can the company make solid business progress in two years with limited funds? And we will need to work diligently at syndication to help the companies to get to the first close amount.

What sets SWAN apart

The SWAN Impact Network has earned a reputation for performing high-quality due diligence before we invest. And writing comprehensive deal memos is made easier for each contributor when a team comes together to work collaboratively. The team approach supports one of our key values, educating our members. Working on deal memos is immensely educational, especially for angels new to investing.

Here are some statistics:

  1. Over half of our current SWAN members have helped write a detailed deal memo
  2. One-in-five of our current SWAN members have been a deal lead and managed the writing of a deal memo
  3. For our two most recent investments, each effort had five first-time diligence contributors and a first-time deal lead, who were ably educated and supported by our more experienced investors.


Our Network’s 2020 in Review

From the Desk of Juan Thurman, Director, SWAN Impact Network

The SWAN Impact Network started 2020 excited about the year. We put forth aggressive goals and plans to achieve them. We had our first quarterly pitch dinner in person in February on the campus of St. Edwards’s University. They were great hosts and we had 3 interesting pitches, a good dinner, and a vigorous exchange of ideas.

The Impact of Covid

Then the pandemic hit. Like most, we were caught flat footed and at first did not know how to react. Then our Executive Director, Bob Bridge, and our amazing board snapped into action. We moved all our events online and in April offered a webinar, attended by 200 investors and entrepreneurs, that addressed investing during the pandemic.

Then, most importantly, we reached out to all our portfolio companies to see how they were impacted by the pandemic and if they needed help. We had productive, if difficult, discussions. Those conversations led to four of our portfolio companies receiving a follow-on investment to help them weather the covid-related economic crisis.

We found our footing mid-year and adjusted. We experienced a slowdown in Q2 that leaked into Q3. Fewer entrepreneurs applied and investors were more conservative with their capital, but we moved forward confident that things would get better and that impact investing is even more important now. The upside was that geography became less of an issue and we had more out of state and international applicants than ever before. In that spirit, our Angels selected and funded 3 new companies in 2020. And we are now, in January, funding two companies that began due diligence in 2020.

Our Good News in 2020

2020 had its share of silver linings and for that we are grateful to our angels, sponsors, entrepreneurs, associate members, interns, and the greater impact community. We ended 2020 with nearly 60 angels and having invested over $6M in social impact companies since our inception in 2015.

Some of our portfolio companies were able to raise venture capital in 2020 and one merged with a larger company. All our portfolio companies that went into the pandemic with trepidation have come out stronger and more resilient.

We have added board members and associates keeping diversity and inclusion in mind. Speaking of diversity and inclusion, we have added a chapter in Dallas and a new Executive Director, Heather Gilker, to run it. We are excited about SWAN in the big D.

Looking toward an Exciting 2021

We are off to a fast start in 2021. In January we are investing a total of over $1M in two companies from our 2020 funding cycles. And we are in the middle of our Q1 down selection process and will invite 3 promising impact startups to pitch to the network on February 11th.

We are also rebranding the network and have done a complete overhaul of our website. Southwest Angel Network has served us well, but as we continue to expand and see deals from of all over the US, we have decided to rebrand as the SWAN Impact Network.

Lastly, we have launched the SWAN Impact Fund. The fund will work alongside the network and invest in later stage deals focused on health tech and clean energy. Please keep an eye out for a more formal announcement in the coming months.

If you have impact investing in your 2021 plans or are interested in learning more please visit our website, and connect.

2020 Follow on Investments:
OneSeventeen Media
Family Plan

2020 Initial Investments
Don’t Get Mad Get Paid


What Angels are saying about Impact Investing

Thinking about becoming an impact investor? Are your thoughts and questions the same or different from others? What are they saying?

The Southwest Angel Network recently conducted a survey regarding what makes impact investing attractive and what holds back a decision to become an impact investor.

Here is what we learned.

Why SWAN angels joined SWAN

Survey Question: When you were personally considering joining SWAN what were the top two most compelling factors that most attracted you?

Survey Answers: For SWAN angels, by far the biggest appeal was a desire to make a positive impact on the world. Secondly, many of the angels had no prior angel investing experience and wanted to learn about investing. SWAN is structured to provide that education.

What potential angels liked about SWAN

Survey Question: When our SWAN angels have introduced SWAN to other potential angels, what are the ideas that most strongly resonate?

Answer: Just like the folks who have joined, potential angels like our impact mission, and the ability to learn about angel investing.

What holds people back from becoming Impact Angels

Survey Question: We asked our angels what their pre-joining concerns were and also what concerns they heard when introducing SWAN to potential angels.

Survey Answers: The primary concerns were the amount of investment dollars required , the amount of time required and their lack of experience in angel investing.

The good news is that SWAN assumes that new angels have no startup investment experience. We encourage new SWAN angels to not start investing until they have benefited from our educational webinars and have observed how our experienced angels think about assessing investment risks during our down-selection and due diligence processes.

Further, SWAN does not have a required minimum investment amount. Rather, we suggest that angels think top-down about how much of their assets they are willing to put into Impact investing, and then determine how to use that budget to build a portfolio of 20 investments over a period of years.

And typical of the 80/20 rule, some of our angels enjoy spending significant time advancing the mission of SWAN. And for others, the perfectly reasonable commitment of time is attending our quarterly pitch events, and reading the due diligence reports that SWAN has produced as the final step before we ask angels if they would like to invest in a company that has made it through our rigorous evaluation process.

A Perspective on Prospering in Uncertain Economic Times

I have been around startup companies for 35 years and have experienced both good and bad economic cycles. We have  now entered uncertain times.

That said, from a company’s point of view, a financial down turn can be a good time to create an early-stage  start-up.

  1. There will be fewer competitors of your same vintage, which can help lesson competition in the marketplace and with investors. This advantage persists over time. As the economy recovers from a downturn, companies will see fewer other companies at their specific stage of fund-raising. Said another way, when your company becomes a teenager, there will not be many teenagers around vying for attention.
  2. Operating costs often get more reasonable (e.g., lower cost of office space)
  3. It can be easier to bring on early employees (who may have been laid off)

And from personal experience, I know that a down turn is a really difficult time to for a company to raise a many million-dollar, later-stage VC round. During the 2008 recession, I had to sell my company at a loss to the investors because I could not raise a $12M series C round.

For investors, capital-efficient, pre-seed companies who can get by for a few years on minimal dollars suddenly looking pretty interesting. And the current environment means that pre-money valuations and valuation caps will be more attractive. The balance of power has shifted somewhat toward investors.

Working to Have a Positive Impact on Society

From the Desk of Bob Bridge

Our network thinks about impact in two ways.

Supporting Impact Companies

An important impact goal for our network is funding companies that are working to address serious societal challenges, such as improving education or healthcare outcomes or protecting the environment, or empowering or improving the lives of disadvantaged people.

We look for companies whose primary business mission is clearly focused on having an impact, and where the impact is not a secondary result or a sideline.

We ask the companies for as much evidence as possible that their product or service offerings actually do have a measurable impact and goes beyond “isn’t that a nice idea”.

Supporting Under-represented Founders

It is natural for me, and all of us, to feel most comfortable around others who are most like ourselves and to feel at home in an environment similar to the environment in which we were raised.

As a result, when those with wealth and power, the overclass, all belong to one demographic group, wealth and power tend to get easily shared with others in that group. Such sharing is a natural result and does not necessarily reflect a deliberate strategy to be exclusive or limiting.

Those who possess wealth and power may not have experienced the day-to-day and life-long challenges faced by the underclass, and it easy for the overclass to assume that the same rules that allowed the overclass to be successful in life will allow anyone to achieve similar success. That is not how it normally works for the underclass.

Our network believes that all individuals should have the support needed to reach their full potential. We recognize that glass ceilings exit, and sometimes even concrete ceilings exist and that all entrepreneurs need to be treated with respect and provided encouragement. We welcome under-represented founders into a thoughtful and constructive discussion about their business.

By diversity, we think of those who have historically been disadvantaged in terms of receiving funding, possibly because they are women or people of color. We strive to support startup teams with under-represented C-level founders.

Diversity is neither required nor sufficient to receive funding from us. That said, half of our funding to date has been to teams with an under-represented C-level founder.

And we think about supporting diversity more broadly than just funding companies. For example, we mentor Title 1 high school students in entrepreneurship by partnering with the Greater Austin Hispanic Chamber of Commerce Superstar program, and we provide a college scholarship to a student in that annual program.

“Efficacy” is my new favorite, social-impact word

From the desk of Bob Bridge.

Efficacy is defined as “the ability to produce a desired or intended result”.

It is often used to describe the effectiveness of pharmaceuticals. Does this drug demonstrate the expected impact on a certain disease? And is the drug effective in a large percentage of the treated patients?

The Southwest Angel Network, which focuses on social impact companies, sees many companies who are working earnestly and diligently to address significant societal or environmental challenges. The questions that I ask of the companies include, “Can you provide evidence of the impact-efficacy of your product or service?” and “What is the magnitude of your impact on society?”

For example, most of us would agree that early STEM education for under-represented populations is beneficial to society. Such training should increase the lifetime earning of those under-represented individuals who are today under-represented in technology fields. And technology companies should benefit from having a larger and more under-represented employee pool to draw from.

Consider a company that comes to us waving the STEM impact flag. They state that their STEM education lab tools are significantly cheaper than those of their competitors, and so our network should fund them. Our requests include:

  • Please show us evidence that your product offering has a higher efficacy in terms of improving educational outcomes compared to competing products. When a market segment has many competing products to choose from, what is the impact on educational outcomes of adding one more product to the mix?
  • One requirement for having a significant impact on STEM educational outcomes is being able to have a company’s offering adopted by the largest possible number of classrooms. So please show us evidence that your sales plan has efficacy in terms of penetrating the tough-to-sell-to-education market.

Consider a company that comes to us and states that they can reduce prescription medication prices for low-income individuals, allowing millions of individuals to pay for the medications that they need. What a wonderful idea! The efficacy question is, “Can you reduce the prices far enough to actually enable significantly more people to pay for their meds?”

Consider a company that comes to us and states that they can improve financial security in retirement for people who are today in their 50s. They accomplish this by offering a comprehensive and well-thought-out online retirement planning tool. Efficacy questions include:

  • Do you have evidence that your tools change the spending, savings, and/or investment behaviors of your tool users? Without a change in behavior, there is no societal impact.
  • Consumers today have a wide range of retirement products and services available to them. Can you demonstrate that your tools have higher efficacy than the plethora of competing options in terms of improving financial retirement outcomes?
  • After you have demonstrated that your tools have high efficacy, can you now please describe the efficacy of your go-to-market plan? If not many folks use your tools the overall social-impact is small.

Bob Bridge, Executive Director

My Path to Social Impact Investing

From the desk of Juan Thurman:

I have always been interested in Science and Technology.  As a boy, one of my favorite authors was Isaac Asimov.  He told fantastic, page turning stories based on what science and technology could one day make possible (and some that has come to pass, even in Asimov’s life time).  Of course, the technology was super cool, but more importantly it improved humanity.  His robots did the dangerous/hard/mundane tasks humans no longer wanted to do.  Self- driving cars were just one part of the automated transportation infrastructure, solar energy check and of course space travel was available to most.

This interest has led me to a fascinating and fulfilling career.  From my first job engineering, designing and testing off- road vehicles to make sure their large tires protected sensitive environments like the permafrost; to more recently, leading a team of dedicated professionals selling communication solutions that powered the creation of apps to help depressed patients feel connected,enable municipalities to alert citizens of harmful weather events and more.    Most of my career has been in technology sales, bringing education, innovation and efficiency to businesses that needed them.  Yes, many deals were straight forward and only lead to incremental cost savings.  But, the deals that I found most interesting and motivating were those that made people’s lives better.  I can still remember talking to an entrepreneur who asked if he could use cloud communications to better schedule home health aids or another who was connecting teachers, parents and students.

Recently, like many of you through happenstance and luck, I was re-evaluating my career and goals.  So, I reached out to a number of people that I admire and respect and had some great conversations.  (I encourage you to do the same from time to time).  One of the people I spoke to was Bob Bridge, Executive Director at Southwest Angel Network (SWAN).  He told me about SWAN and the amazing social impact companies that they have funded.  He then invited me to their next pitch dinner and after listening to companies working to reduce food waste, ensure the elderly get to their medical appointments on time, and improve the quality of our drinking water, I joined as an Angel.  I have had the opportunity to learn from some great Angels, mentors and supporters as well as some amazing and interesting entrepreneurs.

So when Bob, asked if I would formally help him run and grow SWAN, I of course said yes.  There are a great number of entrepreneurs out there who not only want to start a new company, grow that company and become profitable, but also want to positively impact this world we all share.  They need our help.  That means access to capital, mentoring, guidance and support.  Bob, has started an important, vibrant and growing angel network.  I hope to help grow the network and support more entrepreneurs who want to make the world better and drive outstanding returns.

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