What exactly do we mean by impact finance?

Over the past few months I have had the same conversation with founders in climate, healthcare, livelihoods and other underserved markets. It usually arrives as one question. What exactly do I mean by impact?

One founder put it more sharply than most. "Jio revolutionized India by providing internet to people for whom it was previously inaccessible. Isn't that an impact business as well?"

It is a fair question. Answering it properly is also the quickest way I know to explain what impact finance is, and what it is not.

01Was Jio an impact business?

I would not argue with the founder's premise. If cheaper data brought people online who had never had access, that is impact in the everyday sense of the word.

In impact finance, though, the word asks three narrower questions, about the business and the money behind it.

• Was the impact intentional? Was reaching these people the purpose the business was built around, and something it set out to track? Or did it follow from a strategy aimed at something else?
• Was there additionality? Would this impact have happened in the same way without the business or the capital?
• Can the impact be measured? Can the business show, with data and over time, who it reached and what changed for them?

Run Jio through them and the answer is more useful than a plain yes or no.

Only the company can answer the intentionality question honestly. A commercial strategy can do a great deal of good without being designed around it.

Additionality, the way I put it to founders, has two halves. The business half asks whether access would have spread as fast, or as cheaply, without that company. That is where the founder's argument lives, and it is a serious one.

The capital half asks whether the money behind the network needed to be impact money. Patient and concessional capital exist to fill gaps that commercial money leaves. A business that commercial investors will fund at scale, on commercial terms, has no such gap.

Measurability is the easy part only if you stop at counting connections. An impact investor would ask what changed in people's lives because of them.

So my answer to the founder had two parts. Jio may well have had impact, and it has a real case on the business half of additionality. A company that could raise commercial money at that scale did not need the second lane, though, and that makes it a weak impact finance case.

Impact describes what a business did for people. Impact finance is a decision about money.

Sriram adds a fourth test, theme, which asks whether the business sits on a problem funders have agreed matters. He takes all four gates one at a time, including the one founders fail most often.

03Capital with a purpose keeps two scorecards

I think of impact finance as capital with a purpose. The purpose brings its own set of metrics for defining and measuring success.

A venture fund judges an investment on its return. An impact investor judges it on the return and on the outcome it set out to produce. An investment that earns its money and misses its outcome has failed on the investor's own terms.

That is why evidence carries so much weight here. Who did the business reach, and what changed for them? A founder who can answer with data, every year the investor stays in, is speaking the investor's language. Building that evidence is the work of impact measurement.

05The capital exists, so what is missing?

The money is there. What founders often lack is knowing which instruments they qualify for, how to structure the financing journey, and what they need to demonstrate to reach it.

Get the first wrong and a business that qualifies for a guarantee can spend a year pitching equity funds that were never going to fit.

The last is evidence. Funders in this lane ask for an impact thesis, a plain account of what the business changes, for whom, and how it will prove it.