Measuring impact at the end-beneficiary level and the investor’s sphere of influence

Having had the privilege of listening to an impact funding pitch (and discussing it) with one of the MBA-student groups at the Oxford Said Business school last week, the conversation encouragingly centred on the importance of designing an impact measurement system underpinned by a robust Theory of Change (“ToC”), not just at the recipient investee ( or “Company”) level but also at the end-beneficiary level.

The discussion scenario centred on a Fund-of-Funds (“FoF”) structure in Egypt, targeting female-managed-and-owned ventures, and raised the importance of evaluating the sphere of influence of an investor and how indirect impact can be managed and measured at the end-beneficiary level. Asked for practical input on how to do this, I reflected on my female focussed value-chain SME investing and FoF experience, and how to continually exert influence (albeit it on a diminishing basis) to achieve impact. This is shown in the diagram below, as an abridged ToC at the Company (investee) and end-beneficiary (referred to as the “Harvesters” in this example) level: 

Primarily this demonstrates; the further removed the funding is from the control of the investor (and indeed the Company receiving it), the weaker the sphere of influence becomes, to deliver the intended impact (and to measure it) – however the example also positively highlights how actions and incentives that genuinely align, tend to work best to support the delivery of impact, by:

·     linking them directly to the primary business activity e.g. quality assurance, associated knowledge-building and training, adds value to end-beneficiaries by providing them with a differentiated transferable set of skills, which can be applied to similar future companies/employers;

·     relying on natural commercial or cultural structures (e.g. co-operative structures) is one of the best way to facilitate engagement, as these structures are comfortable, known and practical, enabling efficient communication, maximum influence and measurability – as these are often a natural point of aggregation; and

·     thinking about the end-beneficiaries (as part of the ToC) at the outset along with the investee, almost forces the break-down of the business’s value chain into the fundamental inputs, contributing additional rigour and confirmation of supply-chain dynamics. All highly encouraged as part of the due diligence process.

It is worth concluding, as an additional dimension, while the health and well-being of employees is now being placed at the forefront (due to the current pandemic) of most investments, this was not always the case at the time of the above example. In this instance the awareness of the financial pressure created by the exorbitant cost of health care, on employees (credit to the Company in question), as well as the disruption to Company productivity – meant providing health insurance was a win-win scenario to both. This win-win scenario is what ultimately ensures real tangible impact on a continued basis for all stakeholders, and should be applied to any sector or investment theme.