Evaluating Early Stage Companies: Part 5 - Meaningful Impact

The 5 M’s of evaluating early stage companies are Management, Market, Metrics, Moat, and Meaningful Impact. 

Today, a shallow dive into Meaningful Impact…

For me, impact means impact on the environment, climate change, emissions reduction, etc. For others, impact could be about health outcomes, education, equality, and more.

I am NOT going to go into exactly how I measure the climate change and CO2 impact of early stage startups as I have yet to develop a consistent framework across companies. Additionally, for early stage companies, measurement can be difficult and a burden on the company when they are trying to make their first hires, find product market fit, and more.

When it comes to impact, the key questions I ask are:

• Is impact core to the company’s mission and product and is that enduring? Or, are there scenarios that you could see the market pulling the company away from impactful work and the founders not standing firm? I need to believe that impact is not only core to the mission, but also that the founders will remain committed to impact as they scale. 

• At scale, what % of the company’s business will be creating impact? This answer does not have to be 100%, but it should be a material portion of the company’s revenues at scale, at least 20-25%. 

• If the business isn’t 100% impactful, is the impact portion of their revenues as profitable or more profitable than the non-impact portion? I don’t want to see the impactful segment being a loss leader or significantly lagging in unit economics, because it will likely be the first thing to go if times get tough.

• As I develop a consistent framework for measuring CO2 impact, I’ll add the following question, which will allow me to easily compare companies to one another. Directionally, what is the CO2 impact per $1M of revenue and gross margin? I want to see businesses that can tie impact to BOTH revenues and profits. This will improve the prospects of the company both (a) becoming large and profitable and (b) making an outsized impact.

At the earliest stages, the answers to these questions will not be precise. An estimate is sufficient and, more importantly, ensuring that the founders are thinking about these questions is critical.

That wraps up the 5 M’s of evaluating early stage companies: Management, Market, Metrics, Moat, and Meaningful Impact.