A VC’s culture and set-up is important in determining whether or not they’ve really bought into the idea of impact and can authentically sustain it.
At Ananda, it’s important to us that we are fully aligned with our founders and their missions. We’ve gone one step further and directly linked our carried interest (the amount of money we take after returns to investors) not only to financial goals, but also to quantifiable impact achievements of the companies we work with.
In simple terms, this means we help companies to set up impact KPIs and related targets. If they don’t make their targets, we don’t see our carry. This mechanism avoids conflicts of interest between mission-based impact and financial performance because the VC’s return is tied to both. (If you want to know more about this method, look it up at EIF — it’s something we co-developed with them back in 2014 and is now widely used.)
The impact targets are set between the portfolio company and Ananda and approved by our Impact Advisory Committee. These targets reflect exactly what level of impact we want to have achieved at time of exit. And in full alignment with the financial performance, the impact performance counts at time of exit as well.
We are as mission-driven as our founders. We make their impact targets our own.
A look under the hood
We have set impact hurdles for our carry: we only begin to see our carry if at least 60% of the impact target values across our portfolio are reached. Above 60% the carry scales in line with the percentage of the target values reached. Above 80%, we potentially see 100% of the carry, but only if the financial return is also right. Being fully aligned with our founders means that reaching impact targets alone is not enough for us. This way, we are maximising both in lockstep, the impact and the financial success of the company.
Our fund achievements
With over a decade of impact investing under our belts, we can also show how this translates into practice:
With Fund II we overachieved on our impact targets (impact multiple > 1). This is an important milestone to us. Fund II has been the first fund in Europe linking impact and carry so we are especially proud to show that theory holds up in real life. Fund III is currently closer to the middle of the fund life cycle and on a good trajectory towards achieving the impact goals as well. To increase the understanding of impact multiples along fund life cycles, we have included the multiple for Fund IV. As we are still at the beginning of the fund, the available data is limited.