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Impact investment as an innovation method

As an innovation method, impact investment focuses on understanding, quantifying and reporting on the social or environmental impact that comes from an investment decision. Typically, it attracts both individual and institutional investors.

Impact investment helps entrepreneurs to develop new solutions to social problems using a range of sustainable business models.

Our work on impact investment

Nesta has actively used investment as a tool to support innovation since it was first established in 1998. In the late 2000s we saw the potential to innovate in the field of investment itself by playing a leading role in the impact investment movement.

While the idea that investment can be a force for good is not new in itself, the concept of building a deep understanding of the social and environmental implications of investment actions and changing investment strategies based on this understanding has the potential to transform society if applied widely.

Seeing the potential for this idea Nesta published Twenty catalytic investments to grow the social investment market in 2011 - this research looked at how it could be delivered and evidenced. We provided grants to help some of the early market participants get off the ground including Bridges impact foundation and invested in the funds and management companies of emerging impact investors including Big Issue Invest and Bethnal Green Ventures. At the same time, we started making our own direct impact investments through Nesta Impact Investments.

With the support of Big Society Capital and Omidyar Network Nesta launched an £18m investment fund with the core objective to fund the creation of new innovations addressing inequality in the fields of health and wellbeing; education and employability; and the social and environmental sustainability of communities.

To date, Nesta Impact Investments has invested in 13 companies and one social impact bond, spanning the three sectors. Each of these investments aim to achieve a commercial rate of return alongside evidenced positive social impact.

We continue to work with practitioners to develop and test evidence standards for impact investment, while also researching and commenting on major issues in the development of the market. For example, in 2017, our report Setting Our Sights: A strategy for maximising social impact set out to share insights and understanding about the impact of a diverse portfolio and explore how social impact can be embedded into commercial businesses.

Case studies

Oomph! Wellness Limited

Starting in 2016, Nesta Impact Investments made two separate investments to Oomph! Wellness Limited, a company with the impact objective to increase the number of older people enjoying a higher quality of life.

Oomph! provides wellbeing leadership training for care providers, as well as excursion services for care home groups to get elderly residents out and about on regular and meaningful outings.

Since investing in Oomph!, the company has launched a radical new excursion offering for older and vulnerable adults in care, a new minibus service, trained 1,588 staff, delivers 59,575 sessions per year, and is enjoying significant growth in its activity and exercise franchise. The investments are associated with ha 14% improvement in quality of life for beneficiaries as measured by clinical quality assessment tools.

Arbor Education

In 2014, Nesta Impact Investments invested in Arbor Education, a company with the impact objective to improve educational outcomes for children and young people.

Arbor Education helps schools learn from their data by providing data analysis solutions to identify the trends in student performance and areas for improvement. Arbor Education uses the data to develop the relevant workflow tools for teachers to act and improve outcomes. Following a seed-round of investment from Nesta, Arbor’s strong performance, and their development of high quality products, resulted in a 70% increase in the value of the initial investment.

Nesta is privileged to have worked alongside Arbor to design surveys to capture evidence of impact valued by schools and particularly during the intense period of raising their Series A round. Arbor’s CEO, James Weatherill, recently stated “With Nesta we know that we’ve found an investor who can help us scale both our impact and our business simultaneously.

Through collaboration with the central team we’ve turned our impact reporting into a tool of competitive differentiation as well as informing product decisions. As investors, they’ve added huge value to our strategic thinking by lending their analytical skills to analyse market movement, pricing models and win/ loss analysis.

The combination of diverse skills in the team, ethical principles and deep market knowledge helps them really stand out as investors and add value to the companies they support. I can say for one that it’s much appreciated!”.

Nesta tools and resources

Other useful reading material