Impact and money, an impossible marriage?

It should no longer be necessary to reconcile money and impact. Moreover, our market is more than five years behind that of Europe in terms of the discourse around sustainable finance. It is therefore high time to get to the bottom of the matter in Montreal so that more and more startups choose the path of impact and are already well equipped to measure and report on it.

As Axel Bonaldo, Director of Business Development at Impak, during the last Panel organized on the subject as part of the Impact week 2022: “Let's not wait for regulations, let's move forward.”

An impact startup can make money

Chez Polystyvert, a company specialized in the recycling of polystyrene (a type of plastic that is widely used), money and impact are living together in a positive and profitable way. Solenne Brouard, the founder and head of growth of the company is unequivocal on this subject: “Inevitably, if a business is not successful, it will not have a big impact. This is the reason why if a startup chooses to focus its business plan on impact and if it is successful, wealth will be created. Making money allows a business to be sustainable, it is one of the keys to impact. So they cannot be separated from each other.”

It must be said that Solenne speaks with full knowledge of the facts, since the company, which was created eleven years ago, is now worth several tens of millions of dollars and at the same time contributes to generating very positive impacts on the environment. You can also see her talking about it a bit more in this short video which was presented as a complement to the workshops of the Impact week.

The same goes for Martin Larocque, co-founder of Electrocarbon, a company that contributes significantly to the fight against climate change. It converts carbon dioxide (one of the main greenhouse gases) into value-added chemicals. When the latter makes his sales pitch to investors, he knows his financial equation and knows how to demonstrate the profitability of his product.

His speech is also enhanced by some data from the life cycle analysis that he carried out quite early in the development of his company. He therefore knows, among other things, that for each ton of chemical molecules he designs, he removes the equivalent of 2.15 tons of CO2 from the atmosphere. It thus confirms the viability of its model. It is thanks to this structured approach that he was able to choose investors aligned with his values who have, from the beginning, “the patience to follow the evolution of his business project.”

A changing financial and investment context

The current trend — in the world of finance and investment — suggests that startups go beyond extra-financial data and demonstrate the positive impact on the environment that they generate (or think they will generate). Both when looking for investors, and subsequently, in reporting. Of course, depending on the growth phase of your business, your investors won't ask for the same level of detail. So there will be a difference between the pre-seed, seed, Series A and Series B+ funding rounds.

Moreover, for those who do not know where to start, it could be interesting to look for financial allies through the various networks that exist in Quebec to surround you well. The key is to find a first external investor to support your project. This step allows access to several other non-dilutive sources of financing later on.

You could then go and knock on the door of the various accelerators, such as Cycle Momentum, which will give you access to several resources to structure your project in addition to expanding your network of strategic contacts.

Here are, in a nutshell, other resources to explore depending on the stage of development that applies to your impact startup: SDTC, angel investors (there are almost as many as companies, so you have to meet several to find the one that will fully share your vision), funds specialized in impact such as Blue Vision Capital, Innovobot, especially when supported by money from the public (MEIE Or Investissement Québec) and other non-dilutive financial support programs that exist in our thriving ecosystem such as TechnoClimat.

What approach should you choose to demonstrate the impact of a business?

Although there are no standards for impact ratings for startups yet, Catherine Bérubé, Vice President, Sustainability, Investor Relations and Public Affairs, Cycle Momentum and Cycle Capital suggests: “start small, but start somewhere.”

For startups, starting by evaluating physical data, including avoided emissions, can be a good start before thinking about making a complete shift to an impact strategy. In this regard, it is important to note that not all startups are equal when it comes to integrating impact. Another interesting approach could be to perform a theory of change exercise. This practice, which aims to analyze the cause-and-effect relationships of your business activities, allows you to better understand what you generate, positive and negative, and how you do it.

For businesses that are already established, there are changes to be expected to create impact and meet the new standards that are emerging on the horizon. It could therefore be beneficial to start collecting more comprehensive information. As part of this exercise, you can use several existing resources, such as reading impact reports produced by companies in your sector of activity or consulting lists of potential measures to identify the most relevant to your context, such as those available at Credo Impact, Iris+, SASB Or GRI. Go easy with what's best for your startup stage!

Is it more difficult to make money for an impact startup?

As Solenne said so well, the marriage between impact startups and money is a marriage that is entirely possible and even rewarding and happy. We must consider impact and money as Yin and Yang, complementary elements where each contributes to the growth of the other.

The market is changing, there are more and more investors and businesses today than there were a few years ago. So it gives more choices on both sides. Hard times are a thing of the past, marriage is here to stay.