Impact and money, an impossible marriage?

Impact and money, an impossible marriage?

by Startup Montréal
20 January 2023

The link between money and impact should no longer be an issue. Our market is more than five years behind Europe’s in terms of sustainable finance discourse. It is therefore high time to get to the bottom of this issue 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, said so well during the last panel organized on the subject during Impact Week 2022: “Let’s not wait for regulations, let’s move forward.”

An impact startup can make money

At Polystyvert, a company that specializes in recycling polystyrene (a widely used type of plastic), money and impact are experiencing a positive and profitable cohabitation. Solenne Brouard, the company’s founder and chief growth officer, is unequivocal on this subject: “Obviously, if a company is not successful, it will not have a great impact. That’s why if a startup makes the choice to focus its business plan on impact and becomes successful, there will be wealth created. Making money allows a company to be sustainable, that’s one of the keys to impact. So it’s not separable from each other.”

It must be said that Solenne speaks with 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 see her talk a little more about it in this short video presented as a complement to the Impact Week workshops.

Martin Larocque, co-founder of Electrocarbon, a company that contributes significantly to the fight against climate change, agrees. It converts carbon dioxide (one of the main greenhouse gases) into value-added chemicals. When he makes his sales pitch to investors, he knows his financial equation and how to demonstrate the profitability of his product.
His speech is enhanced by some of the data from the life cycle analysis that he conducted early on in the development of his company. He 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. This confirms the viability of his model. It is thanks to this structured approach that he was able to choose investors aligned with his values who have, from the beginning, “had the patience to follow the evolution of his business project.”

A changing financial and investment environment

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 generate). Both when looking for investors, and afterwards, in the reporting process. Obviously, depending on your company’s growth phase, your investors will not ask you for the same level of detail. There will be a difference between pre-seed, seed, Series A and Series B+ rounds of financing.

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 you to have access to several other sources of non-dilutive financing later on.

You could then knock on the door of 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 a few other resources to explore depending on the stage of development of your impact startup: SDTC, angel investors (there are almost as many as there are companies, so you need to meet with several to find the one who will fully share your vision), specialized impact funds such as Blue Vision Capital, Innovobot, especially when they are backed by public money (MEIE or Investissement Québec) and other non-dilutive financial support programs that exist in our effervescent ecosystem such as Technoclimat.

What approach should you choose to demonstrate a company’s impact?

While there are no standards for impact scoring among 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 hard data, including avoided emissions can be a good start before thinking about making a full shift to an impact strategy. It’s important to note in this regard that not all startups are equal when it comes to integrating impact. Another interesting approach could be to conduct a theory of change exercise. This practice, which aims to analyze the cause-and-effect relationships of your company’s activities, provides a better understanding of what you are generating positive and negative and how you are doing it.

For established companies, there are changes to be made to create impact and meet new standards on the horizon. It may therefore be beneficial to begin a more comprehensive information gathering exercise. As part of this exercise, you can use a number of existing resources, such as reading impact reports produced by companies in your industry or consulting lists of potential measures to identify the most relevant to your context, such as those available from Credo Impact, Iris+, SASB or GRI. Take it easy with what is most appropriate for your startup’s stage.

Is it harder to make money for an impact startup?

As Solenne said so well, the marriage between impact startup and money is a very possible and even rewarding and happy marriage. Impact and money should be considered 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 companies today than a few years ago. This gives more choices on both sides. The hard times are history, the marriage is here to stay.