Information Flow: Essentials of Venture Capital Fund Reporting [Part III]

Note: This article is the last in an ongoing series on venture fund formation and management. To learn more about managing a fund, download this free eBook today Venture Capital: A Practical Guide or purchase a hard copy desk reference at

Impact fund reports and KPIsIn Part I of this article we discussed the importance (and legal requirement) of reporting for early stage funds and what information a fund manager needs to properly track performance. In Part II we addressed the most critical metrics used to measure performance, what information should be included when sending reports to LPs, and how to best communicate with investors. But how are impact funds different? In Part III we'll focus specifically on social impact investor metrics and what information partners need to effectively track performance.

Social Impact investors are interested in more than just financial results. What are some of the Key Performance Indicators (KPIs) that you see tracked?

Social impact funds have a more complicated reporting challenge than traditional venture funds. Impact investing is an approach, currently enjoying growing recognition and interest, that questions whether the traditional direct philanthropy and grant-making approach is actually the best or only way to affect social good. Impact investing instead looks to leverage “fund” and “investment” paradigms with pooled assets, active managers and reinvested returns as the vehicle for change. This approach is notably different in that it seeks to use some of the financial returns to subsidize the goals of the cause in the future, which can provide significant additional leverage compared to “one and done” grant-making.

Obviously, impact LPs are looking for non-financial kinds of returns. Yet, they often view the financial returns as very important as well - in some cases because they are unwilling to forgo the financial gains and in other cases because they view the financial success as the key to the fund’s governance and discipline, and they think it magnifies the long-term reach, might and sustainability over time. So, in addition to reporting on many or all of the traditional financial reporting metrics discussed above, the managers of social impact funds have to come up with measures of performance that allow them to account for their non-financial social impact performance as well.  

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There are at least as many different kinds of impact measures as there are social causes. Ultimately, each fund GP is going to have to come up with a measurement framework that fits the social goal they are tracking and resonates enough with their potential LPs. In an attempt to boil down the sea of potential social metrics, one influential paper (published by both Harvard Business Review and Stanford Social Innovation Review) attempts to group measurement approaches into four broad categories: expected returns methods, theory of change methods, mission alignment methods and experimental methods. Here is an overview of the differences between those measures, quoted from the Stanford paper, but abbreviated for clarity:


Expected return methods weigh the anticipated benefits of an investment against its costs; social return on investment (SROI), in particular, provides a framework to calculate an investment’s present social value of impact compared to the value of inputs. For example, the Robin Hood Foundation’s benefit-cost ratio (BCR) estimates the poverty-fighting benefits of a program compared to the costs to the foundation in order to determine which grants would yield high impact. Robin Hood computes its BCR on an ongoing basis, and during the re-investment or re-granting process it may increase investment in programs with high BCRs... 


Theory of change methods outline the intended process for achieving social impact, often using a logic model, a tool that maps the linkages between input, activities, output, outcomes, and ultimately impact. When estimating impact, [the team] uses a logic model to identify assumptions in an intervention’s theory of change that may need further review (for example, would x output really translate into y outcome?). Logic models also help assess impact risk, the factors that could jeopardize the expected social impact of an intervention...


Mission alignment methods measure the execution of strategy against the project’s mission and end goals over time, using rubrics such as scorecards to monitor and manage key performance metrics on operational performance, organizational effectiveness, finances, and social value. Meaningful analysis often compares current key performance indicators to a historical baseline, to an original forecast, or to those of industry peers...


Experimental and quasi-experimental methods are after-the-fact evaluations that use randomized control trials or other counterfactual approaches to determine the impact of an intervention compared to the situation if the intervention had not taken place. Where possible, [the team draws on] data from previous studies when assessing a new potential investment’s impact risk. Various social impact bonds have also employed quasi-experimental and experimental methods to evaluate a program’s impact, which determines the financial return on investment.”


Ultimately, whatever set of impact metrics you chose should be clearly highlighted in your fundraising materials so that it is clear to LPs that financial returns are not the only, or possibly not the top, goals of your fund. And you are going to have to work extra hard to come up with a quarterly and annual reporting template which conveys a massive array of complex measures in a balanced and comprehensive way. Not a task for the faint-hearted!   

If you have made it this far, you have begun to develop an appreciation for the ins and outs of the venture capital industry. This is not a job that just anyone can waltz quickly into. Even if only to raise money, let alone to be successful, an aspiring fund manager is going to need to develop a fund strategy that speaks to their skills and reach, as well as to the particular market moment. And that will include a fund design and target investment that is appropriate for the size of the fund.

Fundraising will be the next challenge an aspiring fund manager will face, and this long, grueling and inefficient process is often where many would-be fund managers get off the bus. There is tons of money out there looking for active investment managers, but there is also lots of competition and transparency, so new fund managers are going to need to bring something pretty compelling to the table if they plan to raise serious money. To be realistic, it is almost impossible to raise a fund if you do not already have some kind of track record investing in the intended space, or an entrepreneurial track record of delivering significant start-up success.

If you do succeed in collecting a pile of money to manage, you are going to have to wade through a fairly significant process of legal and accounting to set up the fund and on-board your LPs.  And you are going to have to build a fairly rigorous reporting regime if you plan to stay in the industry. Not only does reporting help you maintain the necessary level of rigor, it allows you to culture happy LPs who might consider re-investing with you in your next fund.

Once you get your fund up and running, you and your GP team are going to be close to sprinting through a fairly demanding and multidimensional job. You need the skills and contacts to fill a large funnel of excellent opportunities, the analytical abilities to sift and winnow them down into a manageable number of investable opportunities, the attention to detail to negotiate deal terms which represent a fair allocation of the myriad risks and significant upsides associated with this asset class, and finally you need the temperament, knowledge and skills to help your investments navigate the roller coaster ride that is the startup journey.

And you’ll need to keep that sprinting pace up for a long time before you see any of the fruits that the VC fund model has to offer. In fact, stamina and patience won’t be the only essential ingredients; you will also need to be able to live off of a very modest income while you are waiting for your fund(s) to mature. In most cases a career VC will need to begin raising their next fund just as they get their prior fund to the one-third mark. That means the successful VC manager will often be raising a fund, investing a fund, tending to one or more funds and their holdings, all while reporting to LPs on each of them. This is demanding work to be sure, but also some of the most interesting and rewarding work people with the right temperament and skill set can do. Thanks for reading and best of luck to you on your fund journey!

Want to learn more about managing a fund? Download this free eBook today Venture Capital: A Practical Guide or purchase a hard copy desk reference at