We developed the Inclusive Capital Partners Impact Value Creation Matrix© (the “Matrix”) to systematically identify and visualize how companies create impact. Due consideration is given to the tradeoffs that exist when trying to steer a company or an industry to a more sustainable and positively impactful path to achieve the desired system change.
The Impact Value Creation Matrix©
The Matrix is a two-by-two chart, with the x-axis representing unit impact, and the y-axis representing scale. The goal for any company or industry is to endeavor to make a rightward and/or upward move within the Matrix, as doing so means creating more unit impact, at greater scale. Understanding the potential for this rightward and/or upward move is essential before we invest in any company.
We use this Matrix as a concise way of communicating the impact thesis for our investments, and to identify how our portfolio companies help their industries or their customers generate impact.
Impact drives valuation
We believe creating and scaling impact drives valuation for companies. As industries move in the right direction within the Matrix, they improve unit impact and help future-proof their business models. Successfully lengthening the duration of cash flows and increasing terminal value can effectively grow earnings multiples.
Impact generation = unit impact × volume.
We consider both unit impact and scale when evaluating the potential and real impact of a core investment.
Direction of movement matters most
Where a company begins within the Matrix is less important than its potential ending point. If a business model demonstrates the ability to move towards system change, then it represents an impact-creation opportunity.