Core Innovation Capital measures the social impact of its portfolio in three broad categories: quality, scale, and alignment.
Quality captures the degree to which the portfolio generates impactful outcomes for individuals. Quality is divided into three measures: value created per user per month, the level to which portfolio companies are connected to external impact stakeholders, and an assessment of the each portfolio company's social impact traction and potential.
Scale captures the number of individuals benefiting from portfolio companies and how well the portfolio is serving Core's target demographic of indiviudals in the bottom three quintiles of income.
Alignment captures the depth of connection between each portfolio company's business model and its social impact and the degree to which portfolio companies are actively monitoring their social impact.
For each measure, the portfolio is assigned a score. Each measure and category is assigned a weight according to Core's priorities in order to calculate an overall score for the portfolio.
Core's impact measurement approach can be summarized by the following table:
* Compass Principles is a proprietary rating system developed by the Financial Health Network, the leading nonprofit organization dedicated to cultivating and highlighting financially responsible products, in order to articulate the essential components of high-quality financial products.
Quality captures the degree to which the portfolio is generating impactful outcomes for individuals.
Value creation is measured as the cost savings, wealth creation, or risk mitigation provided to a portfolio company's users. Measuring value creation is highly specific to each company, and therefore requires a deep understanding of the business model of each portfolio company. However, there is a general process to be followed. First, the cost, wealth benefit, or risk mitigation of the portfolio company is approximated by a dollar value on a per active user basis. Then, the next best alternative product in the market is identified as a benchmark. The cost, wealth benefit, or risk mitigation of the benchmark product is approximated by a dollar value on a per active user basis. Finally, the cost, wealth benefit, or risk mitigation of the benchmark is compared to that of the portfolio company to arrive at that value creation for the portfolio company.
For companies being evaluated based on cost savings, measurement usually entails simply comparing the cost of the company's product to the cost of the most similar alternative product available. For example, the cost savings of a lender may be calculated by comparing the average interest rate of the lender to its nearest competitor offering similarly structured loans.
For companies being evaluated based on wealth creation, measurement usually entails calculating the value of wealth created by using the product and comparing it to the user's most likely alternative, which is often simply the absence of the product. For example, the wealth creation of a product enabling access to a new asset class may be calculated by comparing the new rate of return available to consumers to the likely rate of return without using the product.
For companies being evaluated based on risk mitigation, measurement usually entails comparing the cost of the company's product to the probability weighted cost incurred by not using the product. For example, the risk mitigation value of a home insurance company may involve comparing the cost of the home insurance premium to the probability weighted cost of being uninsured and incurring a loss on one's home.
The portfolio is assigned a score for each form of measurement. The overall monthly savings per user of the portfolio is calculated by weighting each company's result according to the size of its customer base. The value is calculated according to the following formula, where i represents each company being evaluated based on cost savings:
Savings Per User Per Month = summation(Savings Per User Per Monthi * Individuals Servedi)/summation(Individuals Servedi)
The portfolio is assigned a Portfolio Cost Savings Score according to the following schedule:
For each company being measured by wealth creation, scoring is determined by materiality buckets. Materiality is defined as the company's ability to facilitate 2% in new wealth creation per user relative to average user income. Each company being evaluated based on wealth creation is assigned a Wealth Creation Score according to the following schedule:
The Portfolio Wealth Creation Score is then calculated as the average score across all portfolio companies with available data.
For each company being measured by risk mitigation, scores are once again determined by materiality buckets. Materiality is defined as the company's ability to facilitate a 2% improvement in risk mitigation per user relative to the average user income. Each company being evaluated based on risk mitigation is assigned a Risk Mitigation Score according to the following schedule:
The Portfolio Risk Mitigation Score is then calculated as the average score across all portfolio companies with available data.
Finally, the portfolio is assigned a Portfolio Value Creation Score by weighting each type of score according to the number of portfolio companies being measured by that method:
Portfolio Value Creation Score = (Portfolio Cost Savings Score * Number of Cost Savings Companies + Portfolio Wealth Creation Score * Number of Wealth Creation Companies + Portfolio Risk Mitigation Score * Number of Risk Mitigation Companies)/Total Number of Portfolio Companies with Available Data
Impact stakeholders are individuals or entities that are connected to the company that have an explicit focus on social impact. Each company is assigned an Impact Stakeholders Score according to the following schedule:
The Portfolio Impact Stakeholders Score is then calculated as the average score across all portfolio companies with available data.
Impact traction is the degree to which a company has already demonstrated its ability to create positive change or its potential to do so. Companies are assessed by the Financial Health Network across four categories of financial health: spend, save, borrow, and plan.
Spend is evaluated according to the impact on spending as a portion of income and the impact on one's ability to pay bills on time.
Save is evaluated according to the impact on liquid savings, the impact on long-term savings, and the degree to which the solution is scalable.
Borrow is evaluated according to the impact on one's ability to handle their debt load, the impact on one's credit score, and the degree to which the impact is enduring.
Plan is evaluated according to the impact on insurance coverage, the impact on financing planning, and the degree to which the impact is enduring.
Each portfolio company is assigned a score for each of these categories according to the following schedule:
The company is also given a traction score based on the maturity of the business, according to the following schedule:
The Impact Traction Score for each company is calculated by averaging the spend, save, borrow, plan, and traction scores.
The Portfolio Impact Traction Score is then calculated as the average score across all portfolio companies with available data.
Scale captures the number of individuals benefiting from a company's operations and how well the company is serving Core's target demographic of indiviudals in the bottom three quintiles of income.
In order to measure the scale dimension of impact, the total number of active users must be identified. Active users should be those individuals or entities that are currently participating in the company's business and reflect the same unit used to calculate value creation per user from the value creation stage.
Individual companies do not receive a score for this measure. Instead, the active users from all portfolio companies are summed to calculate the total active users of the entire portfolio, assuming no customer duplication. The total number of active users identified is then compared to a previously determined active user goal for the portfolio. The portfolio is then assigned a Portfolio Individuals Served Score according to the following schedule:
After identifying the size of the portfolio's active user base, the percentage of users in each income quintile is determined according to the buckets published by the US Census Bureau. Attributing the user base by income quintile can be difficult. Often the best approach is to use approximations provided by each company or to make assumptions based on each company's user geography or other demographics. Once the percentage of users in each income quintile is determined across the entire portfolio, the portfolio is assigned a Portfolio Target Demographic Score according to the following schedule:
Alignment captures the depth of connection between a company's business model and its social impact and the degree to which a company is actively monitoring its social impact.
For each portfolio company, if the venture has three or more years of available revenue and savings per user data, the correlation between annual savings per customer and annual revenue is calculated using all years of available data. The company is assigned a Revenue-to-Savings Correlation Score according to the following schedule:
The Portfolio Revenue-to-Savings Correlation Score is then calculated as the average score across all portfolio companies with available data.
If the necessary three years of data is not available to calculate the correlation, the company is assigned a score of 1-10 for each of the Financial Health Network's Compass Principles: embrace inclusion, build trust, promote success, create opportunity. The company is also assigned an impact probability by the Financial Health Network. Each of these companies is assigned a Compass Principles Score by averaging the Compass Principles scores and mutiplying by the impact probability.
The Portfolio Compass Principles Score is then calculated as the average score across all portfolio companies with available data.
Finally, the portfolio is assigned a Portfolio Business Model Correlation Score by weighting each type of score according to the number of portfolio companies being measured by that method:
Portfolio Business Model Correlation Score = (Portfolio Revenue-to-Savings Correlation Score * Number of Revenue-to-Savings Correlation Companies + Portfolio Compass Principles Score * Number of Compass Principles Companies)/Total Number of Portfolio Companies with Available Data
Each portfolio company is assigned a Impact KPI Score of 0 or 10 according to whether it actively monitors at least one impact KPI.
The portfolio is then assigned a Portfolio Impact KPI Score by averaging the scores across all portfolio companies with available data.
Through the processes described above, the portfolio is assigned a score for each of the measures described in the Introduction. Once all of these scores have been calculated, category scores can be assigned for the portfolio.
It is important to note that certain scores are allowed to exceed 10 to allow performance beyond expectations to balance with opportunities for improvement.
The portfolio is assigned a Portfolio Quality Score according to the following formula:
Portfolio Quality Score = Portfolio Value Creation Score * 0.33 + Portfolio Impact Stakeholders Score * 0.33 + Portfolio Impact Traction Score * 0.33
The portfolio is assigned a Portfolio Scale Score according to the following formula:
Portfolio Scale Score = Portfolio Individuals Served Score * 0.5 + Portfolio Target Demographic Score * 0.5
The portfolio is assigned an Portfolio Alignment Score according to the following formula:
Portfolio Alignment Score = Portfolio Business Model Correlation Score * 0.5 + Portfolio Impact KPI Score * 0.5
The portfolio is assigned an overall Portfolio Impact Score according to the following formula:
Portfolio Impact Score = Portfolio Quality Score * 0.4 + Portfolio Scale Score * 0.4 + Portfolio Alignment Score * 0.2
Data for exited companies is carried over from the last year it was included in the portfolio, without an increase or decrease. It is unreasonable to take credit any impact growth that occurs after an exit, yet it is also unreasonable to assume the company is no longer creating impact. Exited companies are judged in Value Creation and Scale but not in any of the other measures.
Companies that are too nascent to meaningfully assess or those whose business model precludes measuring quantifiable value creation are excluded.
Companies in which the ownership stake is not enough to solicit information or to be influential are excluded.