Evaluating impact potential in early-stage impact investing: Investment criteria and cognitive processes of investors

Peter Vandor, Fabian Dober, Michael Meyer and Reinhard Millner

Journal of Business Venturing Insights, 2025, vol. 23, issue C

Abstract: Impact investing has experienced rapid growth in recent years, with a share of capital directed toward social enterprises that aim to generate both financial returns and social impact. For investors, evaluating the anticipated impact of a venture is a critical part of the selection process. Yet, little is known about how impact investors form these ex-ante assessments. Drawing on verbal protocol analysis of 58 real-world selection processes, we identify 18 distinct cognitive processes investors use to assess social impact potential. Our findings show that, rather than relying on structured or theory-based assessment methods, investors frequently use heuristics. This suggests that bounded rationality plays a central role in impact evaluation, raising questions about the assumed rigor of impact investing practices.

Keywords: Impact investing; Bounded rationality; Decision making; Impact measurement (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jobuve:v:23:y:2025:i:c:s2352673425000228

DOI: 10.1016/j.jbvi.2025.e00535

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