EverFi, Vital Farms and hundreds of exits provide fresh evidence of ‘impact alpha’

ImpactAlpha Editor

Amy Cortese

ImpactAlpha, May 9 – When educational services provider EverFi was acquired by Blackbaud last year for $750 million, TPG Rise roughly doubled its $130 million investment. SJF Ventures portfolio company and public benefit corporation Vital Farms went public in 2020, debuting with a $1.3 billion valuation (it has since come down). New Markets Venture Partners investee Graduation Alliance was acquired by KKR Global Impact in 2020.

Impact funds are racking up exits – and putting to rest any lingering concerns (sigh) about their ability to generate market-rate returns. 

In a new analysis of 230 impact exits drawn from 30 market-rate impact funds, nearly two-thirds met or exceeded their financial performance expectations (42% outperformed, 23% were “at target,” and 35% underperformed expectations). Eight in ten met investor goals for impact. 

The study, “Strengthening Outcomes: Impact and Financial Value at Exit,” by the impact fund association Impact Capital Managers (ICM) and law firm Morrison Foerster, supports a growing body of evidence for so-called “impact alpha,” that impact can be a driver, not a drag, on financial turns. The difference: it takes a close-up look at individual exits, rather than fund-level performance. 

“Today, being loud and proud about impact as being a driver for your strategy opens more LP doors than it closes,” said Marieke Spence of ICM. “I don’t think that would have been the case 10 years ago.” 

ICM’s impact fund members have grown from 75 or so funds two years ago when the study commenced to more than 110 funds representing over $60 billion in impact-focused capital. Thirty ICM funds responded to the survey with detailed data, representing an average of almost 8 exits per fund (ICM acknowledges that the self-reporting could skew the results towards successful exits). 

Despite being highly publicized, impact IPOs such as Vital Farms are still relatively rare – just 8% of the 230 exits involved public offerings. The most common exit is to a strategic buyer (57%), followed by a financial buyer (23%). Ten percent of the exits were categorized as liquidations.

To protect impact through an exit, impact investors and their portfolio companies are turning to a growing array of legal tools. The options range from company structure such as public benefit corps, which embed mission in a corporate charter, to reverse impact diligence, where sellers scrutinize a potential buyers environmental, social and governance practices, to “golden shares” that incorporate “mission equity” in a single share or class of shares with certain protected veto and/or voting rights. 

Impact drivers

The study attempts to identify the most important drivers of financial and impact performance, using criteria established in a 2018 report by ICM and Tideline. Impact fund managers identified the ability to access investment opportunities through mission-aligned networks, deep market expertise and via aligning values with investees as the biggest driver of financial and impact outperformance for 72% of  the exits. SJF Ventures, for example, came across the Vital Farms opportunity through impact investment banking firm Big Path Capital. 

Through a series of case studies, it also details the ways in which values-aligned investors can impact-driven companies grow and thrive. The Rise Fund helped EverFi scale its operations and expand into new markets and areas with potential for impact, including mental health, drug safety, and racial justice. 

And the fund rigorously tracked EverFi’s impact. EverFi grew to reach 13 million students, 2,000 corporate customers and 25,000 schools within its client base during The Rise Fund’s investment period. “I think the important thing with EverFi is everything that the company did was impact-oriented,” says Rise Fund partner Maya Chorengel. The clear and quantifiable results attracted many potential acquirers to the table, including Blackbaud, a socially-focused cloud services provider.  

Employee ownership

Increasingly, employee ownership is seen as a path to social impact – and better performance that comes with an engaged and productive workforce. KKR last year sold C.H.I. Overhead Doors to Nucor for $3 billion, generating KKR’s highest return on invested capital in three decades. CHI’s 800 employees were rewarded, too, with a collective payout of $360 million.

For St. Cloud Capital, a Small Business Investment Company that invests in small and mid-sized businesses, employee ownership a standard part of its investment formula. Employees of its portfolio company Pipeworks, a Eugene, Oregon-based video game developer, saw a 10x return when the company was sold to Sumo Digital in 2021. 

“Even if you’re seeking superior returns, there is a role for employee ownership there,” says ICM’s Spence. “We’re trying to plant that out there as an example to the field of don’t overlook employee ownership as a really powerful tool.” 

As the evidence and track record for impact alpha grows, ICM is seeing growing interest from would-be impact funds, says Spence. “I don’t think we would see that level of interest if people didn’t know that there were LP dollars out there looking to allocate to this strategy.”