Impact Investment Assessment methodology for Early-stage Start-up Investment Screening

Abstract

Over the next five years, Indonesia is expected to absorb an estimated USD 23 billion in impact investments which could be materialized in the form of a Public-Private Partnership (PPP), and one of the beneficiaries of foreign investment is a start-up company. It is estimated that Indonesia will create thousands of potential start-ups that will disrupt the economy of Indonesia. As a developing country brimming with high potential growth, among its vast youth population, there are millions of entrepreneurs with brilliant ideas that may benefit not only themselves but also society.[13] One of the steps for investing in impact investment is screening and scoring the ESG and SDG Alignment using standardized and tested methods created by accredited international institutions. Start-ups that are still in the early-stage phase are rather very difficult to be assessed using the currently available global standard methodology, therefore making early-stage start-ups out of reach for Impact Investment and early-stage start-ups have a high potential in multiplying their valuation to drastically increase venture capital profits, creating an assessment tool that is necessary to eliminate the lost opportunity. Venture capital requires an assessment tool for their investment process, especially for early-stage start-ups. Currently, there are yet such scoring methodologies or standards that are suited for Indonesian early-stage start-ups. Many start-ups in their early don’t have adequate resources to implement an ESG framework or commit to any SDG alignment by applying established international ESG frameworks and standards. But there are few start-ups that commit to ESG and SDG Value to their business model that create social and environmental impact while profiting as a business. The objective of this research is to create an Impact Investment assessment tool based on ISS ESG impact rating and MSCI ESG SDG alignment assessment methodology that will be adjusted for Indonesian early-stage screening purposes and to be implemented in Venture capital preliminary in the business process.