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

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. • The cognitive processes of impact investors during deal screening are critical but remain largely unexplored. • Verbal protocol analysis of 58 screenings identifies 18 distinct cognitive processes used for impact assessment. • Impact investors rarely apply standard impact assessment methods during screening. • Instead, they frequently rely on heuristics, increasing the risk of bias and error. • The findings challenge the notion of impact investors as especially rigorous and rational in assessing impact.