impak Finance : The Journey of a Purpose-Driven Business
The Journey of a Purpose-Driven Business
The end of the responsible consumption platform and impak Coins project has created a grumble, fueled in particular by what we believe to be a misunderstanding of impak Finance’s journey.
Today, we would like to explain this journey, which has been anything but linear, in the hope that the many questions raised by members of the impak community will be answered. We want to set the stage, describe our internal tug-of-war, and show that we still carry the mission that led to the creation of impak Finance.
First and foremost, we deem it important to reiterate, as stated on the very first page of the White Paper, that “the MPK is not a share and therefore does not confer any ownership rights on the Company or its assets.” Additionally, purchasers of impak Coins can read about the significant risks associated with this investment on pages 44 to 50 of the White Paper.
That being said, the impak team has worked for many months to honor the commitment and trust of the ICO participants by keeping the responsible consumption project alive as long as possible.
But let’s start from the beginning. We invite you to read this article by Diane Bérard because we couldn’t have written it better, published in Les Affaires newspaper in June 2019 (in French only), which accurately describes our journey from impact bank to responsible consumption platform, what we call our B2C project. Let’s take it from there. For those of you who would like to have all the details of the ICO, please scroll directly to the bottom of the document.
Building the plane while flying
It’s 2018. The responsible consumption app and impak Coins project is complex, and the money raised from the ICO is not enough to cover the costs of bringing it to fruition. A few team members are scrambling to find more capital. The rest of our startup’s staff is busy (i) developing technology, (ii) recruiting companies offering impactful products and services, (iii) building a community of responsible consumers, (iv) developing the methodology for qualifying companies, and (v) providing administrative support to the company. It is important to understand that at its peak, impak has no less than thirty employees. At that rate the funds raised do not last long (do the math).
In May 2018, an audit committee of independent board members is set up to support the financial probity measures and reasonable compensation practices for employees and founders already in place since the beginning of the venture.
Fundraising efforts are paying off. In mid-2018, the impak team successfully raised $1.1M in equity investment in the company from the Anges Québec network, adding to the $1.4M from the ICO. However, these funds remain insufficient to operate at full capacity. We then choose to slow down in order to survive until the next financing.
Steps were taken in the fall of 2018 to conduct a second ICO, this time in France, to add to the project’s budget. This ICO was aborted in particular because of the Yellow Vests crisis that monopolized media attention, as we wrote on December 11, 2018 in a letter to people interested in buying impak Coins from the French ICO: “In tune with the times, impak’s ICO comes right at a moment when citizens are asking for a radical change, when journalists are breathing in the rhythm of the yellow vests (taking all the media space as a result) and when impak is clashing with the coercive measures of social networks and banking institutions framing cryptocurrencies and ICOs. It’s great to be so topical! And yet, by the same token, it is this news that forces us today to suspend our fundraising.” For more details on our experience in launching an ICO in France, you can read our infographic ICO in France, the survival manual, launched in December 2018.
At that time, a decision was made by the independent board of directors for a first wave of stock options to be granted in order to compensate the risk taken by employees who agreed to work on reduced pay during slow periods.
Highs and very lows
In February 2019, impak finally launches a beta version for download to our community on Facebook. This is when we created the Beta Test Facebook group and where we talked about the new features being added, including testing from Beta users.
Additional investments from angel investors were being raised to further develop the B2C platform project. However, the team was going through a difficult period financially. Some employees agree to return part of their paycheck in the form of a convertible loan, to allow the startup to continue to operate, others leave, as sometimes happens. The loss of all the developer staff at this point forces the team to slow down the application project considerably.
The situation and the issues of development, financing, and recruitment are such that, as we wrote in a blog post at the time: “We are really holding the [responsible consumption] project at arm’s length because it is a project that carries our values and our idea of a better future. Right now, we are certainly going through the valley of death […]”. We explained here why we had to refocus on fundraising. As you will see below, this is the crucial moment when the pivot to the impact rating agency project began to take shape.
Two sides of the same coin
Thus, while seeking more capital to pursue the B2C project, the team notices an interest from European capital managers in impak’s rating methodology. Indeed, European regulators are tightening the requirements for extra-financial reporting and impak’s rating solution – originally built to decide whether or not to accept companies on the B2C ecosystem – is seen as having the elements to meet them. Seizing the opportunity, impak considers a B2B business model to potentially finance the B2C project.
As journalist Diane Bérard wrote in Les Affaires about this interview: “Focusing on paying customers : Impak Finance is targeting two clienteles: consumers and businesses. For the former, it wants to offer a platform where they can consume products and services from companies with a positive impact. Companies will also be able to consume services and products among themselves. The second clientele consists of investment funds. “
Also in this article, our co-founder and CEO Tima Gros summed up our frame of mind: “We’re not going to hide it, we’ve had a tough time […]. We’ve met a lot of enthusiastic people, sure. But a business needs cash flow. To stay in business, you need checks to be written. Right now, our expertise in impact qualification is what gets us the business, so we’re focusing on that. We’ve found another way to fulfill our mission.”
As a result, two impact rating contracts are signed with French firms in the second half of 2019. Revenues are coming in and allowing the startup to breathe temporarily.
Working capital is still very low and additional efforts are required. Several members of the management team decide to give up their salaries while the situation stabilizes. At the same time, the development work of the B2C platform continues, due to a new partnership with nventive, a Montreal-based application development firm.
This partnership adds $500K to the budget of the B2C project. However, due to the impossibility of a knowledge transfer (as all our developers left during the first difficult period), nventive decides to start the development of the application from scratch. The capital and resources are still lacking to continue the other aspects of the project, more specifically the impak Coins.
One of the B2B contracts signed in 2019 attracts the attention of the Paris financial market and validates impak’s methodology to meet the extra-financial rating needs of the market. The impak team sees a promising and viable business model in this impact rating activity. This will allow it to continue to exist while pursuing its mission.
At a crossroads
A funding round planned for the end of 2019 fails due to unfortunate external circumstances. In February 2020, impak, the independent impact rating agency, is officially launched in Paris. A second round of funding is set up, and then the pandemic strikes. impak decides to stop its communications relating to the B2C project. With a one-person communications team, impak focused its efforts on promoting the rating methodology for the agency so that the company could survive the pandemic.
Hard choices are made. The development of the B2C platform is suspended indefinitely. The projects are advanced, but cannot be pursued.
Efforts are now focused on generating near-term revenues as an impact rating agency. This is what allows impak in the fall of 2020 to raise the capital needed to continue operating.
Furthermore, a decision by the independent Board of Directors is taken to grant a second wave of stock options to once again compensate employees who have agreed to work on reduced pay during this difficult time. It should be noted that these options have a theoretical value that will only be realized upon a liquidity event. And since we are talking about human beings here, who have bills to pay and often families to feed, we feel it is important to mention that impak’s leaders have supported their employees as much as possible, notably by lending money for payroll, by giving bonds and by making personal representations and guarantees.
A contract for corporate qualification with a major French bank is signed, and other clients follow. impak can think medium-term as an impact rating agency.
Although the sun is shining again thanks to the impact rating, the heart of impak remains committed to the responsible consumption project and the team wishes to find an honorable outcome for its community of MPK holders. Several avenues are being explored, knowing that resuming the development of the B2C platform is not a viable option for short-term revenue generation and survival of our start-up.
The disappointment and discontent of the community as well as our own attachment to the B2C project pushed us to look for a solution to recognize, as much as possible, the trust of those who bought MPKs. After many unsuccessful attempts to get others to take over the platform project and the MPKs as we intended them, it is a different version of the B2C project that is being taken over in early 2021.
These discussions are culminating in the creation of an separate spin-off company in May 2021 that will build a loyalty program to promote responsible consumerism with impact businesses and piggybacks on existing credit cards.
The companies in this project will be rated by impak and the project will be able to benefit, to some extent, from the work of integrating impact companies undertaken by impak since 2018. This new entity has no obligation to the holders of impak Coins, but as impak Finance is one of its shareholders, it will try to recognize the commitment of the ICO participants to the extent possible and in any form. For its part, impak is canceling the impak Coins and removing them from its financial statement.
Could some decisions have been taken differently? Probably. Could the discontent and lack of communication with the impak community have been avoided? Perhaps. The fact is that we never stopped thinking about the platform and its community and we are deeply disappointed to have to abandon the project.
The common thread
Through these many difficult moments, the common thread of our journey, the one that motivated employees to work for reduced pay, the one that made us never stop wanting to move forward, the one that succeeded in keeping a resilient and united team of die-hards together, is the conviction that we are holding an impact rating methodology in our hands that can really change the economic paradigm at the root of the environmental and social crises we are going through. To quote Diane Berard one last time, “This is what a company’s journey looks like, beyond press releases. “
Thus, with a sustainable business model, a relatively stable cash flow in the short term, and sustainable finance finally taking off, impak is proud to be able to pursue its mission: to help economic players make informed responsible choices by rating the positive and negative, social and environmental impact of companies. It is true that the players have changed, but the core of the company remains the same and this is what a company with a mission must do.
The world’s first regulated ICO
The idea of an ICO to fund the project came from a startup funding conference held in Toronto in the spring of 2017. At the time, crypto-currencies, particularly Bitcoin and Ethereum, were the objects of great speculative fervor, and new crypto-currency offerings through ICOs were attracting dizzying amounts of money. These ICOs, for the most part, were launched from places where there was no regulatory framework protecting investors, making the deals easy to execute, to their detriment.
We wanted to offer an ICO that was different from the others to our community, that respected securities regulations. Thus, we approached the AMF with our project to define an exceptional regulatory framework, in the absence of specific regulations on ICOs. Several months later, we were granted permission to proceed, as long as the purchase process obeyed well-established rules that followed almost in its entirety the requirements of an exempt market offering. The Impak Coin would be the subject of an investment contract similar to those of a private placement, i.e. it would contain the same clauses as contracts governing high-risk and illiquid investments.
Therefore, we had to : (i) formulate our White Paper in the form of an Offering Memorandum, a common explanatory document for private placements, which framed the purchase of MPK as a method of financing a project (and not as an equity investment in the company itself); (ii) establish a procedure for verifying the identity of investors; (iii) include in the purchase process questions on general knowledge relating to investments and crypto-currencies, as well as investment objectives; (iv) establish controls on the amounts invested based on the financial situation of the investors; and most importantly, (iv) include a form about the recognition of the risks inherent in this type of investment. The purchase process we developed protected investors by ensuring that the amounts invested were appropriate for their financial situation.
The buying path would also deter speculators. The value of the Impak Coin would not vary according to supply and demand on a public exchange platform. It would vary according to the economic activity on the marketplace we were going to build.
ICO result: 2,266 investors, $1.4m to start the project. The funds raised were much lower than other unregulated ICOs, but we were the first in North America to successfully complete a securities law-compliant ICO. So that’s when the work began.