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.