A Sustainable Economy : it takes a Village !
The world over is calling for businesses of all sizes to have a positive impact and contribute to a shift towards a sustainable economy — one that not only promotes job growth and economic prosperity but promotes the well-being of society as a whole.
And business is changing. In August, Business Roundtable, an association of America’s leading companies such as Amazon, JPMorgan Chase, Apple, and The Coca-Cola Company, released a statement redefining the purpose of a corporation to include things like “protecting the environment” and “embracing sustainable practices.”
We also see new hope rising thanks to a combination of new technologies, business models and a generally evolved way of thinking. In analyzing our portfolio (along with our peers), we see that many of the most successful companies are also the most socially impactful. We believe that innovation and startups present a large opportunity for further progress towards a sustainable economy. But they can’t do it alone — it will take a village.
Why “Impact” is Trending
The “impact” trend has been a global movement thrown into the spotlight particularly since the Paris Agreement on Climate Change in 2016 and the UN 2030 Agenda for Sustainable Development in 2015.
Some regions such as the EU have passed regulations to integrate environment, social and governance (ESG) risks in investment decisions and even those who have not, such as the U.S., has seen an increase in impact investing with research pointing to a 40% year-over-year increase since 2016. Consumers are also weighing in — with some reports stating that 75% of people are more likely to purchase goods or services “from a company who supports the issues they agree with.”
Another important driver is the convergence of various fields of sciences and applied technologies that are creating a new generation of sustainable products and services. For instance, by combining artificial intelligence (AI), the internet of things (IoT) and computer vision, companies can now optimize factory operations like never before, upgrading productivity and quality while reducing carbon footprint.
But in order for startups to drive meaningful impact, it must be done on multiple levels: to customers, across the value chain and to incumbent partners. Using this platform approach, startups enable others to participate in impact-generating initiatives, multiplying the effect they would have alone. Below, we will explore each in turn.
The Customer Comes First
In order for technology companies to succeed, they typically must have discernable and often transformative impact on their customers.
The fintech industry specifically is an area with great potential for impact across the world. As one of the leading global economies, the U.S. still has an estimated 63 million Americans who are underbanked and 60% of the population with less than $1000 in savings.
Many startups have emerged to address financial inclusion such as fintech unicorn Chime, the leading U.S. challenger bank (and Cathay Innovation portfolio company) which is committed to offering quality free banking to the American middle class. Chime also thinks like a platform and let’s their customers opt in to help each other with their latest overdraft service SpotMe. Today, the company has saved its customers millions in banking fees and has been adopted by over 4 Million Americans.
There are many startups providing a direct positive impact on customers such as Propel, a software company that helps low-income Americans living on food stamps manage their balances and benefits. Another example is healthtech startup GoodRx (valued at $2.8 billion), which has saved Americans $14 billion on prescription drugs through its free drug pricing application.
A Domino Effect: Impact through the Value Chain Impact
What’s an equally important factor is creating impact across the value chain.
High-profile examples, such as eco-friendly upstart brands Allbirds or Everlane demonstrate this well with their commitment to environmentally sustainable materials and supply chain transparency. On the backend, there are also startups such as SupplyShift which helps companies optimize their supply chains so both buyers and suppliers can improve and make more responsible decisions.
Chinese social commerce platform Pinduoduo (another Cathay investment) has leveraged their value chain to support multiple initiatives around anti-poverty and brand-revitalization to create economic and employment opportunities. They recently earned farmers sales revenue of more than $9.7 billion through a program dedicated to selling produce from poverty-stricken areas.
Similarly, super-apps such as China’s WeChat and South East Asia’s Grab have created significant income opportunities. For example, Grab’s latest social impact report stated that “the Grab ecosystem has enabled 9 million micro-entrepreneurs, or approximately 1 in 70 people in Southeast Asia to earn an income.”
Why Partnerships are Key to Achieve Impact at Scale
We believe the most successful innovations will not happen in silo and creating impact at the value chain level often requires collaboration with a range of players including incumbents. To scale, the buy-in of a broader ecosystem is critical.
For example, GoodRx partners with incumbents such as pharmacy chains (e.g., CVS, Target, Walgreens, Kroger, Walmart), pharmacy benefit managers (e.g., Express Scripts, Caremark) and pharmaceutical companies to increase its impact, now reaching over 10 million Americans and used by over 350,000 healthcare providers nationwide. The company is also evolving into a platform with its recent expansion into telemedicine.
Looking at Cathay investment KaiOS, the affordable smart-feature phone startup partners with incumbents to solve global issues such as the digital divide. To scale, KaiOS works with a range of players including: telco operators who act as key distributors; device manufacturers (e.g., TCL) who pre-load the software onto phones; technology partners (e.g., Google) who provide critical support and access to popular apps and services.
Using this ecosystem approach, they have connected more than 100 million people to the internet for the first time — landing them on Time’s Best Invention list in 2019 and its partnership with India’s Reliance Jio in the number one spot on Fortune’s Change the World List in 2018.
Impact is Critical — So What’s Next?
All things considered, we’re deeply optimistic about the impact that technologies and startups can have on the world. However, we also believe that to be successful requires an ecosystem level response including customers, value chain actors and the broader ecosystem along with a rigorous and principled framework.
It is now time for venture capitalists, startups, and incumbent industry leaders to set up this framework of relationships, criteria and metrics to both encourage and measure impact that will make everyone accountable for positive outcomes. Stakeholders now have an opportunity to work together, like never before, in ways that can benefit all.
