I was visiting the Cambridge Associates website recently to review their most recent VC benchmarking data and I ran across an article titled: Venture Capital and Impact Investing: Blurring Boundaries Mean New Opportunities.
The article does a great job of describing a dynamic that we’ve identified and have been talking about with our investors for the last several years: Investments in companies that better humanity on a global scale generate the best venture capital returns.
It started with the Millennials
For several years we’ve been hearing that the newest generation of employees are focused on working at companies that are solving meaningful problems in the world. We’ve all read stories about how employers have had to respond to this by offering products and services that make a positive impact on the world in order to attract and retain the most talented employees. This has been as true for Fortune 500 companies as it has been for the early stage startups that we work with.
As a simple model, let’s look at the Productivity Stack of the early stage, VC-backed startup company ecosystem like this:
For those of you who are not familiar with the term “Limited Partner”, they are the people and organizations who invest in Venture Capital funds. They sit at the top of the VC ecosystem Productivity Stack, providing large chunks of capital to Venture Capitalists, who then distribute that capital to individual companies. These companies, in turn, distribute the capital to their employees in the form of salary and company ownership.
So as employees have demanded more meaningful and fulfilling work, employers have had to respond by providing that to them, thus pushing that vibration up one level in the Productivity stack (image above). What the Cambridge Associates article points out is that they are starting to see the best Venture Capitalists reacting to this vibration at the next higher level of the stack.
We invest in companies that apply breakthrough technologies to radically improve millions of lives.
This is the first sentence anyone reads when they visit the Oakhouse Partners website. It is our credo. Past companies we’ve supported have democratized global payments (PayPal) and pioneered new approaches to curing cancers (Stemcentrx). Current portfolio companies are bringing us cost-effective access to space (SpaceX — which we invested in through Gigafund), using biometrics and the blockchain to improve elections (Voatz), applying cutting edge drone technology to deliver life-saving medical supplies (Zipline), paving the way for a next-generation ownership economy (Carta) and using CRISPR to cure viral infectious diseases (Excision). These companies are led by amazing teams who are passionate about their work and completely committed to their missions. They inspire us, and we jump out of bed every morning, excited to work with them. They are also building enormously valuable businesses with global scale.
There are many reasons why our thesis has evolved to this place over the years. Here are a few:
- First and foremost, these companies generate the best venture capital returns. Solving meaningful problems for humanity at global scale creates value, full stop. Companies that do this successfully generate the 50x+ multiples on investment that we look for to drive our fund performance. Stemcentrx is a great example of this: After pioneering a stem-cell derived cure for several cancers, the company was acquired by Abbvie for $10bn in one of the largest VC-backed company acquisitions in history.
- We’ve noticed that mission-driven companies with ambitions to improve the world are able to attract and retain the most talented employees. The best people can choose where they focus their time, and many of them choose to work at companies where they feel like they are making a positive contribution to humanity. Spend one afternoon with the team at Zipline and you see exactly what I mean. The company is abuzz with incredible people who’ve left premier aerospace, manufacturing, software and robotics companies; all sharing a desire to fulfill the company’s mission of building an instant delivery platform for the planet.
- Focusing on a big, long term mission helps these companies stay focused on the horizon. Even the very best teams will experience ups and downs as they build a new company — especially one that has ambitions to do something new and difficult at global scale. Having a big, long-term mission helps teams avoid getting distracted by the inevitable bumps along the way. SpaceX’s mission to colonize Mars (and the rest of the cosmos) has kept everyone at the company — Elon Musk, the leadership team and the entire employee base — pushing forward despite many failed rocket launches in the company’s early history.
- Because of the work they do, these companies are often able to partner with governments and global non-profits at a very early age. Those organizations bring extensive reach, expertise and capital to the startups, all of which help accelerate them as they race to commercialize their breakthrough technologies. Voatz recently powered the first US Federal Election using blockchain technology in the state of West Virginia. The successful pilot and early government relationship opens the door for the company to power major elections for other states and governments around the world.
A small step in the right direction
The Cambridge Associates article points out that Limited Partners are starting to notice this trend. So far it has been a small and subtle shift. However, as Barbara Marx Hubbard points out in her quote above, small shifts over time eventually lead to major changes. Once this vibration moves up to the LP level at the top of the Productivity Stack illustrated above, it is going to unlock more capital than ever before for teams and companies attempting to solve some of humanity’s greatest challenges. This is very exciting to us, and something that we hope everyone in the world will be inspired by as well.
You can read the full Cambridge Associates article here: https://www.cambridgeassociates.com/research/venture-capital-impact-investing-blurring-boundaries-mean-new-opportunities/.