Corporate Venture Capital investing in impact

Sasha Afanasieva, current On Purpose Associate (October 2013 cohort) has just produced the following blog post for Volans. The blog focuses on the growing trend of impact investment by corporate venture capital funds, and discusses the results from the recent Global Corporate Venturing Symposium at which Volans launched their latest report. For further information, please visit Sasha’s post on the Volans website.

Volans Report Launch at Global Corporate Venturing Symposium 2014

On 20–21 May, four members of the Volans team attended the Global Corporate Venturing Symposium, our second year on the delegates’ list — and our first on the speakers’ list. This year, in addition to running several panels on impact investment and exploring what this means for the world of corporate venture capital, we launched our latest report, Investing in Breakthrough: Corporate Venture Capital.

Our sense was that the 2014 Symposium was much more focused on the long-term business sustainability and viability, rather than just the operational and financial aspects. The focus was both on the strategy of corporate venture capital (CVC) units specifically, as well as on the corporation as a whole. For instance, in one of the discussions, Girish Nadkarni from ABB Technology Ventures emphasised the importance of the CVC unit as the “nose” of the organisation, guiding innovation to avoid the predicament that recently threatened to strand Nokia.

We concluded that for a growing number of people in the corporate venturing field the ‘impact’ element, where a business venture has beneficial social and/or environmental outcomes, is now deeply integrated within this innovation theme, and several case studies presented during the Symposium confirmed this.

• For instance, IBM’s Claudia Fan Munce described building a partner ecosystem for the newly launched IBM Watson division, noting that the social impact of this technology is deeply ingrained in the core strategy of the corporation.
• CVC funds are also increasingly interested in the technology developments that are opening new markets and helping to bridge impact sectors with others, as with emerging crowd funding in finance or carpooling platforms in transportation.
• At the same time, the businesses of more established CVC sectors such as pharmaceuticals are converging with a range of other innovations, like new forms of wearable technology and biology, partly to address social impact and wider sustainability considerations as part of their evolving business strategies.

Perhaps unsurprising, we found the panel discussion between Cristina Umani from EVPA and our own Charmian Love on the CVC sector’s approach to impact investment particularly interesting. One of the frameworks, which we cover in Investing in Breakthrough, involves how consideration of social or environmental impact may shift existing strategy and the timing horizon. To take just one example, a new investment could involve a new development to an existing product, or help build out a totally new business product or service offering. In the longer term, an investment could help create a business model based, for instance, on providing access to drugs, energy or finance to new types of customer or consumer. Or, in the longer-term future, it could involve reshaping the market system itself, transforming the business ecosystems, networks and communities of which a given organisation is part.

One key question posed was how such impact considerations are perceived within the parent organisations and the CVC units. Do they see such investments as extensions of their core strategy or as a potential third dimension to the already critical criteria of alignment to strategy and return on investment. Often, we heard, if impact is dealt with outside the core strategy, there is the risk of an added layer of complexity for fund managers — most of whom already face a very challenging operating environment. So, a question raised later at a plenary panel sessions chaired by our own Amanda Feldman: at which point does the strategic value start to conflate with considerations linked to people and planet?

Whether impact investing is perceived as core strategy or as an additional decision-making filter, one of the delegates told me of an impact-focused fund that was one of the best performing that they have come across. Indeed, key market intermediaries like JP Morgan are now beginning to view impact investing as a major asset class. This illustrates that returns and impact are not mutually exclusive, and as a result we expect the impact investment sector to be increasingly appealing to at least CVC players.

This is encouraging, given that corporate capital will be a key factor in further scaling impact investment. Indeed, according to Dr. Maximilian Martin from Impact Economy SA, there will be two solutions to the challenge of aligning the ecosystem to drive growth of impact-generating ventures: firstly, it is the availability of capital from diverse sources to help initiate impact ventures start-ups; and secondly, the involvement of corporates to bring about exit opportunities for investors to be more inclined to take bets in this sector.

As for next steps in this area at Volans, we aim to continue to catalyse more connections between corporate venture capitalists and impact entrepreneurs, through a range of activities, such as workshops to explore partnerships, action-research and developing a toolkit. If you would like to learn more or get involved, please contact Amanda Feldman (amanda@volans.com) and Charmian Love (charmian@volans.com).