A new type of investors to finance tech for good
In France, the quest for profit and the search for a positive social or environmental impact are still often considered incompatible: while the former is supposed to be the exclusive object of the company, the second is the responsibility of the state and associations.
Yet, as globalisation makes social and environmental challenges more acute than ever, States are finding it increasingly difficult to respond adequately.
As the media unfortunately echoes, the States are indeed caught between conflicting issues (maintenance of biodiversity vs. lobbies, reception of migrants vs. nationalist attitudes, etc.), while the problems they are confronted with are increasingly complex: automation of employment, artificial intelligence, data protection, to name but a few.
In addition, the action of public authorities is based within a national or local framework while many problems are beyond borders, such as climate change and their impact on migration flows. The association structures seek to overcome these geographical constraints, but they cannot do everything, and the effectiveness of their model is often questioned.
For cultural reasons, the Anglo-Saxon countries were the first to consider that private companies, as the main sources of value creation, should be part of the search for solutions. The quest for profit is also considered in these countries as the only way to sustain the structure and therefore the impact.
Two convergent movements came to support this approach, one originating from investors, the other from consumers.
Thus, Larry Fink, the CEO of Blackrock, — the largest asset management fund in the world ($ 6.3 trillion under management) — made a big impression by sending a letter early in 2018 to all of the CEOs’ of companies that the fund invested in, to remind them of the need to make a positive contribution to society, which he believes is a requirement for long-term value creation for investors.
This vision is also a reflection of the expectations of millennials: according to a World Economic Forum study conducted on 5,000 millennials in 18 countries, 80% of them consider that the priority of any company should be “to improve society”. Creating impact is a requirement for consumers, but also and increasingly an expectation for employees and … entrepreneurs.
A new generation of tech and digital entrepreneurs is in fact solving major social or environmental problems within the mission of their company. In addition, their companies are structured for scaling up, and they know how to break free of borders. In France, these pioneers include OpenClassrooms (which makes vocational training more efficient), Simplon (which teaches unemployed people how to code), HelloAsso (which puts crowdfunding at the service of associations) or Phenix (which uses technology to reduce waste and allow waste reclamation).
Unfortunately, this type of business often has trouble finding financing. Impact entrepreneurs fear that purely financial investors will force them to make choices to the detriment of the impact, while the latter are often put off by the fear of a lower return. As for impact specialised funds, they are still few in France (less than fifteen), and often uncomfortable with technological subjects and with startups having an extra-territorial activity.
Today, impact investing is a niche market, France only investing $ 1.3 billion out of the $ 40 billion in global1 outstanding amounts while $ 90 trillion would be needed to achieve the 17 sustainable development goals identified by the UN.
Yet, the number of European companies leveraging digital technologies to solve a societal problem has doubled in 2 years, and a first unicorn has emerged in the US.
Today, more and more entrepreneurs feel as comfortable with business and technology as with profit or impact. This new generation calls for the emergence of a new type of investment funds, more able to meet their expectations!
