Corporate Venture Capital and Impact Investing

Potential Intersection = More Impact

StartingUpGood has noticed an emerging trend that should be of interest to startups that are emphasizing social impact — the beginnings of a movement in corporate venture capital towards impact investing.

Corporate venture capital (CVC) funds are part of a larger operating company and the fund managers are employees of that company. Prominent examples include Intel Capital and GV (formerly known as Google Ventures). While these funds of course seek financial returns from investing in companies, they often seek strategic benefits, such as learning about an emerging technology, exploring a new target audience, or improving the company’s competitive context in some way as well.

The “strategic benefits” focus is what caught our attention. It’s similar to how sophisticated companies approach corporate social responsibility. If a coffee retailer is trying to keep the cost of raw coffee down, it might make a venture capital investment in a company that has developed technology to improve crop yields, or it might make a corporate philanthropy grant to a nonprofit that educates coffee farmers about the latest farming methods — two different approaches to the same goal.

Several forward-thinking corporations use CVC to create strategic benefits for their businesses and social impact for communities. Pearson’s Affordable Learning Fund (PALF) “makes equity investments in for-profit companies to meet the demand for affordable education across the developing world.” Since 2012, PALF has invested in and manages ten companies, serving over 125,000 children in South Africa, Ghana, Kenya, Tanzania, Nigeria, India and the Philippines. Investments like these have helped Pearson’s, a global leader in education, expand to new geographies and explore new products and technology.

In 2013 Patagonia launched $20 Million & Change, “an internal fund to help like-minded, responsible start-up companies bring about positive benefit to the environment”. Patagonia’s founder described this initiative as the “next logical step” after 30 years of contributing one percent of sales to grassroots environmental organizations and becoming one of California’s first B-Corps in 2012. Such initiatives reinforce Patagonia’s brand image as a socially and environmentally responsible company.

Interested in learning more? Here are some of our favorite resources:

• Investing in Breakthrough: Corporate Venture Capital, “a research report that reveals how some leading corporate venture capital (CVC) funds are investing in deals that provide financial return as well as social and/or environmental impact — and how, over time, more might do so.” The report was authored by Volans, “a certified B Corporation dedicated to driving market-based solutions to the future’s greatest challenges,” in partnership with Global Corporate Venturing, “ a monthly magazine and a website written for the inhouse venture capital units of businesses.”
• More recently (May 2016), the authors of the Volans report (along with several co-authors) released, The Practitioner’s Guide — Steps to Corporate Investment, Innovation and Collaboration: A Practical Guide to Creating Positive Outcomes. This report explains how interested companies can replicate the success of organizations like GE, JP Morgan, and PepsiCo, which have pursued social impact goals via corporate venture capital or corporate innovation activities, in a way that drives business goals.
• This summary of highlights from the recent Global Corporate Venturing Symposium 2016, a corporate venture capital industry event, demonstrates the increased chatter about this intersection. For instance, one panelists reported that, according to his research findings, “…many (top performers) were looking to combine CVC with environmental or social considerations — so-called impact investing.” During the event, the CEOs or founders of Pearson, Patagonia, and Centrica highlighted their companies’ use of this approach. The Practitioner’s Guide was also launched at this event.
• “Corporate Venture Capital: A New Accelerant for Impact,” a 2014 Stanford Social Innovation Review by the authors of the Volans Investing in Breakthrough report, expanding on their findings.
• “Corporate Impact Venturing: A New Path to Sustainability,” a 2014 SSIR article by Maximilian Martin, which makes the case for pursuing social impact goals via corporate venture activities.

Are you interested in the intersection between corporate venture capital and impact investing? Do you know other companies or organizations exploring this approach?

Let us know, we want to learn more.