Impact Investing Highlighted at Recent Corporate Venture Capital Event
Global Corporate Venturing held its 2016 Symposium in London last May. This corporate venture capital industry event included a panel called, “Should Corporate VCs care about Impact Investing?” led by Jimmy Rosen, Deputy Director, Program Related Investments, Gates Foundation Venture Capital, Bill & Melinda Gates Foundation.
A panel summary is posted on Global Corporate Venturing’s website:
A committed and thoughtful group concluded that corporates should indeed care. A key challenge is how to measure impact. Profit and impact are not mutually exclusive. Impact was considered to provide a sense of purpose to employees resulting in increased performance. Employee satisfaction should be measured. The law firm pro bono model was considered to be a good proxy for attracting the brightest talent to impact-related work. Today’s impact opportunities are tomorrow’s big market winners — ignore them at your peril.
Below is an excerpt from a more detailed summary of the symposium. It demonstrates the increased chatter around the intersection of corporate venture capital and impact investing. Leaders from Pearson, Patagonia, and Centrica talked about how their companies are looking to combine CVC with environmental and social considerations.
Impact investing comes to the fore
At first glance education publisher Pearson, energy utility Centrica and food maker Danone have little in common. But alongside other large corporations and a host of entrepreneurs, the shared goal involves impact.
Corporations and others are funding startups with an expectation of marrying financial return with a positive social or environmental impact. Using the venturing tools developed over the past 75 years, they expect fast-growing businesses to recognise the effects they have on the world as they making their money.
John Fallon, Pearson’s global CEO and a member of the Pearson Affordable Learning Fund investment committee, in nominating Katelyn Donnelly for Global Corporate Venturing’s Powerlist this year, said: “We are tripling our investment in the next fund because we know that this approach works and critically informs our long-term business strategy.”
Yvon Chouinard, founder of California-based clothing company Patagonia, said: “My family and I are happy to launch $20 Million and Change, an internal fund to help like-minded responsible startup companies bring about positive benefit to the environment.”
Sam Laidlaw, then CEO of Centrica, at the launch of Ignite, the UK’s first energy-based impact investment fund, said: “The answers to society’s challenges do not lie solely with the private sector or the public sector, but with social entrepreneurs in communities and in cross-sector partnerships. I am passionate about the potential for Ignite to help find and grow energy-related social enterprises to innovate and create these answers.”
This is profit with purpose. Entrepreneurs inject drive and vision into what needs to change in the world. Too often they lack the financial, technical and sales expertise to turn vision into reality. Corporations supply the cash and support, and gain insights into how the world will change.
The increase in numbers of corporate, government and university venture activity over the past five years show that all parts of society can benefit from the venture capital model of backing talented entrepreneurs and their teams. The only thing stopping more applying this approach to environmental, social and governance changes is a lack of role models and practical advice on how to do this.
To aid this process, the symposium was chosen to launch a report — Steps to corporate investment, innovation and collaboration — setting out how both can come together and why the time for them to do so is now (see comment).
Pearson, Centrica and Danone were among the corporations speaking on this subject at the symposium. Sir Michael Barber and Katelyn Donnelly from Pearson Affordable Learning Fund shared lessons and insights from investing in for-profit startups in the developing world in a fireside chat, Impact through venturing.
Investors looking to tap into the global market for affordable learning, which is growing at about 8% a year and is forecast to be worth some $320bn by 2020, should start small and take the necessary time to do due diligence, according to Donnelly, managing director of Pearson Affordable Learning Fund (PALF) , which makes equity investments in for-profit education startups in developing countries on behalf of educational publisher Pearson.
Donnelly said: “We spent our first year understanding the market and visited 50 schools. We found the best team in Ghana, then learned from that experience how to find the next investments. [It is important to] do the primary research yourself and be willing to learn and evaluate as you go along.”
The fund was launched in 2012, and as an international investor PALF is often a first mover within the affordable education investment space. It began with $15m to invest, and now has $65m in assets under management.
PALF takes significant minority stakes of between 20% and 45% in its portfolio companies, advising on all aspects of the business, from strategy, management and operational issues to regulation.
One of PALF’s portfolio companies, Omega, is a chain of affordable schools in Ghana that serves about 20,000 students.
Since regulation is such a critical part of the business, it is especially important to set up a productive dialogue with local governments, PALF’s chairman and co-founder Sir Michael Barber said.
“In our field, if you set [a school] up in opposition to the government, you fail,” Sir Michael said. “We are [investing] not because the government has failed but because you can innovate,” he said, and to discover student outcomes that can be transferred into publicly funded school systems.
Their session, and an unpanel debate led by Jimmy Rosen from the Bill and Melinda Gates Foundation (for highlights from these unpanels see comment by Paul Morris), preceded Charmian Love, co-founder of Corporate Impact X and co-author of the above report, hosted a panel on building businesses that create positive outcomes for corporations and society at large through partnership and collaboration.
Love moderated a panel featuring four speakers: Julia Rebholz, sustainability director and managing director for energy provider Centrica’s impact investment fund, Ignite Social Enterprise, who is leaving to join Corporate Impact X; Jean Christophe Laugée, Elizabeth Boggs Davidsen, and Ali El Idrissi.
Through its network of partnerships, Centrica’s £10m ($15m) Ignite fund has generated over £10m worth of revenue since its launch in December 2013, and its projects have benefited more than 10,000 people in the UK, Rebholz said.
Initiatives funded by Ignite include Midlands Together, which employs ex-offenders for energy efficiency refurbishments in houses that would otherwise remain in poor condition, with the houses then sold to fund more projects.
Strong partnerships are important not just in the early stages of impact investing, but also in the later stages, said Laugée, vice-president of nature and cycles sustainability at food producer Danone.
Danone’s most recent initiative, launched in February 2015, is the €120m ($135m) Livelihoods Fund for Family Farming (Livelihoods 3F), co-funded by confectionary producer Mars, which aims to help smallholder farmers in Africa, Asia and Latin America.
“After 10 years, we are on our way from small-scale [investing] to a mainstream initiative,” Laugée said of Livelihoods 3F. Having a solid partnership matters since going mainstream is a “big challenge; scaling up is putting tension on value from an economic, environmental and social standpoint,” he added.
El Idrissi, vice-president of social finance and impact investing at financial services firm JP Morgan Chase, said finding the right partner is a critical piece of the impact investment puzzle, explaining: “We identify a partner, whether it is a corporate or government or a foundation that says ‘We want to do things differently’.”
The right corporate partner understands that there is a “business imperative, and not only a moral one, in taking the best skills we have, and the best employees, and applying strategic guidelines to penetrate new markets,” El Idrissi said, adding that JP Morgan has allocated $100m to an impact investment fund that has invested fully in the past five years.
Boggs Davidsen is manager of the Knowledge Economy Unit at the Inter-American Development Bank’s Multilateral Investment Fund. The 20-year old fund has invested some $250m, seeding more than 66 venture capital funds in 21 countries, and Boggs Davidsen said the fund is boosting its impact investing activities.
“Today we really do see an interesting convergence of business investment and the development [aid] world coming together in new and different partnerships that would not have existed even a couple of years ago,” she said.