Impact investing — the for-profit investment into companies solving social and environmental challenges — has gained a lot of traction in the last few years. In Europe, the amount of capital that went into purpose-driven companies doubled in 2019 (State of European Tech), while the global estimate of impact investing assets under management totalled $715 billion by the end of 2019 (GIIN). This impact-first approach to investment has manifested in several new venture capital funds that make early investments in startups trying to solve some of the world’s greatest challenges through building massive businesses. To shed light on their investment strategy and how the teams behind these funds are built, three VCs share their insights with The Org:
Norrsken VC invests in startups that have the potential to become impact unicorns — massively profitable businesses that make a serious dent in the world — positively affecting 1 billion people. The fund invests across all the UN Sustainable Development Goals, with ticket sizes of €0.5M to 3M, into early-stage technology startups that have intentional and measurable impact. The fund’s 21 investments to date include startups such as Karma — who tackle food waste by rescuing unsold meals, and Worldfavor — a global sustainability platform that helps organisations understand and improve their impact. Launched in December 2019, the €100M investment fund will be the biggest impact fund to date focusing on early-stage startups in Europe.
The venture capital fund is part of Norrsken Foundation, a Swedish impact hub founded by Klarna Co-Founder Niklas Adalberth. With a team coming from both the startup world and corporate finance, Norrsken VC set out to find the best investment strategy to maximize impact.
“When we first started out we had a pure purpose of maximising impact and were ready to invest in anything; profit, non-profit, somewhere in the middle,” Freimane explained. “As we approached the market we very quickly realised that the biggest opportunity in the startup space — especially in the tech startup space — is where profit and impact go hand in hand. We saw how it attracts certain founders, it attracts talent, it attracts more capital and as a result, if you’re an impact company at the core, also having that strong commercial profile enables you to scale your impact a lot faster.”
All Norrsken VC’s team members are united by their desire to work with impact.
“Our number one criteria when building the team has been the cultural fit, and for us that really comes down whether we feel the people are truly driven by the impact, that this is not just a job or a nice career step, but that they choose us because they really want to be in the impact space,” Friemane said.
Adding to their impact vision is a team culture of no prestige and no ego, where everyone’s opinions matter.
“We’ve succeeded so far and having this no prestige no ego approach to anything we do is one of the most important things that we as a team value," Freimane said.
This approach manifests in the team’s roundtable discussions as well as their day-to-day tasks.
“It’s not just the partners talking, and it’s not just the deal leads talking — everyone from an analyst to partner participates in the discussion and in the voting on each deal we make.” explains Freimane, adding that “No one is too big for any task and everyone is ready to roll up their sleeves and do whatever it takes to really achieve our goals.”
(Psst: If this sounds like a place you’d want to work in, Norrsken VC is currently expanding their investment team!)
“Less than 1% of venture capital funding goes to black people and less that 4% goes to women- led teams. That needs to change and it needs to change with a quickness.” - Eric D. Collins, CEO and General Partner at Impact X
Impact X is a double bottom line venture capital firm founded to support underrepresented founders across Europe. The VC fund started in 2018 is raising £100M to invest in minority-led businesses and has already made 17 investments to date into fast-growing startups such as R.grid — who are streamlining medical research admin-processes with machine learning, and Marshmallow — who are making insurances more affordable, instant and inclusive. Having identified sectors across Europe in which underrepresented people participate at particularly high rates, the fund focuses on Seed and Series A startups in digital technology, health, education, lifestyle and media & entertainment.
With their double bottom line approach, Impact X combines the creation of financial returns to their investors and the creation of positive measurable impact. The fund’s social impact focus is a very specific one: Job creation.
“The creation of jobs is at the centre of an empowerment cycle for underrepresented entrepreneurs,” Collins explains. “For one, underrepresented entrepreneurs tend to over-index in terms of hiring underrepresented people — whether that be women or people of colour and particularly black employees. When they do that, it creates the opportunity for the people they hire to grow in that organisation and to move on to other organisations where they have additional opportunities based on the pedigree they have built up. And some of them start their own businesses, of which some go on to have a profitable exit. It has this flywheel effect because some of the capital released in exit goes back into the cycle, therefore amplifying the money we are able to put into companies and also helping to seed the next group of entrepreneurs and the next group of opportunities.”
When building up the Impact X team, Collins emphasised bringing a diverse set of experiences to the table.
“I wanted to make sure that there was a depth of experience at investing with impact principles in mind and a depth of experience investing in underrepresented entrepreneurs. It was also important to have a team with demonstrated success both in the growth and ultimate capital release and return of investment. Finally, a time with operational experience at various stages of growth was important."
Adding to its investment team is an impressive assembly of founding members with high-profile investors from across the Black community, including the fund manager Ric Lewis, comedian Lenny Henry, actor Adrian Lester, and Uber board member Ursula Burns – the first black woman to run a Fortune 500 company when she served as the Chairwoman and CEO of Xerox.
The need for greater diversity is just as prevalent in venture capital firms as it is in startup teams.
“Generalist VC firms tend to have very few women, people of colour and particularly black people in decision making capacities,” Collins said. “What I notice about firms like ours is that they look more like the world I’d like to see. They entrust investment decisions to the kinds of people that I’m interested in seeing making decisions about what is going to be the next Netflix or the next Apple.”
“We see impact - social and environmental - as the greatest economic opportunity of our times. And we say that without any sense of tabu of talking about profit when you talk about impact, because everything we do is rooted in the belief that the best businesses are those that profit from and when solving social and environmental problems." - António Miguel, MSM managing partner
Mustard Seed Maze (MSM) invests in European early-stage impact ventures between pre-seed and Series B. Since the €40M fund’s establishment in October 2019, they have already invested in 10 impact startups – with their portfolio including startups such as Omocom – who build tailored micro-insurances for the circular economy, and Platypus – who empower HR to uncover organisations’ true culture.
As the name reflects, Mustard Seed Maze is a joint venture between the UK-based impact VC Mustard Seed and Lisbon-based Maze Impact. As the fund’s managing partner and founder of Maze Impact António Miguel explains, the fund is one out of Maze Impact’s three main areas of focus – the venture fund, accelerators and social impact bonds.
“I think working in impact is tremendously powerful because of the unknown,” Miguel said. “It’s been 7 years since we founded Maze and we’re still in a discovery process. I think that level of unknown creates so much motivation in people that want to drive change. I also think it suits a generation of millennials really well, because millennials get bored very easily.”
Maze Impact is currently a team of 17 driven millennials. When building up the team António points out how they have never hired based on the hard skills.
“We always hire based on the attitudes and behaviour of the people. For our team members, coming to work for Maze was a premeditated approach, and I think that is the most important asset even though it is an intangible one. Every person in this team recognises that we come from a place of privilege and the way we honour that privilege is to work in something that in our eyes is striving towards leaving the world a better place.”
Maze’s values, António says, are like Patti Smith’s Advice to the Young, by way of William S. Burroughs.
“What I take from it is: Be a good person and build a good name, because your name is your currency and always will be. It sounds very simple, but this message is basically the most intrinsic thing we try to convey at Maze and to everyone that joins the team.”
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