1 October 2021
Hayley, please can you help us understand what impact investing is? How does impact differ from traditional investing?
Impact investing is about investing in a way that deliberately sets out to have a positive and ideally measurable social impact. This is what sets it apart from traditional investing. Impact investing is a subset of responsible investing – that wider term captures, for example, avoiding doing harm by screening out companies with a negative impact on society. Impact investors will look for more specific positive outcomes that they can track and show progress on. There is a big variety of impact investments – in different markets around the world, different types of assets, different levels of financial return and different types of risk.
At Big Society Capital we focus on social impact investment. Social impact investment is a subset of impact investments that aim to create impact by targeting and supporting organisations that are dedicated to delivering a measured, deep and lasting positive social impact, whilst providing financial returns. We believe what differentiates social impact investment from wider impact investment is:
- Intention to deliver high or deep impact and willingness to consider really tough and entrenched social issues.
- A long-term commitment to impact, and backing organisations that have that commitment at their heart.
- Investing for impact rather than just with impact – impact is absolutely central to the investment strategy rather than a desirable add-on to a commercial approach.
What is the primary driver for your interest in social impact investing?
I believe that tech-enabled businesses have huge potential in catalysing change and social impact. Particularly as they can scale rapidly and reach more people effectively. It can be transformative in the right context, with the right intent and with a business model aligned with impact. I believe that investors play a vital role in finding such businesses and supporting them to scale.
How has the pandemic changed attitudes towards making social impact investments?
The pandemic has accelerated interest in social impact investing. This is for two key reasons. Firstly, the pandemic has shone a light on inequalities across the UK. Not only that, but it has also increased those inequalities. There is now a greater desire to channel resources to tackling the underlying drivers of inequality. Secondly, social ventures have demonstrated the vital role that they play in tackling those inequalities. During the pandemic we have seen many impact startups step up and adapt in response to the crisis in areas around greater financial inclusion, eradicating education skill gaps and improving physical and mental health. Read five ways purpose-led startups helped tackle the pandemic.
What trends are emerging in the impact investing market?
The overarching trend is an increasing interest in impact investing. Dealroom data suggests that impact investing now accounts for over 15% of total European VC investment, which is three times more than in 2010. This trend is at all three levels within the VC market:
- LPs: Limited partners are showing an increasing interest in impact. Of 63 investors who contributed to The Capital Behind Venture report by Mountside Ventures two thirds said that impact was preferred, while 25% were looking to invest explicitly in impact venture as a sector.
- Venture Firms: At Big Society Capital we have engaged with more than 10 times as many venture firms with an impact lens seeking funding in 2020 relative to 2018. There is increasing interest in impact from the big established venture firms as well as emerging firms. VCs like Balderton with their Sustainable Future Goals approach and Union Square Ventures in the US with their climate-dedicated fund.
- Founders: Anecdotally founders increasingly care about solving impact problems. We are seeing more experienced serial founders setting up their next venture in an impact area. Health and climate tend to be the areas with the most interest.
What are the key characteristics you look for when evaluating an impact deal?
Firstly, teams at our venture firms will look at founder intent. Assessing whether creating positive impact is one of their core motivations. Secondly, they will look at the size of the opportunity for transformative impact – how transformative could the business model be for social issues. Often this involves creating new categories of products or services or reaching a previously underserved group. Lastly they will look at how impact performance reinforces commercial performance i.e. is impact a driver of value in the business. My colleague Dougie reflected on these three elements in another article for Thrive earlier this summer.
How engaged are you with your investments and with the impact you make?
Our main engagement with the investments we make is with the venture firms. This is mainly through helping them think through their impact practice and what they are learning about creating impact and financial return together. We do engage with some of the founders and management teams of the underlying investments so we can understand better how they are creating impact. For us it is vital that we have this feedback loop so we can learn what are the best routes of making transformative change in the venture world. We can then channel more of our future investment through those routes.
What piece of advice would you offer a founder looking for impact investment?
My main piece of advice is to be clear on how the positive impact your business creates drives value in the business. The way in which impact performance and commercial performance go hand in hand demonstrates to venture firms that you have founded a business that will create transformative impact as it scales.
What has been the most challenging and enjoyable part of your career to date?
Without a doubt the most enjoyable part of my career has been the people I have had the opportunity to work with. I am and have been surrounded by some truly amazing people, who have taught me pretty much everything I know. This is true of both my direct colleagues, but also those who work at partner organisations.
In the work I do, working in partnership is vital to realise the change we want to see. While it is really rewarding, the process can be challenging especially getting the balance right of reflecting different perspectives, ensuring sufficient alignment and maintaining momentum. The results have always been worth the challenge though!
Is there a small change which has made a big difference in your life?
Two years ago I switched from reaching out to close friends and family via message to picking up the phone and calling them. I have found that it gives so much more opportunity for genuine connection and I am always energised afterwards. It also means that catching up on messages doesn’t feel like an item on my to do list.