Future gazing & future shaping: Apps, platforms and unintended consequences of the tech revolution
How healthy is the tech for good sector? Who’s helping to fund it? And what should we be focusing on when it comes to data? This session, hosted by Vinay Nair from Lightful – with Paul Miller from Bethnal Green Ventures, Lisa Ashford from Ethex and Maarten Rooney from Singlify – explored some of the issues around social ventures in the tech space.
“More and more founders are wanting to address social problems,” said Paul Miller, managing partner and CEO at Bethnal Green Ventures (BGV), an early stage investor in ventures that use technology to improve people’s lives, and which has invested in over 100 companies since 2012.
The quality of these start-ups is also better than ever, he said, thanks to a maturing tech scene in the UK. In addition, with the big tech sector suffering its annus horribilus recently, some are leaving large firms to start their own more purposeful venture.
Part of the draw is that tech has become so accessible. “You can move so quickly if you leverage existing technology – you don’t need to spend lots of money or time building something new,” said Maarten Rooney, cofounder of Singlify, a start-up that has created an investment management system for social investors. Singlify’s technology is built on the Salesforce platform, allowing it to get quickly to market without the need to raise huge amounts of funding or put a large development team in place.
Easy enough to get started then, but how easy is it to grow?
Companies that have had startup funding from BGV have gone on to raise £64m of follow-on investment – but less than half of that appears to come from self-identified social or impact investors. Partly that’s about availability: there are far more tech seed funds available than impact/social investment seed funds, meaning many BGV alumni go for more conventional funding.
Many startups raise £150,000-£300,000 through SEIS (Seed Enterprise Investment Scheme) tax relief after BGV, but it takes “too long”, said Miller, and few social investors get involved at that stage: “They get beaten to it by angels, who are willing to move faster.”
Ethex, which allows individuals to invest directly in ethical businesses, doesn’t usually get approached by many tech companies, said CEO Lisa Ashford, possibly because they “get snapped up by VC-type money” before looking into ethical investing options.
Social investors could play more of a role in addressing the ‘missing middle’ (post start-up) phase, but this requires a very patient approach and perhaps a different approach to risk and return, since in a portfolio of 10 companies, maybe eight will fail.
On the other hand, social ventures can struggle to win over mainstream investors. Early on, Rooney approached fintech venture capitalists, he said,“but they weren’t immediately interested in investing as our addressable market was too small… They wanted a 10x return within a couple of years. We know we can build a sustainable business, but not at that rate.” (Ultimately, Singlify found a funder in the Connect Fund, which aims specifically to invest in growing the social investment market.)
Individuals can also provide a big source of capital. Ethex has used its platform to raise £70m from individual investors, and Ashford said Ethex users have “got used to a certain type of product”: typically they like the renewable energy sector and investment opportunities that offer tax relief. But investing in a tech startup, she said, is “a completely different proposition” that requires a different mindset.
BGV is launching a new fund for individuals using the EIS (Enterprise Investment Scheme) and SEIS tax reliefs; this will allow people to invest in the same companies but on an annual basis. It has prompted a lot of interest already.
Lightful, a technology company for social good that offers a social media management platform and wider digital consultancy specifically for charities, social enterprises and foundations, successfully raised over £4m, partly through SEIS and EIS. CEO and co-founder Vinay Nair said entrepreneurs need to understand what investors are interested in. “We talk about impact, and investors want you to talk about the business model and understand how growing impact positively reinforces the financials.”
Who is investing in the investors? When BGV started out, said Miller, “it was really difficult to get anyone interested in investing in tech for good.” It’s still tough to raise institutional capital, he added, but at least today “people definitely understand it better.”
Finding the right structure:
Tech for good companies face a tricky decision when it comes to choosing a legal structure, and often face pressure to set themselves up as companies limited by shares (CLS). “Technology moves so fast so you need to be able to pivot quickly, depending on what’s happening around you,” said Ashford. Choosing an asset-locked structure, such as a community interest company (CIC), means potentially missing out on significant investment to help scale.
BGV only supports companies limited by shares, partly because of this. “We’ve found that it’s easier to raise that quick money if you’re a straightforward CLS,” said Miller.
Yet social investors still feel uneasy about supporting CLS companies because they are seen as susceptible to mission drift.
“We can see that the company is doing something good but it’s also quite commercial. Is that ok? It should be fine, but how do we get comfortable with that?” asked Ashford.
BGV has an approach for mitigating against this, said Miller, which involves the ability to easily divest from companies should they deviate from their stated social or environmental purpose. Singlify, meanwhile, found the solution in using Purposely, a tool that helps CLS companies adapt their company articles to reflect its social values. And one participant pointed out that – given that some major technology firms are actually increasing inequality – a cooperative form, where users become co-owners, would be another way to ensure it really is tech for good. (Cooperatives can also take on equity in the form of community shares.)
A data wasteland?
Despite advances, some in the sector see social enterprises and investors as still living in a “data wasteland”, with many of us lacking the necessary skills or using data that’s hard to capture.
In fact, those who have the best sense of how people’s lives are changing are the big tech companies (one of the reasons some argue it’s best to engage with them, not avoid them).
There are some bright spots. Ethex shares aggregated investor motivation data and investor behaviour data for companies looking to list offers on the platform. BGV ventures typically integrate data into their business model, said Miller: “Once they get to scale, they get to point where can recommend changes to services based on data they’ve gathered.”
The work of global social investor Acumen on data is particularly significant: the organisation is trying to better understand the end impact of ventures on beneficiaries, and is currently at the stage where it can collate data and create benchmarks for different sectors, not just investee companies in its own portfolio.
Investors should embrace the full spectrum of ‘tech for good’. It’s easy to get pulled into what’s fashionable, but technology is a very broad sector – from companies building more sustainable, long-lasting mobile phones to software technology for off-grid solar home systems helping to support last mile distribution – so keep an open mind.
Engage with, rather than turn our backs on, the big tech firms, all of which have recently started for-profit tech for good programmes. They’re also playing a very important role in driving down the cost of starting a start-up.
The VC sector is in “complete flux”; it’s worth engaging with people here too, and helping to shift them towards more investing for impact.
Patient capital is needed for tech companies to do good – they typically need investment for a 10-year period rather than five years.
Social investors should consider what role they can play in turning data into a public good.