Corporations venture into impact investment
Patagonia, Pearson PLC, and General Electric are just a few of the corporations playing by the rules of impact investment and backing ventures that create social and environmental value. Amanda Feldman and Charmian Love of Volans explain the "corporate venture" trend and matchmake impact investors with corporate venture capitalists.
For most multinational corporations, the age of doing a bit of good for a bit of marketing value is over. Increasingly, the future of the business depends on the way it fundamentally interacts with the environment and the community. Considerations beyond a financial bottom line will be critical for businesses to survive (let alone thrive) across 10-30 year time horizons.
So where is the innovation required to survive the 21st century? While it may come from within, corporates often need to look outside of their organizations to be a part of the cutting edge. Over the past year, we have met investors who work within or alongside large corporations, in roles that involve taking an equity stake in innovative companies – acting as VCs, but also providing the wealth of expertise across their company to help investments grow.
Recently, I mentioned “CSR” to one of these corporate venture capitalists, and they asked what the acronym meant. Apparently, the innovation to future-proof the business was not coming from that team.
...next time you think about the role of corporates in impact, let’s move beyond the marketing chatter of CSR
Corporate venture capital (CVC) is a newer phenomenon than its big sister, venture capital - only emerging in the late 1960s. It has seen its share of boom and bust, and the most recent wave is the strongest yet. Called the “Golden Era” by Global Corporate Venturing, there has been a dramatic increase in the number of funds between 2010 and 2013. Corporate venture capital has an investment spectrum of its own, with focus ranging from short-term product / service development, to long-term business model reinvention.
This is because corporate venture capital has two key goals: financial return, to keep capital in check, and strategic alignment, to meet key objectives of the parent company. This strategic alignment means corporate venture capitalists can be patient, and scale innovation that has the potential to disrupt or transform their business and wider ecosystems. They are constantly trying to figure out how to measure the ‘intangibles’ of their investments – the critical value for business and society that may only become clear in the long-term.
Sound familiar? When we launched our newest report on the topic, Investing in Breakthrough: Corporate Venture Capital, at this year’s Global Corporate Venturing Symposium in London, we had a series of déjà vu moments, where the topics covered in the programming could have just as easily been included on the agenda of impact investment conferences like Good Deals. For example, one session was called: The Metrics That Matter. Corporate venture capitalists have more in common with impact investors than they might ever imagine – and our research aims to build bridges between these two movements.
Cutting edge corporates
For example, Patagonia has launched a $20 Million and Change fund, structured to support start-up companies that share the core values of Patagonia, Inc. – “working with nature, rather than using it up,” according to Founder and Owner, Yvon Chouinard. Investments made by this fund are encouraged to certify as B Corps, a certification awarded to businesses that meet rigorous standards for social and environmental performance.
In education, the Pearson Affordable Learning Fund sources, develops and invests in innovative business models for affordable schools and educational solutions.
And in health, the GE healthymagination strategy joined forces with the GE ventures team to improve health outcomes through CVC. By taking a system-level view of healthcare challenges (which they have through the reach of their core business), they invest to improve quality, access and affordability of healthcare globally.
Aligning impact investment and corporate venture capital
Our guiding question for the research was: how might corporate venture capital syndicate with the growing impact investment community around shared ambitions, objectives and outcomes?
What we found was a huge opportunity. Impact investors and corporate venture capitalists could both benefit from sharing deal flow, leveraging capital as co-investors, exchanging expertise / distribution channels and mitigating risk – with a focus on impact.
Today, this may be a small part of the mainstream capital pie for impact investment. But next time you think about the role of corporates in impact, let’s move beyond the marketing chatter of CSR – and focus on where their capital is actually being invested to solve the world’s greatest challenges.
This article was co-authored by Amanda Feldman, director of impact and innovation, at Volans, and Charmian Love, co-founder and director of Volans.