Venture Capital Increasingly Backing Socially Conscious SME Entrepreneurs

0

Feature for SME Today, by Douglas Sloan, Investment Director, Big Society Capital
The Covid-19 pandemic has further highlighted the need for innovative solutions to social problems, and we have seen many impact startups step up and adapt in response to the crisis in areas such as improving physical and mental health, fostering a greater level of financial inclusion, and eradicating education skill gaps.

It is something the venture capital sector (specialist private equity financers for seed and early-stage startups) is taking a serious look at – and in recent years, we have seen it increasingly backing those entrepreneurs who are trying to improve society.

What?

London is a global hub for tech and innovation – and there is an abundance of examples that show it has become a global leader for startups aimed at tackling some of the most pressing challenges we face as a city and as a country. As we recover from the impact of Covid-19 we can help build a fairer and more inclusive society – and the UK’s vibrant tech sector has a huge part to play.

For instance, fintech startup ‘Wagestream‘, is tackling the invisible, urgent problem of financial stress – helping employers roll out a financial app for staff that reduces reliance on predatory forms of credit and builds up their savings and financial resilience.

Another, ‘Open Bionics’, is on a mission to ‘turn disabilities into superpowers’ by building and developing the next generation of smart prosthetics for limb-different children. Ieso Digital Health delivers online therapy for people with common mental health issues across the UK at a time and place that suits them. Meanwhile, Urban Jungle is an insurance startup leveraging cutting-edge technology to help young customers get access to cheaper, better home insurance.

These companies all have impact intent at their core and have designed accessible products and services that are addressing areas of essential human need.

Why?

The focus of venture firms towards purpose-led, tech-enabled startups speaks to a positive future.

Both investors and founders – the major constituents of venture firms – have been shown to increasingly care about impact. For example, one in five young founders reported that creating a positive social impact was their primary motivation for starting a business in the 2016 Mission- led Business Review. Anecdotally, seasoned operators and serial founders are now increasingly launching impact-focused startups too.

As a leading social impact investor in the UK, Big Society Capital engaged with more than 10 times as many venture firms with an impact lens seeking funding in 2020 relative to 2018. And dealroom.co analysis suggests investment into impact-targeting startups has almost doubled in recent years, representing between 15-20% of all venture dealflow in Europe. Similarly, limited partners are showing an increased 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 around 25% were looking to invest explicitly in impact venture as a sector.

Groups such as Pension for Purpose and the Responsible Investment Network of Universities have emerged to help institutional investors come together to learn about impact.

Big Society Capital’s role

The overarching goal of Big Society Capital’s venture work is to build a venture ecosystem that effectively nurtures and scales innovative ways of tackling social problems. Ultimately, Big Society Capital exists to improve the lives of people in the UK through social impact investing.

What can entrepreneurs do to unlock funding?

Startups that attracted funding and how it is helping them:

Peter Briffett, CEO and co-founder of Wagestream:
“Fundraising and scaling as a social impact business presents the same core challenges as any other venture: solve a real-world problem, prove there’s an addressable market, and show signs that with product-market fit you can scale to serve that market.

“You might expect B2B ventures to struggle with balancing commercial sustainability and staying true to social purpose. But for us, it keeps us on track and fuels our thinking and product development. If Wagestream does not help employees, then employers will not benefit themselves and will not pay for it, meaning we cannot grow – so social impact is at the core of our growth and any funding we raise. With our recent Series B £20 million fundraiser for example, we have been able to dive deeper into product development, get smarter about how we understand impact, and accelerate international growth – in other words, solve more social problems, in more meaningful ways, at greater scale.

“As we continue our journey, the most important thing is to make sure we stay true to our social purpose. Our social charter, in our articles of association, helps set the standard for everything we do and makes sure we have social purpose built into our DNA – from product decisions to metrics we track, to recruitment.”

Samantha Payne MBE, Founder and CEO at Open Bionics:
“Our mission has always been to create affordable assistive medical devices that increase mobility, independence and quality of life. We secured £4.6 million in Series A VC funding which enabled us to deliver 3D printed bionic hands to amputees and people with limb differences around the world, including Australia, and the USA – now our largest market. Open Bionics remains committed to democratising life-changing, assistive technologies that enhance the human body and we’re grateful to be on this journey with collaborators like Ananda Impact Ventures, an investor focused on social impact.”

Jimmy Williams, CEO and co-founder of Urban Jungle:
Why did you need VC funding?
“Back in 2016 when I was living with friends in a house share in London, I realised how hard it was to get insurance while renting. The big insurers are just excluding a whole section of society, and that has big personal and societal implications.

“I teamed up with my co-founder Greg Smyth (former Google and Facebook engineer) to create Urban Jungle and fix that. We offer simple smart contents insurance designed for renters. We offer insurance to those the traditional industry often chooses to neglect, and do that in a fair and transparent way, with no hidden fees or interest charges.

“Insurance is a highly regulated industry where you really can’t cut corners, as it should be, so we knew early on we would need capital and support from investors who shared our values and vision. It’s a massive industry, so we knew if we were going to make a dent in it, we would need to get big, and that would require capital.”

How is it helping you achieve impact?
“We have built some great products for our young and lower-income target customer groups. The funding has been very helpful in encouraging some of the biggest and best insurers in the UK to step up and work with us on fixing these problems by underwriting our products, as well as hiring the specialist teams we need to build them.

“Then of course we need to tell our customers about the products, and the funding has helped us invest in marketing which is, in turn, helping us re-educate renters that there is an insurance offering out there for them. We have already helped nearly 40,000 customers in just over three years of trading, and around 80% of customers are new-to-market, so that is a lot of people getting insured who were not insured before. It’s great to see the impact that makes on all of these customers whenever the worst happens.”

Conclusion

Impact startups are part of a movement that is gathering momentum and with many pressing issues facing society, they have an even greater role to play in the recovery phase of this crisis and beyond, providing opportunities for investment.

In the coming years we hope to help spur investment into innovative startups with extraordinary teams that respond to social challenges while also providing strong financial returns for the investors involved.

People are becoming increasingly concerned with social issues, a focus on purpose is increasingly desirable for venture capital investors, and the startups waking up to the challenge will be rewarded.

Share.

Comments are closed.

Subscribe Now!

Sign up for a FREE subscription and receive the latest news, features and updates from SMEToday: