Venture Capital and Impact Investing: Blurring Boundaries Mean New Opportunities

Cambridge Associates
May 11, 2018

Impact invest­ing – allo­ca­tions that aim for social and/​or envi­ron­men­tal change or to solve a prob­lem in the world – has his­tor­i­cally stood apart from “tra­di­tional,” financial-​​return dri­ven invest­ing. But increas­ingly in sev­eral asset classes, includ­ing ven­ture cap­i­tal, an excit­ing con­ver­gence of vari­ables is blur­ring the bound­aries, per­haps turn­ing this old dis­tinc­tion on its head.

Some top VC man­agers are invest­ing in and help­ing guide mission-​​driven start-​​ups. They’re doing so while main­tain­ing the core goals of both deliv­er­ing out­stand­ing finan­cial returns to lim­ited part­ners and retain­ing and attract­ing the best young invest­ment pro­fes­sion­als to their firms. Depend­ing on the LP, the impact is a key mis­sion – or value-​​aligned ben­e­fit, a core dri­ver of returns or just icing on the cake.

The dynam­ics behind this VC/​impact meld­ing include the increas­ing abil­ity of tech­nol­ogy to address nag­ging social prob­lems; today’s low cost of cap­i­tal; the drop­ping cost of com­put­ing and data stor­age; the improv­ing busi­ness mod­els of mission-​​driven start-​​ups; the desire among Mil­len­ni­als, includ­ing the most tal­ented ones, to cre­ate pos­i­tive change and pur­sue pur­pose­ful careers; and the fact that the best VCs hone in on emerg­ing tal­ent, both among their own ranks and in their port­fo­lio companies.

And, as tech­nol­ogy gets cheaper and eas­ier to access, entre­pre­neur­ship con­tin­ues to bur­geon out­side Sil­i­con Val­ley.  Fur­ther, the next gen­er­a­tion of entre­pre­neurs comes from diverse back­grounds, and VC firms with diverse teams and net­works are prov­ing to be in a bet­ter posi­tion to source and win a larger share of the top impact-​​focused companies.

The con­ver­gence of impact and pri­vate invest­ments isn’t just a pre­dic­tion or a “weak sig­nal” we’re sens­ing. It’s pal­pa­ble – here and now and impor­tantly in look­ing ahead.  Fol­low­ing are a few exam­ples – start-​​ups with promis­ing busi­ness mod­els and prospects for address­ing soci­etal problems:

  • Remitly is a mobile pay­ment and remit­tance plat­form that makes wiring money more afford­able, acces­si­ble and secure for consumers.
  • Aira uses its augmented-​​reality tech­nol­ogy to help blind and visu­ally impaired people.
  • Opti offers US munic­i­pal­i­ties an effec­tive solu­tion for mon­i­tor­ing and man­ag­ing storm water sys­tems to help pre­vent flood­ing and improve water quality.
  • Car­rum Health is a dig­i­tal mar­ket­place that gives patients access to high-​​quality sur­geons while reduc­ing health­care sys­tem costs.
  • Andela builds high-​​performing tech­nol­ogy teams by tap­ping into Africa’s top soft­ware developers.
  • One Con­cern is using machine learn­ing to pre­dict nat­ural dis­as­ters and mit­i­gate the dam­age they cause

To read the full arti­cle, visit Cam­bridge Asso­ciates.