Corporate impact venturing: building the pipeline of later-stage opportunities for impact investors

 

Maximilian Martin

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Maximilian Martin

Maximilian Martin

How to stimulate the venture stage of the impact investing market with fresh ideas has stubbornly remained an open question. However, an answer in the form of corporate venture capital that considers impact (or corporate impact venturing) has started to present a convincing response.

Similar to in 2013, respondents to the 2014 JP Morgan/GIIN impact investor survey identified the ‘lack of appropriate capital across the risk/return spectrum’ and the ‘shortage of high quality investment opportunities with track record’ as the currently most limiting characteristics of the impact investing market. In fact, only 11 per cent, or USD 5 billion, of the capital invested by the 125 respondents was committed to start-ups and venture stage businesses. This is less than one-sixth of the capital invested by global companies in start-ups via corporate venturing over the same period, which amounted to USD 29.4 billion in 3,995 deals.

Over the past 50 years, corporate venture capital has helped corporations to capitalize on their profound industry expertise and move from early insights into emerging trends to actual investments that end up generating the new products and services that power core business. The pursuit of impact is now being added to this formula: sustainability is increasingly driving value creation, and assessing joint opportunities for financial and social returns is the new way forward. This venturing approach is very ambitious in terms of scale and impact. The USD 5 trillion Base of the Pyramid market, the USD 546 billion global virtuous consumer segment, the multi-trillion dollar market for green growth and a rising circular economy, combined with a modernizing welfare state, are mega trends creating massive investment opportunities and the possibility to achieve sustainable growth, social impact and corporate profits.

The pathways for sourcing business innovation are also being updated. Fundamental to this shift is the changing role of corporate philanthropy and traditional corporate social responsibility (CSR): the bolt-on approach that is compliance driven, costs money, and produces limited reputational benefits is gradually coming to an end.

Acting on the opportunity has nonetheless proven challenging for many. At a time when sustainability considerations loom ever larger for global CEOs, and in the minds of consumers and regulators, many executives report that they are stuck on their climb: the path to transformation is not yet readily discernible. To help address this issue, Impact Economy, the global impact investment and strategy firm, released Driving Innovation through Corporate Impact Venturing: A primer on business transformation in March 2014. The good news is that corporate leaders do not need to have all of the ideas themselves. With CIV, they can build on the proven channel of venture capital in order to source the innovations now needed, marrying corporate venture capital with positive social and environmental outcomes.

Corporate impact venturing is also relevant for philanthropic institutions, which have thus far played a key role in providing the seed capital that has been helping to build the impact investing market. Fresh potential partners are now coming on stream. Take the field of education, for example, which is both a classical domain of philanthropy and a particularly strong future focus for early-stage investors as per the JP Morgan/GIIN survey referred to above. 64 per cent of respondents plan to increase their exposure in education, with none intending to decrease it, and another third of later-stage investors are expecting to increase their allocation as well.

Education is a foundational field of modern philanthropy, and plays an important role in corporate philanthropy and CSR. Corporate impact venturing is a next logical step. TakePearson, which is present in more than 70 countries and aims to be the leading learning company worldwide. In 2012, Pearson launched the USD 15 million Pearson Affordable Learning Fund, which focuses on  providing K-12 education at the Base of the Pyramid. The Fund’s goal is contributing to  ‘Education For All’ via for-profit investments that drive both impact and profits. As a company, Pearson achieved USD 1 billion of revenue in developing markets for the first time in 2011; the Fund can now help it access the next key innovations in education at the Base of the Pyramid. This is important given its declared objective of becoming a truly global player. Other similar examples are emerging every day.

Corporate impact venturing offers a powerful way to promote corporate opportunities without neglecting corporate responsibility. The prospect of doing well and doing good at the same time has never been greater.  As the market gains scale, companies undertaking impact investing can complement philanthropic investments and help build the pipeline of later-stage opportunities desired by many impact investors.

Maximilian Martin is the founder and global managing director of Impact Economy and the author of Driving Innovation through Corporate Impact Venturing.

Tagged in: CSR Impact Economy Impact Economy Impact investing


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