ImpactAlpha, March 11 – Five out of six Israeli entrepreneurs believe that their businesses are doing social or environmental good. More than one-third of startups have the specific intent of having positive impact. Yet only 13% are tracking or measuring their impact.
Israel-based investing platform OurCrowd is trying to shrink that gap with a new $30 million fund targeting the Sustainable Development Goals that will require portfolio companies to track and report their social and environmental performance – and tie the fund’s own compensation to such impact.
OurCrowd is the brainchild of Israeli serial entrepreneur and venture capitalist Jon Medved, who built the platform to help promising Israeli tech startups crowdfund early capital from accredited investors. OurCrowd has helped 170 companies raise $1 billion from a network of global investors since 2013.
The platform has helped companies in the U.S., India, Canada, U.K., Hong Kong, Singapore and Australia secure funding from 30,000 accredited investors around the world, who write checks for as little as $10,000.
The company’s new fund, launched with support from Social Finance Israel, is trying to stand out in Israel’s increasingly crowded impact investing field. Impact investing in Israel has doubled, to $260 million, in the past two years. Investment in healthcare, agriculture, clean tech and other impact-related sectors, reached $1.6 billion in 2018, according to IVC Research Center.
Such growth caught OurCrowd’s attention. But OurCrowd’s Richard Norman says it’s hard to know how broad and deep the impact is. Joint research from OurCrowd and Social Finance Israel identified the yawning gap between the percentage of companies that believe they are doing social or environmental good and the ones that measurement or track it.
“We’re trying to shrink the gap between 35% and 13%, and shrink the gap down from the 84% too,” Norman told ImpactAlpha. “That’s what our value will be.”
OurCrowd has been working with Social Finance Israel since last April to develop the fund and its impact methodology. The company is looking to raise $30 million to invest in 15 to 20 companies with business models aligned to the Sustainable Development Goals.
OurCrowd will start with is standard business model and financial vetting process. “Then we layer on top an impact assessment,” Norman says. That includes alignment with one or more of the 17 global goals, as well as the impact intentionality of company founders. The firm will assess social and environmental responsibility and good governance practices at the business level, targeting issues like company recycling practices and pay equality. Companies that receive investment will be required to track progress on several impact performance metrics.
A key characteristic is of the impact fund is that OurCrowd’s performance (and compensation) will also be tied to the impact metrics it sets with its portfolio companies. The fund’s standard 20% “carry,” or share of the fund’s profits, will be cut to 15% if the fund fails to meet its impact targets. That signals that impact is not yet of equal stature as financial returns.
“Once we can standardize the idea of translating impact to a dollar figure, you may see more investors asking for it,” Norman said. He said the company plans to donate 10% of its carry to organizations working to advance impact measurement, analytics and research in the impact investing industry.
The new fund continues OurCrowd’s expansion beyond its crowdfunding roots. The firm has also raised traditional seed funds to help provide investors with diversification and attract institutional investors and family offices. Investors in OurCrowd’s funds can commit as little as $50,000.
Originally, Norman said, “We wanted to disrupt the venture capital model to help people invest directly into companies. Then, instead of trying to beat the funds, we launched a seed fund of our own, and from there, never looked back.”