Humanity United, part of the Omidyar Group, has raised $23 million to invest in early-stage technology companies fighting human trafficking and other abusive practices in corporate supply chains around the world.
Humanity United’s fund, called Working Capital, is backed by Walt Disney Company, Walmart Foundation, C&A Foundation, and several impact investors, including the Soros Economic Development Foundation. The fund is looking to invest between $500,000 and $2 million in 12 to 15 companies using a mix of equity, convertible debt and other alternative deal structures.
The fund is meant to address the use of slave labor, poor working conditions and other worker abuse that plagues the networks that companies use to assemble products before they are shipped to consumers. According to Alliance 8.7, a UN-affiliated group, as many as 40 million people — 70% of them women — are victims of modern slavery. Among them are 16 million victims of forced labor exploitation around the world.
While global corporations have taken steps to tackle the problem, such as imposing codes of conduct and subjecting themselves to social audits, the practices persist.
“Codes of conduct are voluntary and difficult to enforce down the supply chain. Coalitions are slow moving. Companies’ social audits — their go-to tool — can be gamed and ultimately don’t tell much about labor conditions,” says Humanity United’s managing director Ed Marcum.
Marcum says, however, that there are well-intentioned companies that want to do a better job attacking the problem as consumer and investor demand for ethical and sustainable products grows.
Humanity United has been championing human rights since it launched as a social welfare organization in 2008. Its decision to raise a venture fund reflects its desire to “take a more hands-on role in the potential success” of labor-related technologies, Marcum tells ImpactAlpha. He argues that new technologies can form part of a toolkit for companies to improve transparency and manage risk in their supply chains.
Humanity United’s move also grows out of its support for Partnership for Freedom’s 2015–2016 Rethink Supply Chains challenge that focused on technology to address labor trafficking in global supply chains and featured ideas ranging from digital risk assessment in the seafood sector to mobile “worker feedback” tools.
Humanity United has identified four investment themes for the fund: product traceability, worker engagement, risk assessment, and ethical recruiting tools. It has already made two investments since reaching a $14 million first close for its Working Capital fund last year: in Provenance, a blockchain-based startup for product traceability, and Ulula, a software firm that helps companies engage directly with workers in their supply chains.
The foundation is also looking into biometrics, digital identity technology, sensors and connected devices, Marcum says. “Anything to do with getting interesting real time data, like are there pollutants on the factory floor? Are workers standing on their feet for 17 hours straight?”
Part of Humanity United’s decision to open the Working Capital fund for outside investment, particularly from corporations, was to help it identify solutions companies need and want. (Most venture investing initiatives in the Omidyar Group do not bring on limited partners.) Working Capital does not require its corporate partners to pilot or contract with any of its portfolio businesses, but the hope is that they will as the technologies evolve.
“There is self-selection involved here. The ones who have committed to us are committed to doing this already,” Marcum says.
Getting corporate capital in the door required some creative negotiating on Humanity United’s part, however. Most corporations see venture investing through their core business lines as too risky because of their financial responsibility to shareholders. Humanity United’s corporate partners include foundations and other grant-making arms.
“Every entity found a way, [but] it’s been a learning experience for us,” explains Marcum. “Accessing capital within corporate structures is pretty uncharted territory.”
Of the $23 million in Working Capital’s coffers, $19.5 million was committed by corporate partners and impact investors. The balance was a grant from the U.K. Department for International Development (DFID) to create a “sidecar fund” for ideas that are too early stage for investment capital. Grants will be made for building proof of concept, prototyping and piloting.
“A lot of early stage stuff isn’t quite at the level where’s its the right [investment] opportunity,” Marcum says. But fledgling ideas need early champions, he adds. “We can’t just keep throwing good money at social audits.”