ImpactAlpha, April 10 – Corporate venture capital investing hit all-time high last year. This year, it’s tilting toward impact.
Take last week’s mega solar deals from the $93 billion SoftBank Vision Fund. The Saudi deal will create the world’s largest solar firm inside the world’s biggest oil exporter. The India deal will add four-gigawatts of solar generating capacity.
SoftBank, of course, is not a bank, but a Japanese technology company that set up the mammoth Vision Fund (with $28 billion of its own money, as well as outside investors) to position SoftBank for 21st century growth opportunities. The fund is just the biggest example that corporate venture capital investors seeking strategic investments are looking for ventures that deliver social and environmental benefits.
Masayoshi Son, chairman and CEO of the SoftBank Group Corp. touted technology’s potential to address global challenges at the fund’s launch last year. “The businesses working to solve these problems will require patient long-term capital and visionary strategic investment partners with the resources to nurture their success,” he said.
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For corporations, impact is becoming a signal of opportunities for growth and innovation. Corporate venture capital, used to acquire strategic stakes in a portfolio of outside companies, has a dual purpose. The investments may pay off in their right, of course. More importantly, the investments may provide “strategic value,” such as access to new markets, business models or innovations.
Strategic impact
Like impact, measuring strategic value can be complex. Last October Salesforce, the cloud software company, stood up the $50 million Salesforce Impact Fund. Claudine Emeott, who joined Salesforce from Kiva as director of impact investments, has deployed more than 20% of the fund in a dozen investments. Seven of the portfolio companies were founded by women or people of color.
“When you’re looking for great companies solving big social and environmental challenges, you find founders with less common backgrounds than those in the tech world,” Emeott told ImpactAlpha.
Salesforce has backed Viridis, which connects community college students to job opportunities, as well as Classy, a fundraising platform for nonprofits, and Glassbreakers, which helps companies promote diversity and inclusion, among others. One portfolio company, pay-as-you-go clean-energy finance platform Angaza, will be only the second for-profit to be awarded a Skoll Award at the Skoll World Forum this week in Oxford, England.
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Orange Digital Ventures, the €150 million ($185 million) corporate venture fund of Orange, the French global telecom company, has backed companies such as PayJoy to expand mobile phone financing solutions and Fenix International, the San Francisco-based pay-as-you-go solar system maker that has connected 180,000 African households to clean energy. Last week, French utility Engie SA completed its acquisition of Fenix. Orange recently launched Orange Digital Ventures Africa, committing €50 million ($61.6 million) for investments in startups in Africa and Middle East, where the firm serves more than 120 million in 21 countries.
Now, Orange is exploring how impact investing can advance the efforts of Orange Silicon Valley, the firm’s San Francisco-based innovation and corporate venture arm that launched Orange Digital Ventures. “The value of pursuing financial inclusion, reaching the next billion, for example, is obvious,” says Moses Choi, a principal at Orange and an alum of the sustainable finance team at Morgan Stanley. As corporates investors seek to maximize strategic value with portfolios companies, Choi tells ImpactAlpha, “impact can be a part of this calculus.”
With roots in impact investing, both Emeott and Choi, and by extension, Salesforce and Orange, are leveraging the know-how and networks of impact investors. Salesforce has joined the Global Impact Investing Network, built its measurement framework with the Impact Management Project and has invested alongside of Omidyar Network, DBL Ventures, the Chan Zuckerberg Initiative, and University Ventures, among others.
Orange sources pipeline from groups like fintech investor and accelerator Catalyst Fund and venture firm Village Capital. Orange Silicon Valley is organizing an impact-focused corporate VC event for June, says Choi.
Corporates are “feeling that they need to be doing more to earn their license to operate, innovate and lead within today’s complex market,” say the authors of “Investing in Breakthrough: Corporate Venture Capital, a landmark report on corporate VC and impact from Volans, the UK think-tank founded by John Elkington. “Social responsibility is moving from its traditional role at the business periphery into a core strategy for the business. As this shift happens, investments and capital flows will also shift, amplified by the interests of today’s top talent.”
Unintended consequences
Strategic investments are not always strategic, especially for startups. The broader strategies of corporate, and even impact, investors, are not always in alignment with those of their co-investors, or even the entrepreneur. Larry Mohr, a veteran Silicon Valley venture capitalist was a co-investor in a Gates Foundation program-related investment that flopped.
“The parallel is that they both have objectives that are totally unrelated to the company,” Mohr told ImpactAlpha in an earlier interview. “As a venture capitalist, I want the manager to make a lot of money on the deal. That doesn’t matter to the Gates Foundation or the corporate investor.”
Fred Wilson, a venture capitalist with Union Square Ventures, said startups that take corporate money “are doing business with the devil.” At a conference sponsored by CB Insights recently, Wilson warned, “If you’re the entrepreneur, do you want [a corporate investor] in the room?” Such companies either “can’t get money from anyone else,” Wilson said. “Or the corporation is paying a higher price than I would pay.”
Growth sectors
Nonetheless, corporate VC, like venture capital globally, reached an all time high in 2017, when corporates deployed $31.2 billion, more than triple 2013 levels, into startups through 1,781 deals. That means Corporate VCs took part in about 16% of the 11,042 VC deals last year, covering about 19% of the $164 billion in VC transaction value. Among the sectors and regions with the most activity: healthcare, India, and consumer packaged goods, as corporates look to gain an edge on organic, healthy, sustainable options.
The Volens report identifies six active corporate-VC sectors – cleantech, education, urban infrastructure and transportation, financial inclusion and agriculture and food – as ripe for long-term investments. Unsurprisingly, say the researchers, “these are also areas where we are also seeing activity and investments made by impact investors.”
Aligning strategic investment capabilities and other assets with impact can help corporates “spur innovation, unlock new markets” and deliver better outcomes for individuals, according to researchers from BSR, a business sustainability consultancy, who looked a variety of finance mechanisms to expand access to healthcare.
To deliver low-cost education in emerging markets, for example, global education company Pearson launched the $15 million Pearson Affordable Learning Fund in 2012 and backed 10 for-profit startups. Patagonia’s $20 million Tin Shed Ventures fund (launched as the $20 Million & Change fund in 2013) has invested in nine startups that practice regenerative agriculture, conserve water and divert waste and manufacture sustainable materials.
In 2013, energy multinational Centrica launched Ignite, a $10 million debt and equity fund that has backed a dozen clean energy firms in the UK. Unilever, a global consumer goods company and a leader in corporate responsibility, has stood up multiple impact-oriented corporate venture funds, including the $10 million Enhancing Livelihoods Investment Initiative with Acumen and Clinton Giustra Enterprise Partnership to back agribusiness firms supporting smallholder farmers.
Food is being transformed by climate, population growth, resource constraints and changing consumer demands. Legacy food corporations are using venture capital to stay hip to the trends. Tyson Ventures, the venture fund of Tyson foods, and food giant Cargill have both backed Memphis Meats, which produces lab-grown meat from animal cells and claims to use 1% of the land and 10% of the water typically required to raise livestock for consumption. Last year Tyson Ventures also participated in the $55 million raise of Beyond Meat, the California plant burger maker.
Cleantech dominates big oil and gas company venture investments, which have reached record highs each of the last two years, according to CB Insights. In January, Dutch energy giant Shell invested $217 million into U.S. solar project developer Silicon Ranch Corporation, marking the firm’s return to the solar sector after 12 years. British energy firm BP also re-entered solar after a six year hiatus in December with a $200 million investment in Lightsource, Europe’s largest solar developer.
