ImpactAlpha, Oct. 31 – What if we could combine the focus of impact investing with the speed and scale of Silicon Valley?
That was the premise of my SOCAP conversation this month with two young venture capitalists who are placing early-stage bets on tech startups with the potential to go big on both valuations and impact. Seth Bannon of 50 Years and Maryanna Saenko of Future Ventures joined me for an early morning panel exploring “Tech’s Turn to Impact.”
Impact investors have long backed tech-powered solutions. Now, mainstream tech venture capitalists are targeting big challenges for big solutions as they search for world-positive companies and “impact alpha.”
Still, “The conversation that the tech community is having about impact is largely still siloed from the conversation the impact community has about tech,” SOCAP’s Lindsay Smalling said in asking me to host the panel as a way to try to bridge the gap.
Perhaps the most glaring divide: risk-appetite. Bannon, who with his partner Ela Madej recently raised a $50 million second fund for early-stage ventures that tackle at least one of the Sustainable Development Goals, said impact, and many other investors have “an extreme aversion to risk” (at 27:20 in the video).
“The vast majority of investors are very uncomfortable with a company that has only a 20% chance of succeeding, but if they could succeed could eliminate an entire category of problems,” he said. “That’s a bet we would take all day long.”
Bannon’s portfolio examples include Solugen, which is using enzymes to produce petrochemicals without the petro, or the greenhouse gas emissions. Memphis Meats is growing meat cells in a lab, providing meat protein without the animals, also a major producer of greenhouse gases. Venture capital, he says, is a “weird space. You’re willing to take an extraordinary risk as long as the financial and impact upside is absolutely massive.”
Saenko, who with veteran venture capitalist Steve Jurvetson has raised Futures Ventures $200 million first fund, took a bet on Commonwealth Fusion Systems, an outgrowth of MIT that has at least an outside chance of solving one of the world’s most alluring challenges. Technology questions remain, but the team is top-notch, she said (at 16:33).
“The impact question was trivial. Solve nuclear fusion, solve a lot of the world’s problems,” she said. “If you’re not thinking really big-scale, you’re not thinking big enough.”
Such investor ambitions should be music to the ears of climate innovators, who have long decried the shortage of early-stage funding. The Prime Coalition has worked mightily to stitch together philanthropic capital to make tax-advantaged investments in early-stage climate companies because institutional venture capital has not been forthcoming (the Packard Foundation at SOCAP announced a commitment to the Prime Impact Fund for early-stage climate innovation).
Bannon is an outspoken critic of Silicon Valley’s misallocation of capital. “The climate crisis. Disease. Malnutrition. These are what the best and brightest should be focusing on solving,” he told ImpactAlpha earlier this year. “This is where capital should be flowing.”
Such declarations, of course, make 50 Years’ own portfolio fair game for impact scrutiny. After the panel, a Twitter critic took shots at “premium-priced meat substitutes for affluent Americans,” self-driving trucks and “satellite imagery, so we can see refugee camps growing bigger even if no one helps them.”
“I’d say most of these companies have interesting products, good ideas,” tweeted Betsy Alley, a project leader at the Refugee Investment Network. “I might buy/use some consumer products. But there’s a difference between a good product – or a technology that might have a positive application down the road – and solving pressing world challenges.”
ImpactAlpha’s Dennis Price (gently) suggested that view might be shortsighted. “The Frontiers of Impact Tech” from Paris-based Good Tech Lab lab-grown protein, mobile credit and insurance, genome editing for vaccines and other tech breakthroughs will be key for mitigating climate change and ensuring people thrive. The report maps 180 trends and 500 projects delivering against the 2030 Sustainable Development Goals with “impact tech.”
Even Alley came around, praising the Good Tech Lab report as “thorough & written w/ strategic thinking, vision” and suggesting “Should be a roadmap for impact-minded VCs.”
So it’s perhaps still possible the tech and the impact conversations can converge. It’s important to remember that, in contrast to the dreaded “impact-washing,” in which funds of dubious impact use marketing to raise funds from naive investors, the new breed of tech funds are raising non-impact capital to go after moonshot tech opportunities that just might have outsized impact. This is no time to eschew a fresh infusion of funds and a fresh infusion of talent, I tried to suggest in my own tweets.
Does impact have an early-stage innovation funding gap? Yes. Does tech venture capital invest in early-stage innovation that can go to scale? Yes. Can we leverage tech VC to drive early-stage deep impact ventures that can go to scale? Maybe. If we can line it all up…
Send a note about your favorite impact tech hits and misses to [email protected].