Social impact investing is a strategy through which individual investors, angel syndicates, venture capital or private equity funds seek a positive social or environmental impact, as well as a financial return. Over the last decade, impact investment has become an increasingly popular avenue of deploying capital, satisfying investors’ desires to have a social purpose whilst making monetary gains. In this article, we’ll look at the state of impact investing in the UK, who the most active and prolific impact investment funds are in the space, as well as the trailblazing companies that they’ve funded.
Classifying social impact investment
Of course, a ‘positive impact’ means different things to different people, so it’s difficult to establish a precise classification. For the sake of this article, we’ve focussed on intent and purpose; we’ve included funds that have explicitly stated that the social impact of a company is central to investment decisions, rather than funds whose social impact and environmental benefits are a byproduct of their philosophy or sector restriction.
In accordance with EQ Investors, we’ve also only picked funds that are investing in companies whose products and services are making a positive impact. This excludes those who operate in an ethically, environmentally and socially responsible manner, regardless of the purpose of their products and services (commonly known as ESG investing).
There are 29 UK funds that match our description. The following stats and figures are based off these fund portfolios. Download our free PDF to see the full list of investors, as well as the fund type, description and selected portfolio companies. Let us know if you think we’ve missed any!
Impact funding over time: an emerging community of responsible investors
Impact investment activity has been steadily increasing over the past decade. The Global Impact Investing Network (GIIN) 2020 Annual Impact Investor Survey estimates a current global market size of $715b. Within the UK’s private market, a peak of 51 deals were made in 2019 at a value of £86.4m. We expect impact investing to become more popular as we come to understand more about the ways humans are negatively affecting the planet and what we can do to reduce this impact, as well as the many varieties of social inequality.
With that said, the impact investment market has not been exempt from the coronavirus slow down. In fact, it’s been hit harder than the rest of the equity investment market.
We’ve seen a 25% drop in the number of announced equity deals completed by UK funders into UK companies between 01/01/2020 – 20/06/2020 and the same period last year. Meanwhile, we’ve seen a 37% drop in the number of announced deals made by impact funds across the same period.
Of course, the sample sizes differ massively here, so it’s difficult to establish an accurate comparison. Since the outbreak of COVID-19, most institutional investors have doubled down on supporting their existing portfolio. With relatively few companies backed by social impact funds, it seems reasonable to expect a sharper drop in deal numbers.
The effect of COVID-19 on UK impact investing
Despite the slowdown, we expect the impact investing market to show increased activity in the wake of COVID-19, as investors mobilise cash to help the economic recovery of the country, and rectify the social issues and inequalities that have been exacerbated by the pandemic. Fund manager Triple Point has already set up a Kick Start fund to help early stage businesses that have yet to raise funding, which will sit alongside its Impact EIS fund.
Social impact investments are less likely to fail than conventional investments
Impact investing means supporting companies that align with investors’ moral and ethical viewpoints. But it would be a mistake to think it’s a charitable pursuit, and the financial returns are not to be understated.
Indeed, companies that received investment in the Seed or Venture stages of evolution are half as likely to have ceased trading if they were backed by a social impact investor. They are also slightly less likely to have progressed to further stages of evolution, or to have exited the private market through an IPO or acquisition. This indicates that impact investors have a longer exit horizon than conventional funders.
The UK’s top social impact funds
So who are the most active funders in the space? Our data shows that Ascension Ventures has completed the most announced fundraisings (54) into UK impact ventures, followed by Nesta Impact Investments (41). Fund manager Ascension Ventures has also made 14 deals through an additional impact fund Fair by Design.
Ascension Ventures describes itself as an early-stage VC built by exited entrepreneurs to back the next generation of tech and impact founders. The fund looks to back companies that have an MVP with early traction, a well-defined marketing strategy and clear route to revenues, and exceptional management teams. As well as providing growth capital, Ascension also offers mentoring services and access to its network of industry contacts.
Our research indicates that the fund has been active since 2013, and typically invests between £300k and £1.2m. Ascension’s Fair by Design fund has been active since 2017, and invests in companies developing products and services which are beneficial to low-income families. Portfolio companies include financial services business Credit Kudos and IT tutoring service We Are Digital. The fund will invest in both for-profit and non-profit companies, including community interest companies (CICs), charities and private limited companies.
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Nesta Impact Investments
Nesta is a not-for-profit organisation that describes itself as an ‘innovation foundation’. Its investment arm provides access to networks as well as finance to innovative enterprises that aim to improve outcomes for people and planet. Nesta has been active for almost two decades, making over 200 direct investments since the early 2000s, as well as hundreds of grants to startups seeking to improve the current state of play in their given sectors.
More recently, NIV’s strategy is focussed on making initial investments, between £500k and £1m, in companies operating within three priority themes of interest; education, healthcare and UK government innovation. Companies will also need to meet a number of other criteria including an emerging sustainable business model, a commitment to impact by incorporating impact measurement and impact reports into everyday decision making, and early evidence of product-market fit.
Clearly Social Angels (CSA)
Managed by the impact investment bank ClearlySo, CSA is the UK’s leading group of high-net-worth individuals and families focused on responsible investment. The network typically invests between £300k and £1.5m into seed and venture-stage companies. As well as finance, the fund also provides business support and advisory services, including business plan review and financial performance projections.
CSA’s investments span clean energy startups, such as Bulb Energy and Upside Energy, digital health platform Elemental, and agri-tech company LettUs Grow. According to our data, the network has participated in 27 announced funding rounds into UK companies, but has also made social investments in Ireland, Spain, Italy, Sweden and The Netherlands.
Top companies backed by social impact investors
BBOXX is on a mission to solve energy poverty through the provision of clean, renewable energy solutions to communities with unreliable electricity supplies. The company currently supplies pay-as-you-go solar power, and is expanding to provide other vital utilities, such as access to water and the internet. In doing so, it is directly contributing to SDG 7 of the UN’s Sustainable Development Goals (ensuring access to affordable, reliable, and sustainable energy for all).
Co-founders Mansoor Hamayun, Chris Baker-Brian and Laurent Van Houcke established the company in 2010, spinning out from Imperial College London. A decade later, BBOXX has grown to over 800 employees and is operating in 12 countries, including Rwanda, Kenya, Togo, DRC and Pakistan. The company is now in its Growth stage of evolution, and has received £107m in equity funding over ten rounds. It has an impressive roster of investors, including Ceniarth, Engie New Venture, and Mitsubishi Corporation
Featurespace profiles online customer activity in order to predict future behavior of individuals. This might sound more like a marketing tool than a traditional impact venture, but the benefit comes from the use of its data to make the world a safer place. The analytics software is used to prevent and intercept online fraud by spotting criminals through behavioural anomalies.
Founded by David Excell, a graduate of Information Engineering at Cambridge university, Featurespace is now led by CEO Martina King. The company has featured on numerous high-growth lists, including the Deloitte Fast 50 and The Queen’s Awards for Innovation, and attended the prestigious Future Fifty accelerator programme in 2018.
To date, the team has raised £83.5m over eight funding rounds, drawing on a number of different types of funds including angel syndicates (Cambridge Angels, Cambridge Capital Group), venture capitalists (Highland Capital Partners), not-for-profits (Nesta Impact Investments) and specialist commercialisation funds (IP Group).
Bulb supplies green energy to businesses and households through renewable sources, helping society work towards a more sustainable future. The company supplies 100% renewable electricity from solar, wind and hydro sources, as well as 100% carbon neutral gas. Bulb offsets the emissions from the gas it supplies by supporting carbon reduction projects around the world to tackle climate change.
Co-founded by Hayden Wood (CEO) and Amit Gudka, the sustainability company is now in its Growth stage of evolution. To date, Bulb has secured £65.3m over six rounds of equity finance, the bulk of which (£60m) was raised in June 2018, at a pre-money valuation of £351m. Investors include Clearly So Angels (CSA) and JamJar Investments.
As one of the UK’s best known social enterprises, Bulb has certainly shown rapid growth. In 2019, it reported a turnover of £823m, claimed to have over 1.6m customers and employed 550 people in London. The company has confirmed that it’s still hiring through the coronavirus pandemic. By now, we anticipate that Bulb is well into unicorn status, but will only be able to confirm a $1b+ valuation at its next funding round or exit event.
CloudFactory is working to reduce poverty in emerging economies by connecting people in developing countries to digital work. It does this by offering businesses in the UK and USA access to a cloud-based, on-demand workforce. Its proprietary platform provides communication channels as well visibility on the quantity and quality of the outsourcers’ work.
In 2008, CEO Mark Sears and his wife set off for Nepal for a two-week holiday. They ended up staying for six years. It was during this time that Sears established CloudFactory, nurturing it from three young developers to a business that now employs over 300 full-time employees and more than 5,000 part-time staff.
Now in its Growth stage of evolution, CloudFactory has secured £59.5m over five funding rounds. Investors include the Social Entrepreneurs Fund (managed by Bridges Fund Management), Nepali fund Dolma Impact, and The Rockefeller Foundation.
what3words has developed software that divides the world into 3m by 3m grids; assigning a unique three-word address to refer to specific locations. This technology has business, consumer, and public sector applications, allowing people to refer to a specific delivery entrance, picnic spot or crime scene, in the simplest way possible.
The technology has proved especially useful in areas that lack formal addresses, or where a natural disaster has wiped out roads and landmarks. what3words is now used by over 650 businesses, government organisations, and NGOs, in over 170 countries. It recently launched a Welsh language version of the system to support the emergency services in Wales.
Since its inception in 2013, the company has raised a total of £58.9m over 10 funding rounds. Investors include Force Over Mass Capital, Intel Capital and Mustard Seed. what3words is now in its Growth stage of evolution, with several high-growth lists under its belt, from The Leap 100 to London Tech 50.
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