Bringing purpose into venture capital
Chemi Peres, Rami Kalish, Cecile Blilious
Israel, May 2020
Pitango, a leading Israeli VC, is going to be supporting robust purpose-driven startups and embracing the world of sustainability and impact alongside its long-lasting strategy focused on delivering superior returns to its stakeholders. Those impact-aligned startups have a potential to deliver compelling financial and impact returns. Our belief is that by supporting purpose-driven startups we will bring the highest returns for our all stakeholders — investors, people and the planet.
We believe that in the long run, the venture capital ecosystem will mainstream impact-tech.
Impact-tech, defined as the intentional use of science and technology to benefit people and the planet, seeks both competitive financial as well as social/environmental returns. The challenges are clearly defined by the UN’s 17 Sustainable Development Goals (SDGs).
An increasing number of tech entrepreneurs are taking these challenges as their targets and creating profitable, innovative and science-based solutions for them. Tech savvy millennials are ahead of the curve when it comes to creating companies with intentional and measurable impact, or, as we define them: Impact Natives.
At the same time, there is a growing demand for impact-aligned investment opportunities, a demand strongly pulled by those same millennials.
It is now clear that high-tech impact-aligned companies combining profit and purpose, benefit from three proven advantages — they tap into new market segments and create brand loyalty within their customer base; they appeal to young talent and succeed at retaining brilliant employees; and they attract new sources of capital reserved for companies with a clear impact purpose. All those have a proven positive effect on these companies’ financial performance and carry a clear message to investors — there should be no compromise between financial and impact returns.
We, at Pitango Venture Capital, the largest VC firm in Israel with over $2.5B of assets under management, aim to move the needle in the venture capital space through the ‘AND’ philosophy: profit AND purpose, capital AND impact. We decided to pioneer this blended approach by adopting impact methodologies and metrics reflecting our commitment to the SDGs while maintaining the highest standards of investment practices. We apply this AND philosophy within our existing portfolio and future deal flow review. We call it the ‘mainstreaming’ of impact investing.
According to the UN, addressing the Sustainable Development Goals by 2030 requires an additional $2.5T in capital investment. Yet, of the current $500B of impact assets under management, less than 10% are allocated to impact-tech. Given the current market demand forces, in addition to the scalable and global nature of technology, a remarkable opportunity lies right in front of our eyes. We wish to tie the power of technology innovation to scale solutions in orders of magnitude.
In order to seize this opportunity, the market has so far resorted to two distinct strategies: dedicated impact funds sprouting within mainstream asset managers on the one hand, and an accelerated wave of Impact Native venture funds on the other. As an example, Bain Capital and TPG Rise Funds have raised dedicated impact funds, creating a clear separation line between impact and traditional assets; and funds such as Fifty Year or Renewal Fund were born to invest in impact-tech since day one.
Pitango is introducing a new paradigm of how venture capital does impact and integrates the ‘AND’ philosophy by turning to a new opportunity set: the Impact Migrants.
Impact Migrants are those startups that, although might not have been created under the SDG narrative, have the potential and a desire to embrace and track their impact. They will define their impact mission, integrate SDG targets within their business performance and track impact in alignment with financial targets, all without losing sight of their primary mission to deliver superior financial returns.
Being aware of the risk of “impact washing” and wanting to emphasize our authentic strive for making positive impact, we have created a clear execution strategy. All Impact Migrants will be thoroughly screened for their intention to address the SDGs, measured through impact measurement tools and will be committed to the net positive impact they are creating.
In Israel lies the perfect impact migrant potential. According to a research conducted by Social Finance Israel, 35% of the 6,600 Israeli startups fall under at least one SDG and are, thus, impact-aligned — or, potential Impact Migrants. A few of these impact-aligned startups are already part in our Pitango portfolio. They have yet to blend an impact framework and measurement system within their core business to migrate into the SDG market.
By migrating these startups into the SDG market, we will support transitioning Israel from the “Startup Nation” into becoming the “Impact Startup Nation”.
As Israeli startups are global by design and think about scaling their products to international markets from day one, by connecting their impact metrics to their business success we are creating globally scalable solutions to the world’s most pressing challenges.
Israel is recognized as a global source of innovation and creativity, has proven to the world that it can deliver innovation, grow tech-driven business and provide compelling financial returns to investors. A thoughtful and integrated impact lens will prove to deliver both profit and purpose.
To make this unprecedented gambit, Cecile Blilious is joining our team to lead this strategy. Cecile is the pioneer impact-tech investor in Israel, and co-founder of Impact First Investments. She comes with 18 years of experience in impact and venture capital and is an international expert in blending technology and impact. By taking a top professional approach to impact & SDG, we aim to send a signal to investors and startups alike: in Pitango you will find the most profitable and impactful investment opportunities. We aim to be a home for impact-tech companies from early-stage to growth.
We expect that this step will accelerate the adoption of the blended impact-tech venture capital model worldwide, support Israel’s brand as the “ Impact Startup Nation” by adding the impact framework, provide our investors with the most compelling opportunities and contribute to solving the world’s most pressing challenges.
