The rising popularity of Impact Investing means less barriers to funding for socially conscious startups

- June 15, 2015 5 MIN READ

Melbourne-based Geoff Gourley worked in the corporate world most his life, making money so that he could buy houses and cars. He was doing well financially until he realised that he wasn’t very happy at all. He came to the conclusion that focusing on profit over social impact was a poor way of doing business.

“I wasn’t getting any good feeling out of not giving back,” says Gourley. “I had a real pivotal moment in my life in 2008 and that really changed the way I looked at things. It was at that time that I started to create and work in businesses that were making a difference, predominantly, at that stage, in the environmental space.”

Three years ago, Gourley and a number of partners established a business focused on energy efficiency, renewable energy and solar power called NuGreen Solutions. Through that experience, Gourley learnt a lot about creating a profitable venture that also made a social and environmental impact. This was one of the main reasons he created the recently announced $100 million Impact Investment Fund.

There are real barriers for startups out there that have great ideas that will make a social or environmental difference but the access to capital for these ideas does not exist as readily as it does for other ventures.

“You go to a bank or investor and and say I’ve got this idea that’s going to improve the social equality of women in the workforce and people often don’t invest in that,” says Gourley. “However at Impact Investment Fund, we’ll invest in those types of businesses, those types of projects, whether it’s large renewable energy projects, wind farms or forest projects. There are a whole range of businesses that we will invest in that are ethical and sustainable. We want to make a difference and leave a legacy, but also open a pathway for others to do the same.”

Where Australia has been quite strong to date with socially conscious startups is in the food industry. Organisations such as Amazonia and Zambrero have programmes core to their business operations that solve issues directly related with what they do. Both are also highly scalable multimillion dollar companies that have produced millionaire founders. It’s also worth noting that both businesses are also highly acquirable if the founders ever wanted to sell.

The same can work just as easily for sub-service and technology based businesses with the same mantras. Tech giant Salesforce is an example of this with their 1 | 1 | 1 model, which is integrated into their company culture.

They give 1% of profits to people and organisations that need it. They do the same with 1% of their product value. And all employees spend 1% of their time supporting causes they are passionate about (this equates to approximately 20 hours a year). Since starting this, they have given away over $53 million in grants, 580,000 hours of community service, and provided product donations to over 20,000 non-for-profits.

Salesforce started doing this once they were a large company. But more and more startups are looking at making social impact and is the core reason the business exists.

The primary focus of socially-focused startups is to make as much money as they can, and drive a profit. The greater the profit, the greater the impact. In fact, I’d argue they need to steer their companies towards profitability faster than that of other startups because having the revenue to deliver on the social or environmental aspect of the business is critical to the entire operation.

For Gourley, the last 12 months has been spent formatting the fund and getting it registered. He told Startup Daily that setting up this kind of operation requires a fair amount of due diligence.

“Looking at our own profile, investment appetite, how are we going to spend the money, having conversations with all the hedge fund managers all takes a fair bit of time,” says Gourley. “The intention is to open the fund around the 1st of July. Once the fund opens, we’re in a position to start assessing and making investments into various private and ASX listed entities.”

The fund will be looking to invest in companies that promote a positive social or environmental outcome. It will also be looking at investing in media ventures that communicate social and environmental messages, such as digital media companies that have a social focus. Examples include highly-scalable startup companies like ThankYou Group and TOMS Shoes. It is also the world’s first Impact Investing Fund to be Branded Trust Certified. Branded Trust is similar to B Corporations, however, the process for certification is a lot more rigorous in the assessment and the benchmarking.  

We’ll be originally be making investments in Australia and New Zealand” says Gourley. “But we’re certainly going to be having both a local and global focus. It’ll be fantastic to invest initially in all great Australian ideas because we do want to give local businesses and entrepreneurs and individuals access to this level of capital. I mean a $100 million impact investment fund is one of the biggest in the country. Funds by VCs that fund startups at the moment, (the ones on the bigger side of things) are still only around $20 million in size. That’s not sending a message out there that we want to back Australian ideas. $100 million is. That’s our starting point.”

“We want this to be a billion dollar fund not just $100 million. We want to be a billion dollar fund investing in Australian businesses, particularly ones that have a social environmental angle outcome to them. We see that now’s the time to do that, to try to create change for the future”.

It’s certainly a grand vision and I would agree that the taste and interest in socially impactful businesses has grown significantly over the last five years. However, labelling $20 million funds as not sending a strong message that people are behind Australian startups is perhaps a little harsh, especially as some of those local funds have played pivotal roles in now global startups like Safety Culture, Canva, Culture Amp, Shoes of Prey and strong local performers like GoCatch and Airtasker.

Impact Investing is becoming more prominent across the country and take a number of different forms. There are retail funds like Australian Ethical Super and Future Super; there are wholesale funds like the soon-to-launch Impact Investment Fund and The Impact Investing Group. We also have organisations like Renata Cooper’s Forming Circles that invests small amounts of seed funding into small businesses and startups that have a social impact.

As more funds become more successful, the mainstream will start to shift saying ‘You know what, I am going to invest my self managed super into that fund because I’m going to get a return but also I’m doing a good thing,” says Gourley.

“Right now there is a very small group of people playing in this space. We all know each other, we’re all in it for the right sort of reasons. If anything, it’s good collaboration between the players in this space. So people like Berry Liberman from Impact Investing Group and Danny Almagor who owns Small Giants, are big players in this sector. They’ve been in it a bit longer than us. They’re doing some amazing stuff and now if there’s a way we can collaborate and help each other, then we’re definitely open to that.”

Featured image: Geoff Gourley. Source: Supplied.