As investors in UK and European small businesses and entrepreneurs, we spend a fair amount of our time trying to understand the risks, as well as the opportunities, that affect a business.
We believe the best companies look to make a positive contribution to the world around us, and that ‘investing for good’ has long-term benefits for everyone, without compromising returns to investors.
When we talk about impact in this context we think mostly about the Sustainable Development Goals published by the United Nations. The goal in assessing our companies against these measures is to help them lower costs, identify risks and opportunities, and present more compelling stories to their customers. Here they are:
Octopus Ventures is in many respects a traditional venture capital investor, and our main focus is on driving economic returns. However, we also firm believers in what the impact investing community is doing. By tracking, measuring and monitoring impact-related measures within our portfolio provides both distinct business advantage, as well as huge benefits to society in general. By identifying and addressing these factors at the point of investment, we are able to help drive attitude and behaviour change at the earliest stage of a venture’s life.
To this end, we have been working with ClearlySo, a London-based impact investment bank (backed by Octopus Group), to help us devise a way to perform that assessment. The result is that in December 2016, after a number of years of working alongside Octopus Ventures, ClearlySo launched ATLAS, an online ’impact navigator‘ for private equity and venture capital investors to map, track and report impact and sustainability
Measuring impact from the bottom up
The key to building ATLAS with ClearlySo, was to make it low-burden and immediately useful for the investor and the investee company. Through ATLAS, ClearlySo analysts review seven aspects of a company’s operations and products and services to deliver a concise and direct report, through an online portal, that includes results, actionable recommendations and opportunities.
The private equity and venture capital market has the potential to drive a huge amount of change. Not through proxy votes, as might be seen in larger companies, but by direct influence at board level. In a small, nimble company it’s possible for us to drive genuine, meaningful change that will benefit not only the company but the planet and those that inhabit it. By using the portal, we want to see investors in the wider community drive behavioural change within their companies. We want to help them improve their position, start to think about these things and tap into micro and macro trends.
Alongside the societal benefits, and the potential improvement in portfolio company performance, there are other reasons why we wanted to do this. Our investors increasingly want to know what portfolio companies do and the impact they’re having on the world.
Take on online furniture company with a complex supply chain and widespread distribution channels. A company like this has a huge opportunity in terms of delivering on sustainable sourcing, optimising natural resource use and ensuring the wellbeing of its suppliers. Impact of this nature is good for companies and while you always believe that adopting some of these sustainability practices is good what was less clear before we started thinking about these things is how rapid some of the wins can be. Moving a factory to LED lights, for example, has immediate impact and an immediate return on investment.
At the moment, we have completed the analysis on around 50% of the companies we invest in, with a view to completing the rest prior to the launch of Titan fundraise later in the year. Today, Octopus is very much a pioneer in this space, being the only mainstream investor to be thinking about these things in a systematic way. That said, given the huge potential benefits this approach can bring we think that’s going to change. And when it does, we can be proud in saying we led the charge. Find out more at clearlyso.com/atlas.