When the New York transit tech firm Via went public on the New York Stock Exchange last week, its $3.5 billion valuation rested at least partly on its innovative strategies to boost the accessibility and efficiency of public transportation.
Some might call those “impact” strategies. A growing number of investors and business operators are simply calling them … good business.
“Via doesn’t use the term ‘impact,’ Holistic Impact’s Cecile Blilious tells ImpactAlpha. “It’s mostly implied in the way they promote the values they care about: affordable and accessible public transportation, paratransit access, social mobility and reducing emissions.”
Impact’s value as a source of alpha, rather than a label, was top of mind for European LPs and GPs gathered in London last week at Frame, the responsible investing conference from Reframe Venture (previously VentureESG), and Impact Flock, hosted by ImpactVC and Impact Europe.
In Europe, as in the US, fund managers attempting to invest responsibly in the sectors of the future are struggling to navigate the backlashes to ESG and diversity, and reallocations of capital between managers and continents. Impact, partly unscathed by the backlashes, nonetheless carries its own baggage, from a reputation for concessional returns to lengthy due diligence processes.
But if some GPs are leaning away from the impact label, more fund managers – including those that don’t self-identify their vehicles as impact funds – are leaning into the practice.
Blilious, for example, worked with the Tel Aviv-based generalist tech fund Pitango, which backed Via as early as 2016, to help Via highlight the mission of the company and its founders, amplify the social and environmental impact of their product and create tangible business value.
“The label ‘impact’ isn’t always necessary,” says Blilious. “What matters is the application of impact and weaving it into the product, as it creates significant business advantages.”
Driving value
To cut through the noise, smart managers are leaning into impact strategies, not as a brand, but as a driver of value.
Berlin-based Masawa, which invests in mental illness cures and mental wellness solutions, supports the mental health of founders it invests in to mitigate burn-out risk. London-based health tech fund Meridian Health Ventures has leveraged its impact-mandate to attract LP capital from hospitals. Ada Ventures, also in London, taps a diverse network of “Ada Scouts” to spot overlooked founders capable of delivering “inclusion alpha.”
Lagos-based Ingressive Capital drives company growth by requiring 100% of the companies it invests in to have local ownership, including through Employee Stock Ownership Plan, or ESOPs.
“Our bet is that Africans are best positioned to build viable solutions for Africa,” Ingressive’s Maya Horgan Famodu said at Frame. Famodu says Ingressive has notched four exits and plans to publicly list another this year.
Impact outperformance
New research supports the claim that driving impact drives returns. BNVT Capital, Josh Lerner of Harvard Business School and VenCap International evaluated data on 500 VC funds and 14,000 companies over the last 40 years. The finding: companies addressing real-world challenges outperform traditional venture investments on returns, strike rate, and fund-level outcomes.
According to the research, for every $1 invested in traditional VC investments, investors get $12.40 back. But with impact-focused companies, termed the “Benevolent Disruptors,” investor return increased to $18.80 – representing 51% higher returns.
“Some of the most difficult problems facing society today may also present some of the greatest investment opportunities,” writes Lerner. “Adopting new approaches for thinking about VC investment — for instance, by recognizing that outsized financial returns can be produced while solving big issues at scale — could be integral to the next wave of innovation.”
A separate report, “Impact as a Driver of Value,” from ImpactVC spotlights strategic levers used by 20 leading VCs and LPs to drive impact alpha. Founders are leveraging impact to attract talent, find new customers in underserved markets, raise funding from aligned sources, and navigate regulations.
Across Europe, leading generalist investors, including Accel, LocalGlobe, Balderton, Northzone, Atomico, Kindred, Connect, Index, HV Capital and others, are leaning into impact, according to ImpactVC, which was incubated by Better Society Capital. Those firms have backed high-impact growth startups including Wagestream, Fuse Energy, Axle Energy, 1KOMMA5 and Ophelos.
“As a VC, you’re not interested in quick flips,” Jan Miczaika of Munich-based HV Capital told the report’s authors. “You’re helping entrepreneurs build large sustainable companies where you take all stakeholders into account.”
Access to transit
Via, for example, touts the ability of riders of its microtransit service to get to jobs in places like Birmingham, Ala; Seattle, Wash.; Wilson, North Carolina; and Jersey City, NJ, where it says 60% of drivers come from the community itself.
In 2021, Via shuttered its direct-to-consumer, on-demand rides to focus on its tech platform affordable, on-demand public transport services. Via had built strong relationships with public mobility providers such as cities and school districts. At the time of the decision, Via had more than 500 partnerships with public providers in over 35 countries, generating an annual revenue run rate of $100 million.
Via’s messaging focused on public access and improved livelihoods.
“The zip code a person is born into is one of the greatest predictors of economic mobility,” the company said at the time. “By providing access to efficient and affordable public transportation, Via is helping reduce the need for a car, and increasing individuals’ ability to easily reach employment, healthcare, and educational opportunities.”
