What’s next for impact investing? VCs talk non-traditional funding, ESG and big tech

If you’ve been a little more concerned about where exactly your dollars go over the past 18 months, it’s not just you. Founders, investors and venture capitalists alike have been putting more money towards startups that invest in the greater good — and it’s a trend that’s here to stay.

Impact investing, which is the strategy of investing specifically to generate positive social as well as financial results, has been on the rise as consumers call for companies to be more attentive to the world around them. But as we emerge (sort of) from a year-and-a-half-long pandemic, impact investing has a lot of potential roads to follow.

As part of DC Startup Week, a panel including Impact Ventures CEO Benjamin Vann, Rarebreed Ventures Managing Partner McKeever Conwell of Rarebreed Ventures and Art Stevens, senior partner at 1863 Ventures, discussed what’s next during a virtual event titled, “Everything You Need to Know About Impact Investing.”

On the agenda: the true role of environment, social, governance (ESG) funding, the role racial equity will play and what to do about big tech.

‘Flexible capital’

For Vann, of Impact Ventures, the future of impact investing lies in more capital from non-traditional sources — think community capital, crowdfunding and funding from non-accredited investors.

“You’re going to start seeing a lot of flexible capital come from different spaces, where traditionally you thought that these were the only spaces I could go to to raise capital, both on the entrepreneur and the fund manager side, and you’re going see more capital coming into the ecosystem,” Vann said at the event.

Conwell, of Rarebreed Ventures, noted that the increased use of Zoom has removed a lot of barriers for those seeking capital. With new types of funding and fewer roadblocks, he anticipates more capital flowing overall in the startup ecosystems.

“We’re going to see those dollar amount starts to rise,” Conwell said. “And as we do, we’re going to see these ecosystems start to grow. And what happens for this ecosystem to grow is you’re going to see startups in those ecosystems start to raise this capital, start to get larger, start to hire more people. Now, those ecosystems now have more people in them that have the experience of having started on work at a fast-growing company or a social impact company, who can then spread that information to others.”

Future of ESG

What worries Conwell, though, is that as companies embrace more and more social impact goals, like carbon reduction, other social issues that may be important now will get left behind. In other words, impact investing might become the victim of trends.

“One thing that does worry me is that we spent the last 18 months talking about diversity,” Conwell said. “Now, I’m hearing more and more ESG and not with the diverse lens.”

Vann, on the other hand, thinks that instead of being left behind in the wake of ESG, racial equity will start to become a part of ESG investments. Especially considering, as he noted, that in the wake of George Floyd’s death, racial equity is still a priority.

“There’s going to be a requirement — and I say this in reflecting that there’s still power in people power — there’s going to be a mandate that we include racial equity in ESG investing,” Vann said.

To the top

Although priorities are expanding every day, though, not all of it has been able to trickle up to the folks with the cash. Stevens, of DC-based 1863 Ventures, noted that what’s made things difficult so far, he thinks, is that even with a pandemic, looming climate change and a racial reckoning, the market as a whole has been relentlessly remaining positive and even moving upwards. Thus, it makes it easy for folks to ignore social impact.

“The counterpoint to the things we’re saying from people who don’t care about these things is: it’s just fine, things are great, we’re all making money,” Stevens said. “My guess is there are going to be some pretty important structural things that knock that down. Basically, the argument against monetizing social impact or that you can’t monetize, is that we’ve separated the people who pay for the problems that are created from the people who create them, economically.”

One of the most glaring divides, Stevens said, lies with the big tech companies like Facebook, Google and Amazon, who he noted seem to be Public Enemy #1 these days. This criticism of big tech is something he believes will continue, and eventually force a real change. In response, Stevens thinks they’ll need to up their overall investment for social good in the wake of their detrimental impacts, and they’ll have a few options for how to do it.

“You can go to [tech companies] and say, we’re going to help you address this,” Steven said. “Our platform helps you address these social issues so that the world, increasingly being impacted by it, doesn’t come after you through Congress and much more painful and heavy-handed ways than we’re going to. Or, you can benefit when they do by providing alternatives that really meet the needs for real people living in the real world.”