To win investment they must show they can scale up their businesses fast to maximise impact, says Jon Coker, a founding partner in the EKA Ventures fund. The fund, which has just closed, was founded by Coker and colleagues Camilla Dolan and Andrew Richardson, with the aim of focusing on the direct impact consumer tech products can have, which they see as a gap in the impact venture capital market.
“There are two key differentiations for us; one is a focus on consumer technology and the second is that we only invest in companies where positive impact can be directly attributed to the product being developed,” Coker tells Impact Investor.
The fund, active since April 2020, is targeted at three types of investment. ‘Sustainable consumption’ includes information technologies that help reduce emissions, waste and resource use through more efficient, circular consumption models and supply chains.
Meanwhile, ‘consumer healthcare’ focuses on reducing chronic illness and health inequality through prevention, early detection and low impact treatment methodologies. Finally, ‘inclusive economy’ investments cover businesses seeking to reduce poverty and financial exclusion by using consumer technology to improve access to and reduce the cost of products and services seen as vital to day-to-day living.
EKA Ventures has already signed off on five investments. In the healthcare sector, the fund has invested in Paired, an app intended to improve couples’ relationships, and thus improve mental health.
Insurance company Urban Jungle also attracted investment, because it improves inclusiveness by using technology to provide insurance to people and sectors that struggle to get cover from mainstream insurers.
In the sustainable consumption category, an investment – yet to be formally announced – has been made in a company developing technology that corporate users can deploy to establish the sustainability of their supply chains.
Typical investments are expected to be in the €587,000 to €3.5mn (£500,000-£3mn) range to acquire equity stakes of around 5-20% in companies at what Coker describes as the late seed/early series A stage.
“That probably means they’ve launched a product, and have customers, but it doesn't need to be significantly more than that. They've normally taken a round of investment from a seed fund or group of angels, and then we come in at the next stage,” he says.
The largest investor in EKA Ventures is British Business Bank, with a €42mn (£36mn) commitment. Big Society Capital (BSC), Isomer Capital, Guys and St Thomas Foundation, Planet First Partners, Draper Esprit, and Snowball have also invested, as have 24 entrepreneurs, 12 of whom the EKA partners have previously backed.
Coker was formerly co-managing partner and head of the investment team at MMC Ventures, a tech-focused VC company, which made early-stage investments in meal-kit delivery service Gousto, and online flower delivery platform Bloom & Wild. Dolan was also a partner at MMC Ventures.
The fund has been founded on the idea that companies can use information technology to compete successfully by improving reach, reducing operational inefficiencies and cutting costs, while at the same time positively transforming their industry.
That, in turn, should also make them more attractive to customers, talent and investors seeking out businesses with a clear societal purpose.
But a sound product and good intentions are not enough on their own. Coker says the ability of companies to scale up their businesses fast to maximise the impact of their technologies is a major factor in determining funding decisions.
EKA is looking for companies with the potential to change the way a sector operates by grabbing enough market share to force others to react. He likens this to the way that Tesla’s growth pushed the car industry to speed up the shift to electric vehicles.
“Scale and ambition are really important to us. True scale is, how quickly can you get to £100 million in revenue? We have experience backing companies that have been ambitious from a very early stage, and continue to grow very quickly,” the investor says.
“That's the focus for us: are they operating in a market that can sustain that kind of growth? And do the founders have the drive to carry on and do that, rather than to exit early?”
Impact Management Project framework
EKA Ventures uses the Impact Management Project (IMP) framework, backed by the UN and global private and public financial institutions, to measure the impact of its investments.
“We work through that with the founders of each company we invest in. We end up with a set of KPIs [key performance indicators] that we and the company want to track, and use that to understand the impact the technology is providing,” Coker says.
This is more straightforward for early-stage companies with businesses based around an existing technology whose impact in the marketplace is already measurable than it is for those whose businesses are based on a future product launch.
“It's quite significantly different from company to company, but when you sit down with the founders, you can really understand how they plan on delivering impact,” he says.
There is no shortage of potential partners to assess. Coker estimates EKA Ventures receives around 1,000 proposals a year from companies seeking support and will invest in just six to eight of those.
He notes a rapid growth in the number of businesses founded specifically to tackle social and environmental challenges.
“There’s a lot of really interesting developments in terms of helping companies understand their carbon footprint and how to reduce that, whether through carbon emissions reduction or offsetting,” he says.
Meanwhile, in healthcare, a spate of tools and apps are emerging that enable consumers to understand their own health better, ranging from those targeting athletes, such as the Whoop app, to tools helping everyone to monitor their blood sugar levels, Coker says.
The companies in which EKA invests, in addition to making an impact with their technology, need to sign up to follow responsible business practices in relation to Environmental, Social, and Governance (ESG) issues. Given they tend to be in the early stage of their development, this is easier to implement than in larger firms with longer-established working practices.
“These companies want to put the right processes in place from the start, that’s the important thing – and they're very small, so it's relatively simple to do,” says Coker.
However, he cautions the venture capital industry against applying a one-size-fits-all approach to ESG demands, given the limited capacity of small companies with a small staff to process them.
“If you look at the data requests aimed at bigger companies, a lot of them would be irrelevant for small companies, and it would be very hard for them to manage. The industry needs to look at ways of introducing this, so it doesn't get in the way of the companies’ operations,” Coker says.