Why “impact enterprises” outperform

Last week I had the pleasure and privilege of attending the annual social impact review of the HCT Group. HCT has been a client of ClearlySo for quite some time. In fact we met the company about a decade ago, so readers are welcome to take my comments with a pinch of salt.

This annual review has become a key date in the impact enterprise equivalent of the summer calendar. Dai Powell, the chief executive of HCT, discussed trends and how they are increasing the impact of their operations. HCT, as many readers already know, is a charity, but is also considered one of the UK’s largest impact enterprises.

The event was punctuated with glowing references to the various enterprises that provided products on the night. The venue was the St Luke’s Community Centre and the beer was Toast Ale. The highlight of the event was a funny video about someone with disabilities who had gone through independent transport training ans was now able to travel on buses and trains alone. Another video featured HCT chairman Sir Vince Cable, who was appointed leader of the Liberal Democrats on the very same day as the presentation. This video was not as funny, although I suppose that depends on one’s sense of humour.

What struck me during the meeting was the realisation that this company has been enjoying rapid growth at a time when the UK bus market has been in relative stagnation. I’m sure there are many factors behind HCT’s success, but I think there is one factor in particular we can’t ignore: values are “in”.

Observers who dwell on the limitations of enterprises with a social, environmental and/or ethical impact overlook the advantages of being an impactful organisation, especially these days. More and more, people want to work for organisations with values, people want to purchase from organisations with values, people want to invest in organisations with values and, luckily for HCT, local authority commissioners really want to purchase from organisations with values.

This point really was driven home (pun not intended) to me when one of the guests who presented at the event was a commissioner for the three boroughs of Kensington & Chelsea, Hammersmith & Fulham and Westminster. He spoke about how great HCT was and how excited they were about the contract they had recently signed. I suspect the Grenfell Tower disaster happened well after this contract was agreed, but now it’s hard to imagine any other outcome. Up and down the country commissioners are increasingly asking themselves questions such as “does this provider have the best interests of our community in mind, or its firm’s profitability and its personal bonus pool?”

For this reason, among others, HCT has grown at a compound rate of 12 per cent in revenues since 2009 in comparison with a relatively flat UK bus market. Other organisations we work with have seen similar growth and, in many cases, it is the social value provided that is winning the contracts. I believe there will be a lot more of this going forward as more and more commissioners and consumers get on board (sorry again).

This blog was originally published on Third Sector on 26 July 2017.

In Praise of Angels: how angel investors are shaping impact investing

I love angels. A 2011 CBS News survey found that 77% of American citizens believe in the existence of angels. And whilst I was born in the United States, these are not the angels I’m praising in this blog! I’m referring to a group of high net worth investors (HNWIs) who invest in the early stage impact-oriented deals that we support.

From the very start of ClearlySo, angels have played an immensely vital role in our company’s development. In 2010, we began by doing “Social Investment Speed Dating” in which 8 to 10 angels met 8 to 10 potential investees.  Believe it or not, these speed dates resulted in numerous transactions.

In 2012, we brought structure to this network and launched a small tightly-managed and very engaged group of investors called ClearlySo Angels who sit at the centre of our much larger Individual Investor Network. These two networks formed the backbone of our business in the early days and remain vitally important to us for identifying the future stars of the impact investment sector. Angel investors also provided much of the capital which has enabled our firm to survive.  We have over 40 angel investors at present and are always looking for great angels to join our growing base of supporters.

Long before a meaningful institutional investment impact investment marketplace formed, angel investors in the UK where the only game in town. Frankly, an institutional market is only still starting to form.

So, what makes angel investors so great? First, they can do what they want. They do not operate through committees, subcommittees, task forces, departments and all the fabric that is required of large financial institutions. Angels can act on impulse – they can do as they please and can do it quickly. Angel investors also have a substantial amount of money, particularly when they act as a group.  At ClearlySo, we currently have over 700 angel investors in our networks, and this means we can galvanise a significant amount of capital for early growth impact businesses.

Angel investors typically possess skills, expertise and experience which have helped make them wealthy in the first place (especially those who have made rather than inherited their wealth). When they get involved in young companies, they significantly enhance the human capital of the business and the social capital via the contacts and networks they possess.

Therefore, angel investors are a critical part of the UK ecosystem for growing important high-impact businesses, which can deliver great returns and change the world in the process. A good example is the story of Justgiving, which was recently highlighted in a blog post by my colleague Mike Mompi.  Since the formal launch of our networks in 2012 we have assisted 95 early stage impact businesses to raise more than £44m of capital. Many of these growth companies have also gained nationwide recognition – nowhere has this been more celebrated and more obvious than the UKBAA’s recent Angel Investment Awards ceremony, which took place on 6th July 2017.

Several of my colleagues from ClearlySo attended this dinner and we invited several our investor and investee clients to join us.  In the run-up to the ceremony we were aware that six of our previous clients were up for awards which made the evening particularly exciting for us. We were delighted that four of ClearlySo’s former and current clients – 3 impact businesses and 1 impact angel investor:

Bulb Energy won Scale Up Team of the Year.

Fair Finance won Best Social Impact Investment.

Powervault won Best Angel-Crowdfunding Investment.

Meganne Houghton-Berry won Angel Investor of the Year.

(You can find a full list of the other winners here.)

These awards have been going for twelve years, but the special category for impact has only been in place for five years (ClearlySo clients have won the award four times out of those five!).  This signifies how recently impact entered the mainstream.

Apart from the shameless bragging on my part, I think there are a few important points to make about the significance of this event. First, is the rising importance of angel investment in the early stage ecosystem in the UK as exemplified by the growing popularity and influence of the UKBAA and of HNWIs generally. Secondly, it’s fascinating to us that in just five years organisations and individuals linked to impact have seen their share of the awards grow from one token award in 2012 to 3 awards into 2017. I believe in the next 10 to 20 years it will be considered weird for a business not to have some impact story. Perhaps by that point there will be no need for impact categories and we will recognise that all firms deliver impact.

This is really the essence of our thinking at ClearlySo. It also formed the core concept around which ClearlySo ATLAS was developed. ClearlySo ATLAS is our recently launched product which expertly and efficiently assesses the impact of all investees of private equity and venture capital fund managers. Angels have led the way in impact investing, and I believe that PE/VC firms will be right behind them. Both Angels and PE/VC firms have significant and influential stakes in their investees, and as they start to care about impact, the world will see change.

While UK financial regulations mean that we are not yet permitted to market to mainstream retail investors, we hope that will change and look forward to the day when all individuals will become impact investors. Now more than ever we need them – and lots of them.