Cecile Blilious: “Investors are looking at how to integrate impact investing because this is the product that millennials want to invest in.” (part II)
Cecile Blilious is the head of impact and sustainability at Pitango Venture Capital, which is Israel’s largest venture capital fund. She is also the chairperson of the Gita Global Impact Tech Alliance, which is an organization that promotes and creates a community for impact tech practitioners. She’s been in impact investing in tech for the past almost 20 years.
This is the second part of the interview. Read the first part from here!
If you think about the number of investors who really think about the impact of their investment, I understand that the number of investors has grown. Is it growing rapidly or slowly getting bigger?
It’s growing very rapidly. First of all, in 2019, there were 75 billion dollars counted as impact investing. In 2018 there was 502 billion. In 2017, there were 228 billion. 2016, 123 billion dollars. Think about it. 100% growth. There’s no equivalent in the economic world of such growth. First of all, it’s growing, and it’s growing fast.
Number two, the millennial generation is going to inherit 30 trillion dollars in the coming decade. It’s the biggest wealth transfer from the baby boomers to the millennials that were ever done in history. Because this money is going to go to the hands of millennials who do care about causes, this means that all the big financial institutions, the TPGs, and the banks, the city – everybody wants to have a financial product to propose to this generation who is going to inherit this much money. It means that all the mainstream investors are now looking at how to integrate impact investing because this is the product that millennials want to invest in.
What we’re seeing is a big growth and if you track it, you’ll see that hundreds of millions of dollars of funds are being set up with the largest financial. 98% of this capital is invested in infrastructure, financial access, factories, agriculture – to these massive, massive projects. Only 2% of the capital is going into tech.
But only tech is scalable at the level that will really address the Sustainable Development Goals. If you look at the needs that are designed by the success of the Sustainable Development Goals, and what is currently being invested, there’s a gap of 13 trillion dollars. That’s a massive opportunity. Between now and 2030, there is a hoard of 12 to 13 trillion dollars that should be invested in impact to reach the SDGs. All the big financial institutions are setting up funds to start addressing these to offer it to their millennial generation clients. But also, to get business opportunities that they didn’t have before. That’s one thing.
But because high tech hasn’t been involved enough in the SDGs, it’s going to be very difficult to reach them without involving the high-tech sector. This is what we’re talking about – blending high tech and impact. The high-tech sector has been very late to the game, but I believe that in the next five years, it’s going to boom because that’s what high-tech does. It’s revolutionary, it’s disruptive, and it doesn’t grow incrementally. It grows in a totally hectic or very life-changing kind of way and that’s what I expect will happen.
You mentioned making investments to 8 impact startups. How many companies are all together in your portfolio?
Impact First Investments invested in 8 companies between 2015 to 2018, so about three years to invest in eight companies. That’s what we did with Impact First.
Now Impact First is not making any new investments. We’re just nurturing the existing companies in investing. Companies keep raising capital, we keep supporting the companies in investing again and again.
My role at Pitango is a totally different kind of role. Pitango is a massive fund with 2.5 billion dollars. They invest across domains, not only impact, so totally different approaches.
Can you explain a little bit what makes this investment process so long?
First of all, if you think about venture capital funds – it takes them a while to raise the number of commitments for the fund, usually about 18 to 24 months as a minimum. Then they have a strategy where they just start scouting for companies.
It’s not an easy task to invest in companies. I mean, it’s very easy to write a check, but to make good investments, you have to screen a very large number of companies. Because we were the pioneers in Israel, looking at impact tech, it was very hard to find companies that were aiming to maximize their profits, but also aiming to maximize their impact.
Understanding that the product the company is designing is designed to create impact and profit. It took 3-4 years until we could make the first investment because nobody knew what I was talking about. So, between 2011 and 2015, I built the ecosystem in Israel of accelerators, programs, and conferences – all these market mechanisms that created the first investment opportunities.
We had to create them, they didn’t exist. I was very much involved in creating the ecosystem. Some years ago, somebody named me the mother of the impact of investing in the domain in Israel. I was really there in the very beginning, explaining again and again what that means.
Secondly, to make an investment, sometimes you need to screen hundreds of companies or more. Because you need to find the right entrepreneurs with the right product and the right market. Their solution fits the right terms, they want to make an impact that is measurable. We want to measure the impact to make sure that the outcomes are served.
Then you have to find the right funding for them with the right deal. Early-stage startups start with a small amount but then very soon, they need another round of financing and another one. If you count all that it looks like we invested in 20 companies because each company, we invested two or three times at least. Companies grow as you move forward. That’s what you do in the fund.
If you look at venture capital funds, you will see, like for mainstream funds, sometimes the ratio is that for every thousand companies that they see they only invest in one. It’s very, very tough to find the right investments. Again, it’s not tough to invest, you can always write a check, but to find the right investments, which also have the best chances of success, that’s where the venture capital profession is.
Please share some examples of the companies you have invested in – what kind of impact did they bring or what they have already brought?
One example is a company called AngelSense. They are making tracking and monitoring devices for children with special needs. The social problem that they’re addressing is that children, mostly children with autism, which are nonverbal, usually leave their homes in the morning and come back in the evening and during between those times they are going with usually a special bus to the school and then they stay in school then they take the bus again to the caregiver. It’s a long process of activities during the day. The parents don’t know what’s happening with their child because it’s impossible to speak to them because they’re non-verbal.
Sometimes these children tend to run away and hide. And then you can’t find them because they don’t answer when you call them. This can end very badly. A very high percentage of these children are being abused, sexually abused, and otherwise, because they don’t tell. The parents unfortunately have no idea and no way to help them. The AngelSense system is a small device that is attached to the child’s clothes in a way that is very unattractive because these children usually have sensory issues so they cannot have watches or things like this on their body because they don’t like that.
It’s so small that the child is not even aware that it’s there, it’s in his clothes. The parent can always listen in and even talk to the child without the child having to operate anything. Now the parent has an app on the smartphone that tracks the child all the time and raises alerts if there is anything out of the ordinary in the child’s behaviour, which can indicate potential abuse, or that the child got lost and is not where it’s supposed to be.
The company sells the product. It costs 40 dollars a month for the parents because they also have a SIM card in it, it’s part of the plan. They have more than 10,000 users and more than 150 documented cases, where they saved the lives of these children. They allow the mothers to go back to work because they can have peace of mind and know that their child is somewhere they are supposed to be and they can always care for them and interfere.
They also employ mothers of autistic children as customer support. So all in all, it’s a company that has a strong business model that really brings value to the parents, of course, their children, but also to the local police department that doesn’t have to spend so much on looking for lost children, but instead, can rely on that system and save a lot of money. For low-income families, the police in America actually in many cases, support the cost of the system, because they know that it’s going to cost them more to look for the lost children than to provide the systems.
The health care services are very happy with it because it reduces the stress on the families, the children, and their need for medical assistance. Generally, it gets families back on their feet because the mothers can go back to work. This is a good example of a product that is tech-based and is very needed in the market that the competitors are just not as good as AngelSense and don’t provide the same solution.
It’s very linked to our stakeholders. The outcomes are clear, so we know the numbers of children who are being saved or who are being monitored. And the product itself – the product is the impact. That’s what I meant that there is no way that you can sell this product without making an impact.
Another example from a totally different world is a company called GivingWay. They are looking at the broken markets of voluntourism. In the world, we have many many things, thousands of nonprofits that are looking for funding, but they’re also looking for volunteers to help them do all kinds of things. On the other hand, people mostly in developed countries are looking to volunteer. Many young people, but also older people who want to volunteer one day, one week, or one year. Many people want to volunteer when they travel but a lot of people also want to volunteer online from their homes in things that they can do online for these non-profits.
Unfortunately, because this demand has grown, hence our previous conversation about the growth of volunteering, because of this generation, the market got broken because a lot of brokers stepped into the market. And if you want to volunteer abroad, for example, if you type on Google “Volunteering abroad” you will certainly find sort of travel agents who will allocate you as a volunteer to a non-profit usually in the developing world. You will pay the broker about 2000 dollars and there will be a very small alignment between what you want to do or can do and what the non-profit actually needs.
This industry was sort of hijacked by organizations that are organizing volunteers from all kinds of places, deploying volunteers in non in non-profit organizations, but the alignment is so little that the impact is very low, the outcome is very low. The output is high because these people go out and volunteer, but the result is very low because either there’s an English teacher that is being placed in a place where they need somebody to help take care of the tigers, it doesn’t make sense. So, what GivingWay does – it’s an online marketplace that connects nonprofits around the world with volunteers directly with no filters.
So if you go online and you say that you’re traveling for example to Myanmar, and you’d like to volunteer for two weeks. Then you go online, you find GivingWay and they will present opportunities that fit your needs and fits the needs of the non-profit. And then you communicate directly with the non-profit in a way that makes sure that there’s a handshake, that what you can provide is what they need and vice versa.
And if there is money in the transaction because sometimes non-profits provide you with accommodation or food, then you pay them, you don’t pay a broker, and then the money goes to the nonprofit. Many people who want to volunteer also want to donate to these non-profits that they volunteer for.
Another very cool feature is that you can now volunteer online, which is also good for the pandemic because. A lot of these nonprofits need help with campaigns for raising capital or just redo their website, SEO – a lot of things that can be done online by people and just volunteer their time. And that can be done also through GivingWay. All of this is done for free on the GivingWay platform. They take a commission on the financial transactions, but they cut the middleman altogether. And the outcome is that the impact is much higher because you’re committed, you’re going to volunteer in a place that really needs your skillset. You will also be happy because you will be able to deploy your skills. So GivingWay is another example of a product or a company that’s doing a real product that is needed in the market, helps these nonprofits survive and thrive without having to pay third party money that eventually doesn’t go for good purposes.
Can you give some kind of advice for a high-tech or impact up start-ups who are looking for an investor? Where should they start? And maybe if there are some start-up events in Europe that you would recommend, or what is the best way to stand out?
In the high-tech world impact entrepreneurs should be entrepreneurs who could be very eligible for funding from anyone, not only impact investors. I think that it’s very good to have an alignment between the founders and investors in terms of the cause, purpose, and mission of the company. But impact entrepreneurs that are eligible for funding from VCs, just normal VCs should go and approach them. It’s true that still a lot of the mainstream VCs don’t do impact, they don’t understand this world. And if you start talking about impact in your pitch, they will be afraid that you might not maximize your profits and you’re doing something philanthropy and they won’t be interested.
You have to be attentive to what your investor is looking for, what’s his sweet spot, and find the right investor that fits your needs. And make sure that you can present a very strong business case. Many VCs don’t know enough about impact yet. If it’s not on the tech side and VC side, in many cases, these entrepreneurs can connect with people that have the same causes.
There are quite a lot of funds that are looking for companies that have a mission and a purpose and can show financial returns of any kind. There are impact investors all over Europe. It’s not too difficult to find them in all the countries. I know that Estonia has this one early-stage fund that is just getting started. There are funds in Germany, Italy, France, Poland, and the Czech Republic.
Another thing that entrepreneurs should check out is accelerators. Because there are impact accelerators from Catapult in Norway to Hatch in Geneva, to Applink of the World Economic Forum. They all provide you with the right tools to create a good company, but also to create a good impact story that is very embedded in your product. Because of COVID-19, now everybody’s going online, so I don’t think it matters where you live anymore. You don’t need to relocate, you can do it from your home. I strongly recommend looking at these accelerators and trying to think which one fits your business. Because some of them are more tech-oriented, some are more towards agriculture, some are more health care. Try to find an accelerator that can support you, speaks the same language, and knows your market.
Another thing is that you should never compromise on the quality of the product and the market that you’re doing. Making an impact is not an excuse to be lame. It’s not an excuse to be less profitable. It’s not an excuse to work less hard. It’s not an excuse to hire ineffective people. None of that! If we think that because we’re making an impact, then we should be cut some slack by investors or by or by customers. That is absolutely not true. On the contrary, I think impact entrepreneurs have a double responsibility to both – to create a good product that is needed in the market but also creates real impact. And if you want to handle these responsibilities, you have to be the sharpest, the best, the fastest, the most attentive, and the smartest. And you have to have luck, that’s always true, but it’s definitely not an excuse.
I’ve seen people who come and say: “We’re a social enterprise, so we’re not looking at our profits so much”. Big mistake! If you’re not looking at your profits, you might not make any profits, and then what’s going to happen? In two years, you’ll run out of money. And then you’ll have zero impact. You have to spend your money very wisely. You have to know also as an investor that there’s always an alternative cost to money, you can invest in one company or can invest in another.
As an impact investor, you also have a double responsibility to make sure that you invest in the companies that will not only succeed but also make an impact. If these companies are not thinking properly about their markets, and how to reach those markets, and how to be profitable, then in 2-3 years they will be out of money, close down and it will be zero impact. You have to be very sharp and tuned, no excuses.
Do you have anything else you would like to add or advice to give?
I think the impact is a mindset. It’s not a profession. It’s not a market class or an asset class. It’s not geography. It’s all of it. The impact is a mindset. We have an impact as individuals, as entrepreneurs, as parents, as children, as employees, as customers – we always have an impact. Everything we do carries a consequence, and everything is linked together. So if we consider ourselves as people who are conscious about the impact that we have on ourselves on our society in our planet, then we need to look at ourselves as to what is the negative impact that we’re making and what’s the positive impact that we’re making and how to increase the positive and reduce the negative? There’s never a zero, right?
It starts by thinking about how you consume, what you buy, how you recycle what you do with your waste. But also, what do you do with your pension money? Do you talk to your pension manager and tell him that you want your money to be spent or invested in ESG companies or not? Is your money going out to support companies that are polluting the oceans or are making people sick, then you should stop that?
Where are you working? Are you working in a responsible corporation? What are you doing to change the company culture to make sure it’s more inclusive, has more women, more minorities? Everything has a footprint, everything we do.
If you’re an entrepreneur, how do you make sure that your business really succeeds? Not only in a sustainable way, but in a profitable way, while making an impact that positively impacts. How do you make sure that you mitigate the risk of the negative impact? What do you measure? What do you care about? If you want to know what you’re doing, what’s the result of what you’re doing, you should measure it.
I think when you keep that as a mindset, you can also be an employee at the bank and be an impact person because you might change how the bank is using paper, or the bank is treating its waste or, or treating clients from underserved populations. We all have an impact. Each one of us should take it to where we make the most effect on our society and our planet. I think entrepreneurs and investors have the biggest responsibility because we are the people who create or help create these companies that eventually influence all of us. We need to choose well, and we need to be very, very conscious, and accountable for what we do.