Investing in Impact-Driven Companies
EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.
This week, Elana talks with Carlos Domínguez Rullán, Managing Partner, Carbono3 Ventures.
What is your outlook for investing in impact-driven companies?
For clarification purposes, my interpretation of an impact-driven company is one that has a positive impact as a consequence of making business, leaving out those companies that donate part of their profits or rely on buy-one give-one models.
Investing in impact-driven companies makes all the sense. There is a growing demand for impact from customers when making their purchase decisions, there is a growing demand for impact from investors when making funding decisions, and there is a growing demand from the society to governments to integrate social and environmental issues into policy making in order to make it easier for impact-driven companies to thrive in this evolving market environment. Non-impact-driven companies will have to adapt, and are adapting by adopting ESG efforts and metrics, and also appointing impact-driven leaders to navigate the change. We are finally overcoming the wrong idea of “impact means sacrificing profit,” and investing in impact-driven companies is moving from trend to standard as more investors see and validate that impact-driven companies do better in terms of value creation, risk-mitigation, and performance.
What are the greatest opportunities you see and why?
Positive innovation within impact-driven startups. Investing in technologies tackling pressing social and environmental issues, in my opinion, holds the greatest opportunity in terms of financial returns (venture capital is broadly known to continuously rank among the top of asset classes) and impact return, given the exponential growth and global reach potential of technology. Impact-driven startups (i) exude passion and resilience; (ii) solve relevant problems and perform better during macroeconomic downturns; and (iii) help us all live in a better world, which provides personal gratification, a better quality of life and an additional economic return that sometimes is difficult to quantify such as those taxes paid that are used for disaster recovery from natural events, to subsidize treatments for chronic diseases or housing or food programs for low income families.
According to Cambridge Associates, impact venture capital has grown 60% in the last two years, so definitely more people agree with me that this is the greatest opportunity we face.
What are the greatest challenges you face and why?
Mismatch between capital and innovation. Lots of opportunities and innovation arise in locations where such social and environmental problems are present, usually in countries and markets where venture capital is unavailable or very limited. For example, according to Crunchbase, U.S. venture capital funding per capita in 2021 was $808, while the first Latin American country to appear in the list is Brazil with $50, and then Mexico with $29. In addition to available data supporting this belief, I have seen it first-hand after living in Spain, Portugal, Sweden, Brazil, Ethiopia, Southeast Asia, and now Puerto Rico. Thankfully, there are recent increasing efforts to overcome this challenge such as VC Lab, the venture capital accelerator of the Founder Institute, a Silicon Valley-based incubator which is supporting the creation of new venture capital firms worldwide by new and emerging managers at a scale never seen before.
What keeps you up at night?
Nowadays, my five-month-old baby girl; otherwise, I make sure to sleep well. Let me take this question to recommend the book “Why We Sleep” by Matthew Walker. Investing our time in sleeping enough will help us overcome more productively any problem or challenge we face, regardless of how big it may be. Supporting impact-driven entrepreneurs and delivering higher financial returns than traditional venture capital by investing in positive innovation to attract more capital to impact-driven venture capital is what drives me, keeping always in mind that a good night’s sleep will be better for me, for the entrepreneurs we work with, and for the investors that trust us.
The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.