How VCs can lead the way with ESG and impact investing
- Issues surrounding climate change and inequalities across the globe multiplied with the onslaught of the Covid pandemic over the last year
- Already underserved groups such as ethnic minorities, people with disabilities, children, migrants, women and the elderly were hit the hardest by the pandemic. This widened the gap between vulnerable groups and populations, and deepened socioeconomic inequalities
By Thomas G. Tsao, Founding Partner, Gobi Partners
Issues surrounding climate change and inequalities across the globe multiplied with the onslaught of the Covid pandemic over the last year. Already underserved groups such as ethnic minorities, people with disabilities, children, migrants, women and the elderly were hit the hardest by the pandemic. This widened the gap between vulnerable groups and populations, and deepened socioeconomic inequalities.
At SCMP’s Asia Sustainability Conference on Aug 17-19, I explained how venture capital firms (VCs) can play their role by focusing on the ‘S’ in Society while walking the walk - not just talking the talk - with ESG (environment, social and governance) and impact investing.
As a VC, Gobi Partners is a key conduit in channelling funds from institutional investors into the underserved, underrepresented entrepreneurs and communities throughout Asia.
Start from within
We cannot sell the merits of ESG investing to our limited partners (LPs) or set ESG standards on our over 270 portfolio companies across 13 countries, without first looking inward and starting the ESG process in-house.
The venture world is ultra-competitive, with so much pressure to generate returns. Between the two extremes of ‘pure impact’ vs ‘pure returns’, Gobi realised the need to move towards more impact while creating value.
With help of our ESG committee, Gobi embraced both financial as well as non-financial metrics driving the 17 United Nations Sustainable Development Goals (UN SDGs) across all our operations, from due diligence, post-investment monitoring, through to the exit process.
This June, our efforts culminated in Gobi becoming a signatory to the UN Global Compact, a voluntary global initiative based on CEO commitments to implement universal sustainability principles and to take steps to support UN SDGs.
Pick your ESG focus
Gobi’s mantra is to bring opportunities and access to financing to the world’s best entrepreneurs, regardless of market. Two underserved entrepreneur communities we have underscored this focus in is women founders and the Muslim economy.
In 2018, Gobi was one of the first VCs to join The Billion Dollar Fund for Women, pledging to invest US$50 million in women entrepreneurs. Today, 51% of our portfolio companies have women founders or women in C-suite positions. Most significantly, almost 55% of our female-founded startups were able to raise up-rounds compared to 32% of our male-founded startups.
Another impact vertical we invest in is the Muslim economy, what we term TaqwaTech. For us, this is a business opportunity that the larger investing community has neglected, in favour of what they consider more familiar pastures.
At Gobi, we’ve built an investment framework around TaqwaTech, which has paid dividends both in returns to LPs and supporting entrepreneurs who solving the Muslim economies’ most pressing problems.
More impact means more returns
There is a stigma in the venture world that investing for impact means compromising on returns, especially on the LP side. Even now, many institutional investors -- whether pension funds or college endowments -- still stick to the old investing script: benchmarking their returns against an index or competitors. There is nothing wrong with benchmarking, but why not also benchmark against ESG metrics?
There is so much fear of losing money and the myth that if you do impact investing, you can't make returns. In fact, several studies have shown that you will make more money by focusing on impact investing, and our startups have backed that up:
- Women founders: Airwallex is an Australian-Hong Kong fintech that helps SMEs reduce cross-border costs. Co-founder and President Lucy Liu led Airwallex to become Australia’s fastest growing unicorn in 2019 and a US$2.6 billion valuation as of March 2021.
- TaqwaTech: Airlift, a quick commerce startup from Pakistan is revolutionising grocery delivery in the Muslim economy with its 30-minute same day deliveries. On Aug 18, Airlift raised Pakistan’s largest ever funding round, an US$85 million Series B that values it at US$275 million. Pakistan’s retail grocery market averaged over 12% growth annually between 2002 and 2019, with much more room to grow.
- Health and safety: Prenetics is a Hong Kong biotech that grew massively during Covid thanks to its ability to provide accurate, quick testing kits. Today, it is developing Covid testing pods that it hopes to deploy outside office spaces in order to help businesses bring workers back full-time. Another unicorn in Gobi’s stable, Prenetics is eyeing a SPAC (special purpose acquisition company) merger worth US$1.3 billion and a Nasdaq listing.
For all three startups, Gobi invested in early stage rounds, meaning our LPs saw higher returns and valuations while supporting impact investing. So yes, you can build the next generation of sustainable companies that not only do great things for the planet, but also create very tangible value propositions.
VCs, the time for lip service is over. When 2030 comes around and impact-driven companies are leading global change, can you honestly say you played your part?
To hear more about what Thomas Tsao, Founding Partner of Gobi Partners in Malaysia, discussed in the panel - “Build back better by focusing on the ‘S’ in society”, please visit Asia Sustainability Conference 2021 to learn more.