Reducing mundane tasks should enable them shift to more “uniquely human” ones that involve skills like creativity and empathy.
The Spectrum of Impact Investing
The Rise of Impact Seed Funds
By Tasha Seitz
Last month, I had the pleasure of attending SOCAP (Social Capital Markets), the world’s largest conference on social enterprise and impact investing, at the Fort Mason Center in San Francisco, California. As a veteran attendee (this is my sixth SOCAP conference), I am always energized to be around smart people who are passionate about the potential of the intersection of impact and markets. At the conference, I spoke on a panel called “The Rise of Impact Seed Funds” with Wes Selke from Better Ventures, Shauntel Poulson from Reach Capital, Brian Dixon from Kapor Capital and Julie Lein from the Urban Innovation Fund. We discussed the evolution of seed-stage funds and talked about specific investment strategies, and how our focus on impact boosts performance. Below, I’ve recapped some of the key takeaways from our panel discussion (feel free to check out a video recording here).
Defining and measuring impact as an impact fund
Social impact is a loaded word and means different things to different people. While each fund on the panel considers themselves an impact fund, we each define it very differently. Brian Dixon from Kapor Capital shared that, “when we’re making an investment we’re not only thinking about whether this investment will get us a 3x return of the fund, but also how does this actually make a difference.” At Reach Capital, “we invest in missionaries, not mercenaries” said Shauntel Poulson. When it comes to impact, they focus on three things: a user base that targets underserved and under-resourced populations, usage penetration in terms of depth of usage and user satisfaction, and long-term improvement in student outcomes and achievement. The Urban Innovation Fund, Julie Lein noted, is a market rate-driven fund with an investment thesis that is impact-driven, mission-driven and world positive. “More and more we’re moving towards a place where you don’t have to be concessionary when you’re achieving impact goals” said Lein. At Impact Engine, being impact-focused is part of our brand. We look for entrepreneurs that are impact-motivated. For each company we invest in, we work with the entrepreneur to create a logic model that links the product to the positive impact outcomes that product can create. It’s also important on the investor side as well. We bring in investors that are impact-motivated and provide opportunities to deepen their understanding and portfolio of impact investing.
What seed-stage impact funds are looking for
At the seed-stage, many entrepreneurs find themselves in a “chicken and egg” situation: they need the capital to build the product, but they need the product to raise the capital. Even at an early stage, there are many signs of success an entrepreneur can demonstrate, like initial traction and potential market penetration. Each fund shared insight about what they look for in a company that signals they are ready to invest. A strong, driven team that sees a larger vision and can execute is key, especially at the earliest stages. “We believe that the right team will figure out the right market, and if it’s not the right market, they’ll pivot to a better market” said Poulson. At Impact Engine, we believe that an “A team” with a “B product or market” is better than an “A product/market” with “B team.” We look for entrepreneurs who are targeting large markets and market adjacencies where there’s big opportunity. We also ask: are they a GSD (get shit done) entrepreneur? Have they hustled, gotten something built, tested it, and gotten in front of customers? As an entrepreneur, you always need more money to make your product more robust and scalable, but the more scrappy you can be, the more impressed I am! As Lein remarked, “show a willingness to get things done immediately. There is power in being passionate, scrappy and tenacious!”
The evolution of seed funds
Though accelerators and incubators first addressed the dearth of funding for mission-oriented companies, producing a cohort of early-stage startups searching for seed funding, many of these accelerators have transformed into seed funds as the field has matured. As Dixon says, “when it comes to accelerators and funds, there’s been a natural progression over time”. For example, as smaller seed-stage funds become successful, they raise larger subsequent funds with bigger check sizes and become better suited to invest in companies raising larger rounds. But recently, there’s been a rise in micro VCs, seed capital and pre-seed rounds, which is a great thing for entrepreneurs. As Poulson described, “today’s seed round is yesterday’s series A and today’s pre-seed round is yesterday’s seed round.” In today’s landscape, seed rounds can be upwards of $5M and companies can have multiple seed rounds.
The dos and don’ts of fundraising
The group shared lots of tips for entrepreneurs that are fundraising. The most important? Know how much you’re raising. When it comes to rounds, the landscape for seed stage companies has shifted towards SAFEs or convertible notes. While impact funds are certainly flexible and open-minded to both notes and priced rounds, entrepreneurs should understand the pros & cons of their funding choices. Notes can be less expensive and great if you want to be scrappy, but a priced model can be easier and clearer in terms of determining ownership percentage. It’s also important to know why you’re fundraising and why you want to work with a specific fund. Demonstrate a strong team, have a most viable product and customers to show, and have a clear vision of where you’re going. Be able to articulate your impact story.
Portfolio construction & follow-on investments
While each fund has a unique philosophy on portfolio construction, they all reflect the evolving landscape of seed funds. Some funds used to steer clear of follow-on investments, but now they are more open to reserve capital for companies in their portfolio if the company meets certain milestones. Poulson noted, “today, half of our capital is for follow-on investments and the other half is for new seed stage companies”. At Impact Engine, we have a similar strategy: we strive to invest our reserved capital in portfolio companies that are doing well, where we see potential for great returns and great impact.
The landscape for seed-stage funds continues to evolve, and each fund is always learning, growing, and evolving its strategy. It was a pleasure to share my experiences with Impact Engine at SOCAP. The conference is always an excellent reminder just how much this movement has grown over the years, and I look forward to attending the SOCAP conference for many years to come!
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5 Questions You Need to Ask Before You Start Hiring
Last month at Impact Engine, we celebrated our five-year anniversary with a celebration and showcase event with our investors, mentors, and portfolio companies. The following day, we continued the celebration with a gathering of our portfolio company CEOs. We were grateful to have Lindsay Verstegen, VP of Talent at ShopRunner, speak to our CEOs about recruiting and hiring, including the five questions to ask before hiring, below.
Hiring is a highly personal process, one that should be very specific to you and your company. It’s important to approach the hiring process with enough of a game plan that you’re organized, but also with agility that allows for feedback to shape the process as it plays out. I’ve outlined five key questions that get at guidelines to the hiring process that every organization should consider when expanding their team. (Keep in mind, these are not hard-and-fast rules, but rather tips that should guide you!)
Who are you?
Before you begin the hiring process, it is important to go inward and answer some crucial questions to understand who you are as a company. This is a time for self-reflection. Ask yourself who you are and what you value. Remember that Sigmund Freud once said: “Being entirely honest with oneself is a good exercise.” It’s an especially good exercise when hiring. You should also ask customers and existing employees how they see you, and synthesize that information to determine your “true north.” If you’re not headed in the direction you want to be, this is the time to reroute and align your goals and vision. Hiring can often help steer more broad organizational evolution by way of the introspection that accompanies the process.
What is your value proposition?
Every company should have a value proposition, both a one-sentence version and a longer version. You want a version you can tell in an elevator but also one you can go into more deeply over cocktails at a happy hour. The statement should summarize why someone would want to work at your company and why it will add more value to their lives and create a richer experience than a similar organization might. It’s important that everyone at your organization knows this value proposition and can speak to it. This may seem simple but so often the basic building blocks of information are hazy and the team isn’t as aligned as needed to identify the right hire. Opportunities are lost and candidates become uninterested with no clear alignment on what the bigger value is for them both now and in the future.
What is your story?
One of the best ways to stand out from the competition is to share your story. People love stories. Stories humanize the hiring process by giving candidates the chance to learn about and connect with your vision and growth. Other companies may have similar job descriptions and work culture, but no one else has the same story.
How does the world see you?
It’s important to understand how you are communicating who you are, your value proposition and your story through your website and other outlets. This is what represents you when you’re not in the elevator or happy hour. Great candidates are always curious about interesting things going on in the world. Provide places that a potential candidate can peek into a window of your organization. What’s known about you publicly? Look at the experience of going through the “contact us” page on your website. The best talent doesn’t have much time to navigate a process that might take them nowhere. Too many processes take too many clicks and great candidates move on before the connection is made. Tools like LinkedIn and recruitment firms can be great to learn more about potential candidates through a less direct channel (that isn’t your career page), but make sure these tools are a good fit for your company’s hiring needs. You never get a second chance to make a first impression and if someone else is making that impression for you, be sure it’s the right one.
Do you have a game plan?
The most important thing to have when you begin the hiring process is a game plan. You want to create a process that gets the results you want and gives you the information about each potential candidate so that you can make a sound decision. It’s important to remain organized and communicate along the way. Time can also kill hiring momentum, so decide upon a timeline that works well for potential candidates and is also comfortable with your company’s needs. Take the time to get alignment across the various people involved in evaluation. A huge complaint from candidates comes from the basic concept that the interviewing panel wasn’t aligned and the depth of conversation was stifled as a result. Take the time to get your ducks in a row.
For more reading on recruiting, check out these articles below:
Lindsay Verstegen is currently VP of Talent at ShopRunner, leading the people function for the company. She lead Recruiting + People Ops at Braintree and Venmo (now PayPal companies) and, before that, was a part of the growth of early days Groupon. She holds a BFA in Musical Theatre from University of Wisconsin-Stevens Point. She ended up in the people profession after recognizing it as the place for the telling and sharing of important stories and a place for powerful connection. She’s always fiercely advocated for women inside and outside of the workplace and looks for ways to create high performing teams with diverse perspectives. Only through true diversity in team makeup does she believe companies stand a chance to build the best products of tomorrow.
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