The Growth of Tech for Good: Where technology meets impact investing
With the acceleration in tech solutions across sectors and industries, the ClearlySo team takes a look at how this is impacting the investor landscape.
Impact investing, as we have come to know it, refers to investments made with the purpose of generating positive social and environmental impact together with financial returns. In short, it champions “profit with purpose” businesses helping to solve societal challenges. So, what happens when technology is integrated into the core of these businesses? In this article we explore the role of ‘Tech for Good’ within impact investing and how it is shifting the investment landscape.
Why is ‘Tech for Good’ investing important anyway?
The notion of ‘Tech for Good’ focuses specifically on businesses which utilise technology to advance the ability to offer high-impact products and services. What the added dimension of technology offers is the increased scalability needed to tackle many of the social and environmental challenges we are facing. This is especially evident in cases where existing solutions may not be doing enough, and not doing it at the pace which is required to make substantial change. That is not to say that technology is the only answer to solving today’s biggest challenges but that it has a crucial role to play in creating a more sustainable future. Technology has the ability to democratise access to products and services, drive innovation within existing solutions and to enable the discovery of completely new ones. We are now seeing more tech-based businesses focused on sustainability and solving societal challenges, influenced by public sentiment. It is clear that with the scale of some of these societal problems we are witnessing, such as climate change, poverty and lack of access to healthcare, it will take a multi-pronged approached to overcome them. As we move more online, the focus of technology on solving societal challenges will only grow.
“Technology has the ability to democratise access to products and services, drive innovation within existing solutions and to enable the discovery of completely new ones.”
When stressing the importance of ‘Tech for Good’ businesses, it is imperative that we are also mindful of how these technology solutions can affect diversity and inclusion nuances. For example, while the technology solutions provided by high-impact businesses can have the capability of reaching more people, it is important to ask, who is actually benefiting? Does the solution widen the digital divide and restrict access to those without computers or internet, in which case it may be hindering specific groups of people? Or, perhaps instead it creates a more cost-effective means of access to a product or service and is therefore more efficient? These are some of the types of questions we need to be considering as we evaluate ‘Tech for Good’ business propositions.
“Venture capitalists evidently value [‘Tech for Good’] businesses, with UK firms having raised a total of £1.1bn in VC funding in 2018, while being cumulatively valued at £2.3bn.”
We are increasingly seeing a shift towards sustainability and impact in the private sector, especially in ‘Tech for Good’/impact-tech. This is noticeable in ClearlySo’s work and conversations the team are having with investors in our network. This notion is also supported by recent a Tech Nation report which noted that there are almost 500 Tech for Good companies in the UK alone. Venture capitalists evidently value such businesses, with UK firms having raised a total of £1.1bn in VC funding in 2018, while being cumulatively valued at £2.3bn. Areas such as edtech and artificial intelligence (AI) were highlighted as particularly prominent recipients of this recent wave of VC funding.
What is investor sentiment around investing in impact and ‘Tech for Good’ like?
Despite misconceptions, when exploring investment opportunities at the intersection of venture investing and impact or ‘Tech for Good’, there is not much difference from an investor perspective. From our experience working with a wide range of investors in our growing network at ClearlySo, we can firmly say that from a commercial perspective, an impact investment or ‘Tech for Good’ investment opportunity will be looked at in the same way as any other potential investment, just with an added analysis of the impact and its measurement. There does not necessarily need be a trade-off between impact and financial returns, as some may believe. This is in stark contrast, but a welcomed change, to investor sentiment many years ago when ClearlySo’s work in impact investing was first emerging; investors back then were convinced that impact would hurt performance as opposed to help it so the tide has definitely turned. Just today, Pioneers Post reported that, “the overall confidence in impact investing has grown five-fold since 2018”, according to new research commissioned by Big Society Capital at the start of 2021; 56% of respondents reported having “high” levels of confidence, compared to just 10% back in 2018. CNBC noted earlier this year that the same is true for investments into funds, even going one step further suggesting that, “sustainable funds outperformed conventional funds and indexes, on average, last year” based on findings by a Morningstar report. Bethnal Green Venture’s (BGV) recent acquisition by Connected Asset Management also shows that bigger investment players are taking notice, driving more capital into the ‘Tech for Good’ space.
“…from a commercial perspective, an impact investment or ‘Tech for Good’ investment opportunity will be looked at in the same way as any other potential investment”
Like with any other investment opportunity, investors will still scrutinise the usual aspects such as the long-term financial viability of the business model, the size of the addressable market and the strength of the team which are all crucial to the longevity of any business seeking growth. Additionally, investors will want to understand who the beneficiaries are of the potential impact and how the company plans to track and enhance the impact that is being delivered. In particular, impact investors will want to understand what the scale of the impact is – both in terms of breadth and depth. Investors will very quickly see-through vague notions and unsubstantiated claims of impact without clear explanations and evidence of how it is being measured. As a result of this it is becoming increasingly important for businesses to make this information accessible early on.
The real question we are all interested in – what general trends are we noticing in ‘Tech for Good’ investing?
At ClearlySo, a lot of our work revolves around core sectors in which we see the most traction. Within these sectors – energy and the environment, education and training, health and wellbeing, and responsible consumerism – we have seen notable growth and interest in specific subsectors. For example, within education and training, e-learning applications and learning gamification have become increasingly popular, as well as online safety or ‘safetytech’. With more people at home during the pandemic, especially children being schooled from home, there was a surge in demand for platforms and applications to provide the same level of education through digital means, while at the same time doing it in a more engaging way than through a simple group video call type interface. EdPlace, which offers gamified learning and revision activities via curriculum and exam-board aligned resources on its platform is a great example of a home education provider doing this. Moreover, with more children online for extended periods, we also saw growing interest in businesses which provide digital solutions that keep children safe online as they learn and play.
Many schools in the UK found lockdown and the accelerated transition to online learning last year very challenging. They were having to implement years-worth of digital adoption in a matter of months whilst managing the wellbeing of students and teachers. This enabled many edtech solutions to offer their curriculum-focused D2C content, services and support to parents and students and thus gain traction and grow quickly. Fiction Express exemplifies this, doubling its annual recurring income for 2020/21 to almost £1m compared to the previous academic year and projects triple sales for 2021/22. During lockdown earlier this year, however, schools and universities were better prepared for the sudden change to online learning again.
Another area where we are seeing a lot of growth is in the health and wellbeing sector. From speaking with investors in our network and from what we have seen in the wider industry, there has been a surge in demand and interest in remote health services implemented via digital channels. This ranges from telehealth and virtual GP visits/appointments, such as GPDQ which ClearlySo supported in raising capital last year, mental health applications, all the way through to services that, for example, enable the monitoring of patient vital signs digitally and remotely.
AI for drug discovery and development is also an increasingly booming area of digital health/‘Tech for Good’, evidently accelerated by the last 12 months as the world has fought against COVID-19 and raced to produce a vaccine. What all these technical solutions have in common is their ability to make processes more efficient, cheaper and quicker, thereby decreasing barriers to care and increasing accessibility. Businesses offering alternative healthcare solutions which can keep patients away from physical health spaces such as surgeries, clinics or hospitals while offering the same level of care have also seen significant traction.
“Businesses offering alternative healthcare solutions which can keep patients away from physical health spaces such as surgeries, clinics or hospitals while offering the same level of care have also seen significant traction.”
Similarly, within the responsible consumerism sector, we have seen trends around businesses enabling activities outside of physical establishments. Some of the popular growth areas we are seeing are in consumer wellness tech (fitness) and also micro-mobility businesses such as a recent client, FuroSystems – a mobility tech company that supports sustainable commuting.
Other areas of notable traction within this sector have also been seen in legal services and online food delivery services. In legal services and legaltech, we have seen particular interest in what is deemed as “deathtech”, that is, technology businesses modernising the funeral industry – an essential but often overlooked area of consumer services – making it more affordable and accessible. This is illustrated by companies such as award-winning, London-based Farewill, which raised €22.1m in 2020, helping reduce the complexities around losing a loved one and also reducing funeral poverty which effects affects 1 in 8 families.
Another trend we have seen in the responsible consumerism sector more broadly is in the growth of investment in food and grocery delivery companies like UK-based The Modern Milkman, which recently raised an undisclosed amount from Insight Partners six months after securing £5m from ETF Partners earlier this month. The company intends to use the capital raised for its expansion and investment into bespoke technology; the raise comes off the back of The Modern Milkman’s rapid growth, resulting in a revenue increase of 1000% in 2020 according to UK Tech News emphasising this trend.
“…while these solutions were set for eventual adoption and growth in our ever-growing digital world, it is clear that COVID-19 significantly hastened the process”
The pandemic and lockdowns have of course had an impact on the growth of these areas. In the case of telehealth and other remote healthcare services, digitisation within the healthcare sector has been in development for years. It has, however, moved slowly due to regulatory, compliance and efficiency concerns. That is, up until 2020 when the pandemic necessitated telehealth and other solutions on a mass scale, which in turn saw $3.1bn of funding flow into the sector. So, while these solutions were set for eventual adoption and growth in our ever-growing digital world, it is clear that COVID-19 significantly hastened the process. The digital solutions that have proven to be effective in taking some of the burden off national healthcare services, such as ‘sector darling’, AccuRx, which offers tools to enable healthcare providers and GPs to provide remote care to patients, will likely be here to stay in a post-pandemic world, having amassed over 90% sign-ups of GPs across England. In other areas across our core sectors more broadly, what we have seen at ClearlySo is that many of these trends were already emerging before the start of the pandemic and not caused by it. From our perspective, COVID-19 merely accelerated many of these trends that began before. We had, for example, been working with sustainable and circular economy food delivery business, ODDBOX since 2018 and supported the company’s recent £3m raise which closed in March 2020, just as the UK saw COVID-19 take hold and the first lockdown was announced.
As the world becomes increasingly digital, ‘Tech for Good’ businesses will play a fundamental role in shaping the way we live, not only by improving productivity and efficiency but also by tackling societal and environmental challenges. Investors have caught on to this, recognising the ability of many ‘Tech for Good’ solutions to scale exponentially. In doing so, we acknowledge that entrepreneurs must consider more marginalised groups which may be “left behind” and take this into account when developing their business solutions. While COVID-19 has accelerated growth in ‘Tech for Good’ investment trends, we believe that as impactful disruption becomes ubiquitous, and consumers demand more transparency and accountability from businesses they buy from, our work in ‘Tech for Good’ will become standard and investment in the area will only grow.
More like this
What is AI and how can it facilitate progress in finding and executing healthcare solutions? Find out exactly that and ClearlySo's shortlist of impactful businesses helping move the...
Shyan Khaleeli from the Investment Banking team at ClearlySo gives her analysis in this investor update