Aussie VC firms are racking up millions, and it’s social impact startups that could reap the rewards

Impact Investment Group chief Daniel Madhavan. Source: supplied.

Aussie investment fund manager Impact Investment Group is launching its latest $70 million Impact Alternatives fund, partly pegged to back startups with big ideas that can change the world.

And, at a time when the Aussie VC space is seemingly brimming over with fresh funding, IIG chief Daniel Madhavan says there’s never been a better time to be a startup making social impact, as well as making returns.

This week also saw the unveiling of the brand new VC firm Galileo, co-founded by millennials James Alexander and Sked Social founder Hugh Stephens.

At the same, during the past few months, even amid the COVID-19 pandemic, we’ve also seen a swathe of Aussie funds making bank.

OneVentures recently raised an $80 million fund, Tidal bagged $30 million to invest in seed-stage startups, Paul Bassat’s Square Peg raised $350 million, and Blackbird bagged a massive $500 million.

Speaking to SmartCompany, Madhavan says this latest fund comes off the back of two main pieces of feedback from the institutional investor market.

First, there’s an increasing interest in impact investment, he says.

“They want their money to be doing something positive.”

But also, investors are still after financial returns, and interest in alternative investment is on the up.

“A lot of investors are really struggling with confidence in traditional asset classes,” Madhavan says.

“They’re struggling to find yield in fixed income.”

Dollars for doing good

This particular fund isn’t only pegged for startup investment, but venture capital and private equity investment is one of six strategies it will be deploying.

It will also be investing in renewable energy, regenerative farming, impact debt, environmental assets and social impact bonds, Madhavan explains.

Also, this is a fund of funds. It will deploy into a number of different VC funds, including its second Giant Leap Fund, and potentially other impact-focused funds.

At Giant Leap, there are three key investment themes: sustainable living, empowering people, and health and wellbeing, he explains.

Giant Leap’s previous investments, for example, include carbon-neutral courier service Sendle, non-biased recruitment tool Applied and HomeCare Heroes, a Sydney-based startup that matches young people with socially isolated people, or people with disabilities.

“Like any other VC, because we’re looking for venture capital returns, many of them tend to be technology-enabled businesses that offer the opportunity to scale,” Madhavan explains.

But when it comes to backing businesses, that’s not the fund’s first priority.

“As a first filter, we look for those three impact themes. We’re really looking for startups that can deliver those outcomes as part of their core business.”

Social impact counts

This fund comes at a time when Australia is facing an economic crisis, and it’s first recession in decades. On the other hand, we’re seeing more and more capital being raised, that will ultimately be available to startups.

As Madhavan notes, their focus on doing good, as well as making money is only increasing.

When asked whether we’re at a turning point in the investment landscape, Madhavan says that turning point “probably actually happened a while ago”.

“It has just come into sharper focus over the past 12 months,” he says.

“Some of the outcomes that people are thinking through more consciously … they’re just more front of mind,” he adds.

“It was only nine months ago we had the worst bushfires we’ve ever had on record.”

During the summer of 2019-20, climate change was very front of mind. And as the pandemic crisis has continued, community support and social impact has become all the more important.

“It brings very much into sharp focus issues of equality, mental health and wellbeing, jobs and employment outcomes,” Madhavan explains.

People are considering these things in the way they build businesses, the way they deploy capital, and the way they invest into funds, he suggests.

“They’re not just investing for the financial outcome they need or want, but also investing in the type of community or country or society that they want to be part of.”

And, while the economic situation may be difficult, there’s never been a better time to be working on an innovative startup that has the power to make a difference.

“If you’re an entrepreneur now that can solve a consumer problem or a business problem, and at the same time contribute to a solution around and environmental or social problem, not only are you going to get more attention than you would at any other time, but chances are you’re sitting on a far more robust business model as well,” he says.

“The capital is looking for that.”

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