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Connecting Capital To Game-Changing Entrepreneurs Investors Show Growing Interest In Stakeholder-Focused Opportunities

Connecting Capital To Game-Changing Entrepreneurs Investors Show Growing Interest In Stakeholder-Focused Opportunities

by ESG Business Institute -
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In his role as managing director of the Techstars Sustainability Accelerator in Partnership with The Nature Conservancy, Zach Nies connects social entrepreneurs with investors, corporations, and others to advance and scale innovative work to address global challenges like climate change. This is a gap left open by Silicon Valley, where, as Nies puts it, the math requires massive, rapid scaling for the investments to be workable. That makes it challenging for entrepreneurs who are operating on a longer term vision to solve ongoing global challenges.

“We’re probably most known for accelerator programs and the belief that entrepreneurs have the ability to create a better future,” he says of the Boulder, Colorado-based Certified B Corporation. “That’s why we’ve built a worldwide network to help entrepreneurs succeed.”

Most of that work is done through the 45 Techstars accelerator programs. Nies’ program Techstars Sustainability Accelerator is operated in partnership with The Nature Conservancy, a nonprofit focused on land and water conservation. Selecting companies that align with The Nature Conservancy’s mission amplifies their work and creates opportunities for future partnerships. One example that Nies points to is 2NDNATURE, a company that created technology to help city governments curb stormwater pollution through a cloud-based platform and standardized data collection.

Nies is a longtime proponent of purpose-driven business thanks to his previous role at Rally Software, which was the first B Corp to go public and helped introduce investors to the stakeholder-minded concept that incorporates creating benefit to people and planet as well as generating profit. Since then he has seen the investor mindset start to shift and further embrace companies that focus on more than generating profit. Recently I spoke with Nies to learn more about Techstars and get his thoughts on the state of impact investing as part of my research on purpose-driven business.

Christopher Marquis: Are investors more open and knowledgeable about social impact businesses?

Zach Nies: For the companies that come into the Techstars program, we ensure that there is a linkage between the business model and the impact model. We want an environment that’s driving the business model because it drives the impact model and vice versa. So that capital is important to that impact, but the math only works if you have liquidity events. The bigger questions at hand now are what are these alternate forms of liquidity events that allow the investors to get a return on their capital so they can return it back to whomever gave them the money while not really bending the spirit of the company.

For instance, several companies in the Techstars program have gone through the B Corp Certification process, but it’s actually pretty hard for startups to get the official B Corp seal. They’re demanding much more of a track record and an operational background before you get the final certification. It would be great if there could be an alternative for those younger companies to get credit for approaching a business this way — for this acknowledgement that there’s more than just shareholder supremacy and profit.

What I’ve seen over time are impact investors being more open to B Corp Certification, but also being more kind of insistent on it. It adds an extra element of how the companies are structured and how they want to operate.

Marquis: What advice do you offer to companies on protecting their mission as they grow?

Nies: It really comes down to integrating it into the culture, because that's such an important bedrock of scale. It's having the discipline to have your mission front and center in the hiring and firing: We’re not just here to do the work, we also care about how we do the work. The bigger you get, the more demands you face. The bigger you get, the more you hire people that aren't necessarily in your same worldview.

At Rally, a former public company where I also worked, every new employee had a presentation from the founder of the company that went into not just what we did but why we do it the way we do it, and what’s the larger mission behind the work that we’re doing.

It was never in anything we took to the market. When Rally filed its S1, we didn’t mention B Corp Certification. It wasn’t that thing that you would sort of proudly describe externally, and it wasn’t really a market force yet. We wanted to make sure we didn't really deviate or cause any noise around that once we went public. But it was in the DNA of this larger mission that we were all on, which is to figure out the tools and techniques to empower the people solving these really gnarly global problems. We were also one of the first companies that pledged 1% of equity and you want to make sure you do before you get investors onboard.

Marquis: As a Colorado-based business, operating outside of Silicon Valley’s more narrow, scale-oriented focus, I think you look for nontraditional entrepreneurs. What ideas do you have to make the high-tech ecosystem more fair, equitable and sustainable?

Nies: There's the scale of the business, and then there’s also the utility aspect. So at what point do some of these companies, not intrinsically because of their scale, become more akin to a utility that has larger impact and requires different regulation?

One thing that’s really critical is the role of the founder, whose DNA gets projected onto organizations. The founder has to be explicit about what kind of company they want to create. I’ve got portfolio companies in the Bay Area. I’ve got portfolio companies all around the U.S. and outside the U.S. Different dynamics get woven into the fabric of those founders, and it’s not that only ambitious people live in Silicon Valley. There are people in Silicon Valley who are very triple-bottom-line, consciously minded. But I think that there there are issues that come up when the only goal is to grow as fast as you can at the expense of everything else in your way.

The math of Silicon Valley may make that more probable, because if you look at the monster venture funds, the only way the math works is if you’re taking really big bets into companies and you’re betting that they can be multi-billion-dollar companies. Unless that’s true, the math of the returns just doesn't work for limited partners. And so it may be the prevalence of the money in Silicon Valley in them and the size of those funds that incents this behavior.

Marquis: In your mission, you talk about finding talent anywhere, being inclusive, looking beyond Silicon Valley and the developed world for the entrepreneurs who will save the world. How does a global view influence Techstars’ work?

Nies: We recruit around the world, and a lot of our applicants are from Europe and Africa. Europe is ahead of the United States in terms of regulatory influence on climate change and some of the larger mitigating behaviors. In Africa, there’s such a linkage between the economic viability of communities and appropriate land stewardship. We see a lot of entrepreneurs doing some pretty novel things with independent farmers who feed their communities. It’s interesting to see on-the-ground technologies emerging. It’s not just selling software — a lot of it is sensor-based tools and techniques that can be used directly in the field.