Nesta, a UK-based innovation foundation, has launched a new £50m fund to support early-stage impact startups.
According to recent analysis by Beauhurst, Nesta has been the most active impact investor in the UK, completing over 30 deals since 2012. Impact investors are those that place at the center of their investment decisions having a positive social or environmental impact.
The foundation was originally launched through a £250m endowment from the UK National Lottery in 1998. Nesta operates partly as a think tank, researching solutions to social problems and making grants for similar work.
It backs companies through its arm Nesta Impact Investments. Previous funds have operated more like a conventional VC fund, with external LPs, but this fund comes solely from the Nesta endowment.
Previous investments included educational technology company Bibliu and skin cancer artificial intelligence tool Skin Analytics. Nesta has also seen a number of exits, such as FutureGov, which offers tools to public services, and BeApplied, a recruitment platform aimed at reducing bias.
What is the new strategy?
“We’ve been impact investing for the last decade, but in the last 10 years we had a broader scope of social impact projects that we would consider,” says Lisa Barclay, Nesta’s chief investment officer.
But now that the impact investing market is more established, a more selective strategy is needed, says Barclay.
Nesta is now looking to invest in startups that address three specific goals:
- helping to give every child a good start;
- Support people to lead healthier lives;
- Creating a sustainable future.
The fund spends £25 million in direct investments, writing checks between £500,000 and £1 million. You can back each company with up to £4m in a series of rounds. The rest of the money will be used to support Mission Studio, a company funded by Nesta and co-managed with the startup accelerator. founders Factory, Focused on launching pre-seed and seed-stage impact startups. Part of the money will also go towards research grants.
What are you looking for now?
On the sustainability side, Barclay says Nesta wants to support companies that can reduce emissions from homes, in the form of low-carbon heating and tools to optimize household energy generation, storage and use.
For healthcare startups, Nesta is particularly focused on tackling obesity. “We would like to see cost-effective solutions that support mass-market healthy foods, rather than premium vegan products,” says Barclay.
He also wants to see tools to help people deal with the worst consequences of obesity, such as diabetes and heart disease.
And for education startups, Nesta wants to see tools that can close the educational disadvantage gap. That could mean tools to help parents help their children learn or offer more affordable child care solutions.
What does the economic climate mean for impact investing?
Barclay says the current economic climate, with the UK in recession, has cemented his belief that impactful start-ups need patient capital that can weather financial storms.
“Long-term problems need long-term solutions financed by patient capital that remains stable through the business cycle,” he says.
“Impact markets are relatively insulated from the economic cycle, so we believe impact investing has an important role to play in continuing to support innovation on some of our most pressing issues.”
Nesta’s funding comes from its endowment, which means it’s in a better place to shore up impact companies during economic downturns, Barclay says.
“We’re not under the same timeline pressures that other venture firms with more traditional fund structures have,” she says. “We’re not rushing portfolio companies out.”