Ela Madej, Founding Partner, Fifty Years
Please give us a bit of background on yourself, and how your organization plays a leadership role in the impact investing space.
I’m a founding partner of the San Francisco based VC fund Fifty Years. I started Fifty Years with a fellow Y Combinator alumni and tech entrepreneur, Seth Bannon, after we realized that tech has a disproportionately large potential of shaping the future. We named the fund after Winston Churchill’s excellent essay from 1931 called “Fifty Years Hence” where he predicts synthetic biology, wireless communication, lab-grown meat, and genetic manipulation. He also talks about the pace of technological innovation and the social responsibility of technologists to build the world we’d actually want to live in.
We invest in companies using technology to solve the world’s biggest problems, using UN SDGs as a proxy for “problems”. We believe that these tech-enabled businesses solving real problems will be among the most profitable. So far we invested in 21 companies, ranging from lab cultured meat, to sustainable biochemicals, to small satellites, to a platform to democratize sustainable manufacturing. We look for startups where scale and impact are aligned -- where the core of the business model is in tight embrace with impact.
The fund, together with Impact.tech -- a San Fransisco based community of entrepreneurs who want to combine positive impact with profits -- is heralding the wave of principled innovation. We’re focusing on early stage tech companies. It’s easier to shape new cultures than to reform the old ways of doing things in established companies, and it’s also where we can add most value. Moreover, technology companies have this great feature of a possibility for exponential growth. We want to show that, with sufficient discipline, it’s possible to have alpha returns while only investing in the world’s most needed innovation. By proving this, we want to channel more impact-and-return-seeking dollars into this ecosystem.
A bit more about my background: I started my first software development company out of college, ran big European events for software developers, co-founded a successful online CRM called Base, graduated from Y Combinator, the world’s top startup accelerator, and was a partner at a leading Eastern European tech focused VC fund. I’m a tech entrepreneur, an immigrant from Eastern Europe, and a millennial.
How well are companies adapting to the mainstreaming of purpose-driven finance? What ways is impact investing making headway, and where is it lagging?
Our work at Fifty Years and Impact.tech is focused on transforming the thinking about the very purpose of business in Silicon Valley.
In terms of adaptability -- we work with early stage technology companies that are able to solve entire categories of problems. These founders understand very well the “why” -- the impact they could have -- so when they start, their financial and non-financial goals are naturally aligned. Our role as investors is to support them in their daily struggles and help them raise follow-on financing from mission-aligned investors. In some cases we help them lock in their mission in more formal ways. The whole journey from a seed investment up to an exit is a minefield that founders need to navigate in a way that doesn’t sacrifice their values for short term financial upside. Here lays the the real challenge. A huge mission-related challenge is the very act of going public. Luckily, Eric Ries’ Long Term Stock Exchange is a good example of some innovation happening in that space. As our measurement frameworks evolve, there might be room for even more “aligned” exchanges.
One of the challenges we see is that Silicon Valley still has its own definition of impact that means “big change,” “big returns,” or some largely unspecified idea of “disruption.” We might need better shared terminology, but I think it will be a broader data effort, not just a lexical change. This is something I spend a lot of time thinking about.
Overall, the impact ecosystem within VC is very limited in size and strength. There’s a handful of visible funds targeting both alpha returns and impact started in the last year or two that are really rigorous in their investment process. There’s Fifty Years, there’s Obvious Ventures, and literally only a few more. On the other hand, it’s good to see that some other funds are shifting towards impact -- I need to call out Sam Altman’s leadership in Y Combinator and his renewed focus not just on “what people want” but also on “what the world needs.” The ecosystem needs what Al Gore’s Generation Investment Management LLC did for long-only public equity investing -- hard data to prove that this thesis works. We saw that in raising our first fund -- many potential LPs are afraid of the word “impact.” In short, we need more people willing to lead the way and need to 10x the size of the ecosystem.
What challenges do you see for the future of purpose-driven finance?
There are a few. One is the interplay between positive impact and returns. We know that companies who have social or environmental mission at their core have easier times recruiting and retaining the best talent, an easier time getting press, and generally have stronger cultures. However, they represent a whole spectrum of growth and return models, so we cannot put them all in a single box and expect magic to happen. I second Matthew Weatherley-White of CAPROCK Group when he says that the future of purpose-driven finance is “finance.” We need convincing return data for a variety of asset classes.
To get there we need to solve the impact measurement challenge. Quoting Nick Hanauer, we all intuitively understand that two $100MM companies -- one of which is curing diabetes and one of which is causing it -- are not equally “valuable” for the society. There are a few ESG metrics and impact assessment frameworks out there but the many social and environmental externalities that they are addressing are really hard to compare. We need to get better at measuring positive impacts, capturing negative externalities, and precisely capturing the use of commons such as air, land, and public infrastructure. In a huge oversimplification, in the last hundred years we’ve gotten somewhat good at comparing dollars to dollars and now we need to quantize all complex interdependencies in the real world. That’s just really hard. Once we have those models and understand the sum of impacts of a given business activity, we will be able to deploy both supportive measures (“we want companies to cure more disease”), and penalize free riders (“companies making money poisoning people should be called out and taxed heavily”). I think our world model when it comes to impact of companies is very inaccurate. We should use it as a rough guide for investments with our wallets, trust funds and endowments -- but we have to keep improving it.
What will you be discussing at The Economist's Impact Investing event in New York on February 15?
I will share why technology companies are best positioned to accelerate this new transformation happening in business, and highlight some areas of high-tech innovation that are naturally aligned with having positive impacts at scale. I will also talk about artificial intelligence and autonomous systems safety research, and why we can expect powerful impact measurement frameworks to emerge from the important work of encoding human values into utility functions of intelligent non-human systems.
To learn more about the Impact Investing event, click here.