Nesta, a UK-based innovation foundation, has launched a new £50m fund to support early impact startups.
According recent analysis per Beauhurst, Nesta has been the most active impact investor in the UK, completing over 30 deals since 2012. Impact investors are those who place positive social or environmental impact at the center of their investment decisions.
The foundation was originally launched with a £250 million endowment from the UK National Lottery in 1998. Nesta operates partly as a think tank, researching solutions to social problems and awarding grants for similar work.
It supports businesses through its Nesta Impact Investments arm. Previous funds operated more like a conventional venture capital fund, with external LPs, but this fund comes solely from the Nesta endowment.
Past investments have included edtech company Bibliu and skin cancer artificial intelligence tool Skin Analytics. Nesta has also seen a number of releases, such as FutureGov, which offers tools for public services, and BeApplied, a recruitment platform aimed at reducing bias.
What is the new strategy?
“We’ve had impact investing over the past decade, but over the past 10 years we’ve had a broader remit of social impact businesses than we would consider,” says Lisa Barclay, executive director of investments at Nesta.
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:
- Help to give every child a good start;
- Help people lead healthier lives;
- Create a sustainable future.
The fund dedicates £25m to direct investing, writing checks between £500,000 and £1m. It can back each business with up to £4million over a series of rounds. The rest of the money will be used to support Mission Studio, a Nesta-funded venture co-managed with startup accelerator Founders Factory focused on launching pre-seed and early-stage impact startups. Some of the money will also go to research grants.
What is he looking for now?
On the sustainability side, Barclay says Nesta wants to support companies that can reduce household emissions, in the form of low-carbon heating and tools to optimize the production, storage and use of energy. household energy.
For health startups, Nesta is particularly focused on tackling obesity. “We would like to see cost-effective solutions that support healthy eating for the mass market, rather than high-end vegan products,” says Barclay.
She also wants to see tools to help people deal with the worst consequences of obesity, like diabetes and heart disease.
And for education startups, Nesta wants to see tools that could bridge the educational disadvantage gap. This could mean tools to help parents help their child learn or more affordable childcare solutions.
What does the economic climate mean for impact investing?
Barclay says the current economic climate, with the UK in recession, has reinforced its belief that impact startups need patient capital that can weather financial storms.
“Long-term problems require long-term solutions funded by patient capital that remains stable throughout the business cycle,” she 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 to some of our most pressing issues.”
Nesta’s fund comes from its endowment, which means it is better placed to support impact businesses during tough economic times, Barclay said.
“We don’t face the same time constraints as other venture capital firms with more traditional fund structures,” she says. “We are not rushing the exit of portfolio companies.”
Freya Pratty is a reporter at Sifted. She tweets from @FPratty and writes our newsletter on climate technologies — You can register here.
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