Welcome to ESG in VC #StandWithUkraine
Oct. 25, 2022

Ep 13 - Kate Mullord - Tech4good as Investment Strategy

Ep 13 - Kate Mullord - Tech4good as Investment Strategy

Welcome to the latest episode of the ESG in VC podcast where we are joined by Kate Mullord.

Kate joined 4impact, an early stage fund investing in tech4good startups, as Partner in 2021, bringing over 20 years of experience in corporate strategy, tech scale-up and private equity, as well as endless enthusiasm for understanding new business models and meeting entrepreneurs. Prior to 4impact, Kate held senior roles at fintech scale-up Jumo World, which provides microloans to the unbanked in emerging markets. Other roles include senior positions at Woolworths Holdings Ltd (South Africa), London-based private equity firm Duke Street, Goldman Sachs and UBS.

Together with Kate, we discuss 4impact’s investment strategy while being an Article 9 fund. We also touch on what VCs can do to align performance with impact and why 4impact have not yet invested in any of impact measurement tools launched in the last 18 months. Kate also shared which sectors within climate tech that are on 4impact’s radar at the moment.

Guest: Kate Mullord

Follow us:

Please do not forget to rate and review and to get in touch with the host, Oksana Stowe, email oksana@esg-in.vc. You can also subscribe to the ESG in VC Insights Newsletter for insights and updates here.

Hosted on Acast. See acast.com/privacy for more information.



Hello and welcome to ESG in VC, a podcast where I continue with my quest on raising awareness around ESG and interview top players in the ESG space, and where we dive into ESG-related topics, exploring how investors, regulators, and founders try to build a more sustainable and inclusive society. I'm your host Oksana Stowe, and today we have Kate Mullord joining us.

Kate is a partner at 4Impact, an early-stage fund investing in European digital tech4good startups. She also has many years of experience working in tech scale-ups, private equity, and corporate strategy. Before joining 4Impact, Kate fulfilled senior roles at a FinTech scale up, Jumo World, which provides microloans to the unbanked in emerging markets.

So let's jump straight in and learn more about tech4good. 


Hi, Kate. Thank you for joining us today. The fund you’re with, 4Impact, was funded just a bit ahead of many other impact funds that sprung up in the following years. Especially last year saw quite a few being launched. Given that you were there early, how do you define your investment thesis and what impact means to you in particular?


Hi Oksana, Thank you for having me today. 

Yes, we are very much an impact fund and our impact thesis is based on the theory of combining scalable technology, we're software investors, with very clear impact mandate, which then enables us to deliver impact at scale. And then I suppose the next obvious question is, what does impact mean for us? I think that's what you are asking here. 

And when we think about impact, we start off with the obvious point, which is around the SDGs, the UN’s SDGs, and make sure that we are looking at something that is aligned there. And we think about impact under three major pillars being environment, inclusion, and health and wellbeing.

So essentially that kind of gets down to planet as well as people. But in a more kind of granular way, how we really define impact is we make sure that the investments that we are looking at, that they're intentional and the impact is inherent in the business model. So it's built into what the business actually does, and it's not something that's just on the side that can be kind of jettisoned at some point in the future. It's really built into what the company does. 

We look for additionality. It's important that what we invest in leads to outcomes that wouldn't have ordinarily occurred otherwise without our investment, without that particular company doing whatever it's doing. And lastly, and potentially the most meaningful is really that the impact needs to be measurable, and it needs to be of a size and volume that's big enough to be worthwhile for us to be investing in.

We quite like the Impact Management Project’s five dimensions and there where they think about the size of the impact, they think of it sort of in a 3D way. They think of it as duration, as well as size as for example, how many people and the depth of the impact for those individuals. So there are a couple of different ways of thinking about it, but it must definitely have a very clear, measurable angle to it.


Great, thank you. Very insightful. And then how do you think about negative impacts that a solution would have or as a business scales? I think it's something that more and more people are bringing to attention and it's a very subjective assessment, I would say. So how do you guys think about all of this?


Yeah, we certainly do keep an eye open for potential negative impact from the businesses we invest in. I guess in some ways we're fortunate in that we are focusing on software companies, and for a software company there's sort of only a limited scope really for real negative impact. The obvious pitfalls and the obvious risk areas that investors will be looking for will be poor labour practices or very water intensive processes or business that is damaging the natural resources.

I mean none of those things are really relevant for us. However, there is one area that we do keep an eye on and that will be, for example, energy usage, where we are looking at software companies that are very energy intensive in their solution. That is something we do keep an eye on. 

The more obvious points around the IFC exclusion lists and companies with real negative ESG impact, they don't often cross our path. So therefore, it is something that's important for us, but it doesn't often come up.


And you don't dig a little bit deeper to try to understand, okay, this solution does have a positive impact, but let's say, and I'm trying to come up with an example, it might be maybe in software AI that sometimes the impact can become more negative than positive at some point. How do you think about that? Or like for example, in sustainable fishing, there is also a very obvious positive impact. And obviously that doesn't apply to you, but what I was trying to get at, do you look many years ahead when you assess investments for impact? 


Yes, we certainly do. Our investment period is up to 10, maybe even 12 years, so we certainly do keep the longer term in mind when we make investments.

Broadly speaking, our investments are in sectors like reducing Co2 where the longer-term effects on what we can tell are mostly positive. There are some, some sectors that we've come across where we felt that the risk of it being, of becoming something negative is something that we are nervous of. 

So for example, we looked at some software that related to AgTech and it was very specific to the pork industry, and we just felt that although there probably are solutions that are improving the way that the pork industry operates is probably a good thing, it just felt like a sector that we were not comfortable supporting, so we stepped away from that. 

Another example might be, when you think about agricultural practices, we've had some debates internally around what type of agricultural practices we should be supporting and which ones we shouldn't be supporting.


For example, we are all pretty aware of the longer-term disadvantages in having single crops, mono crops, but at the same time, there's the counter argument that we also need to make sure we are feeding the world's population. So taking a balanced view on these things is actually very important as.


Yeah, and sometimes very not straightforward I think. And just coming back to your fund, you are in the process of raising a second fund, and it will be interesting to hear how the market sentiment among LPs evolved this year. Have you noticed that the pool of capital going towards impact funds became bigger or smaller? 

Because different sub-sectors within venture have been affected differently. For example, consumer is now a sector that has been hit pretty hard and so no LPs would invest in a consumer fund given the current climate. How has the impact investing, specifically in your view, been affected or not? Maybe it has been positively affected from your experience.


Yeah so your points around the overall market, I mean that, that's an obvious one. That we've been through a bit of a VC bubble, we’re clearly going through a correction or have passed a correction hopefully. I think you identified the impact space and I think in particular the subsets being the more dark Green SFDR Article 9 funds. 

It's really important that investment in this space continues, right? There's no question about that. And I think that generally speaking, the investors that understand the importance of the sector and understand the importance of innovation and backing potential solutions, for example, for climate change in particular, and of course the other SDGs as well. Those investors are certainly continuing to be committed and they're continuing to invest.

These perhaps are the more enlightened investors I'd like to think, but of course the world has changed a little bit. And things have gone perhaps a little slower of late than we might like, but I think that that's completely natural after a correction, like the one that we have seen. The one obvious point as well to add to sort of wrap up that thinking is that clearly from a financial standpoint, there's no better time to be investing in a fund than shortly after a correction.

So from our perspective, certainly and naturally we are somewhat biassed, but investing in impact and backing climate change, improving all the other SDGs. These are things we must do and we cannot stop investing in those areas. And in addition to that, from a financial perspective, really this is the best time. It's the best time to be setting up another fund and to start investing again. 


Agree, agree. And I think from some of the market knowledge that I have, it's very good to see that actually investment towards impact funds have not slowed down. So I think another aspect that a lot of people debate and discuss is what VCs can do to align performance with impact, because it's an area that is very hard to crack, and I think that is a big conundrum that many people are trying to solve. 

And there have been different ways, different funds approached it. Some suggested impact to carry mechanism. What have you guys done for impact to try to link the two? 


Yeah, it's a very interesting question and obviously is one that can be quite emotive for different people.

I think to sort of take it back to first principles, what is the intention of linking impact to carry or linking in financial incentives to the amount of impact that you're creating? I mean, the main intention there is to make sure that the fund is actually delivering change, right? That we are not just focusing on financial returns, but that we are actually delivering the change that we're setting out to do.

And from my perspective anyway, the most important thing for that is to have a very clear strategy and to have a very clear investment mandate, which is clear as to what we are going to be investing in, what we define as impactful and what is not impactful. For example, having the oversight of an independent board or an impact committee, an impact board. For me, those types of structures are without any question the first and most important point within this topic. 

And assuming you've got that in place, then the next thing you would want to think about would be aligning financial incentives. And here I think there's becoming a bit of a norm that's sort of building out at the moment. Whether it's the right answer or not, I think is still up for debate personally, because at the end of the day we are trying to incentivize change here, and the intention here is certainly not to make it more difficult for an impact fund to generate and managers of an impact fund. We don’t want to make it more difficult for them to achieve financial benefits. 

That would then be a disincentive from setting up impact funds, which clearly does not make any sense. So the normal kind of path that seems to be becoming the way forward is one where portfolio companies with the support of the fund set impact targets, impact KPIs, and over time, of course, measure against their performance and either they achieve their performance, achieve their targets, or they don't. And depending on how that maps out and how that aggregates up to a fund level, then the fund manager risks forgoing a portion of their carry as a result of the achieving or not achieving of those impact KPIs for the portfolio companies. 

But of course, the obvious thing here is that it's very, very common for startups to fall very far short of their targets. That shouldn't be a surprise for anybody. And again, going back to sort of first principles here, what are we actually trying to achieve? We're trying to achieve change from today going forward, building up a positive impact. Whether that's improving people's lives or reducing Co2, you actually want to see a change from today.

And so we've been toying with an idea which is slightly different, which is actually looking at something that's more closely aligned to the financial structure that's currently in place, which is one of you start today with a certain investment and you're looking to grow that investment over time. And similarly, perhaps there might be a way of thinking about impact in a similar light.

For example, you say that a startup that you're looking at, maybe it's saving a certain amount of Co2 this year and that, subject to some sort of de minimis, maybe 20% improvement each year, over time, you want to see that that amount of CO2 that's being avoided is increasing over time, and if that is, that increase is over and above that sort of hurdle rate, then the fund manager would have access to the carry.

Something along those lines where you actually have something that's a bit more closely aligned to the way that the financial incentives are set up at the moment. So as you can hear, we are sort of brainstorming and thinking about some options here. It's not a hundred percent clear what the best path is, and I think that, you know, conceptually we're open to some sort of link there, but I think it would have to be done in a mindful way.


Yeah, great. It's never easy, especially with the startups because it's not that they have as a more mature company where things are much more predictable. Coming back to actual sectors within impact, you recently published an interesting article with a title, “Why We Have Not Invested in Impact Measurement Tools”. And it's one of the things that has been debated quite a lot among different people and among VCs in particular is that in order to change something, you need to measure it and then work towards improving it. So why have you decided to pass on that whole sub-sector within impact? 


I think you've missed the most important word there, Oksana, which is, we haven't invested yet. So we are still considering the sector, certainly we haven't passed it wholesale at this stage. I think your points around measurement, I mean, we certainly don't disagree that measuring is the first step to being able to improve. 

If we think about it with a very narrow kind of impact lens on to start with, there are differences in potential impact that can be made from measuring different sub-sectors or different businesses or different classes of companies, for example.

And the one that we've been sort of using as an example of late is if you take a group of SME companies, many of which are people in an office. Their CO2 footprint is not that great in the first place. It's actually quite difficult to reduce their CO2 footprint in a substantial and a meaningful way. So yes, absolutely measuring is important and it must be done, and everyone must be doing their bit to try and reduce their CO2 footprint.

But for that particular subset of companies, the upside from an impact perspective is modest, let's say. Versus if you are looking at, I don't know, maybe it's a logistics company or one of our investments Green Story that looks at fashion supply chains or large-scale industrial processes. If you then measure and improve even by a small percentage in those sectors, then you start to make some real impact.

And I think that's sort of how we're starting to think about impact in the measurement space. That's sort of the first point. And the second point of course, is how do you actually demonstrate that you're making an improvement over time? And I think with a bit of fancy footwork and some good Excel skills, I would imagine that in most cases, some sort of customer cohort analysis would probably work best. 

Aligning all of your customers up to sort of point zero and seeing how they improve over time, combined with some measure of emissions intensity, perhaps. Something along those lines. I'm pretty certain that there is a way to measure. Of course, it depends on what company you're talking about, but we would want to see some improvement over time, which really, I guess is an open question.


Do you see that the sector, because it became a little bit saturated, especially over last year from the early-stage side, do you think that there will be consolidation in the sector and it will be carved out based on size of organisation? How do you see, what's the direction essentially, given your knowledge?


Dusting off my crystal ball here, huh? Yeah, so the measurement space certainly is a very crowded market. There's no question about that. There are a number of big, very well-funded players. We've all heard these names and, and the list goes on. 

Of course, yes, I do imagine that there would be some level of consolidation going forward. There are what appears to be a group of the bigger players are starting to emerge now. Some of the names I just mentioned would be some examples there, and then there are an enormous, huge long tail of all kinds of different other businesses that are to varying degrees specialising in very particular focus areas.

And I can only imagine that there'll be a level of consolidation going forward. So yes, I think that that's most likely going to happen. I mean, clearly there won't be one winner. They will most likely be a good handful if not tens of companies that are going to be successful. But really the big question is which ones? Which ones are going to be the consolidators? And which ones are the ones that are going to be consolidated? 

And that is actually quite a tricky one. And I guess that's where we start to look for the real specialists, the ones that have a very clear USP where they are real experts in their particular field.

Assuming we go ahead and invest in this space, it'll be in a business that falls into that category. 


Yeah, agree. And in terms of other sectors, which sectors are currently on your radar? And which sectors do you think have become saturated such as impact management tools? 


There are a number of very interesting sectors out there that we're looking at. One or two that we're doing deep dives in at the moment are, for example, voluntary carbon markets, and in particular within that, the carbon removal projects within that space. The voluntary carbon markets and the credits associated with that we see as being super interesting, primarily because it's currently unregulated.

It's a little bit of the wild west out there, but as infrastructure starts to build and as the marketplace becomes more organised and more coordinated, we're absolutely convinced that there'll be some exciting investment opportunities around that. But we also recognize, as do many other people, that there's a big difference between the good quality projects and the more questionable projects, which is why the carbon removal space is really one we're zooming in on.

So that's one where we're doing a bit of a deep dive and we'll be publishing an article on that in the coming days. Other sectors that have piqued our interests. Well, we're always looking for interesting opportunities with really differentiated DeepTech. We're always looking for innovative and impact applications of blockchain, for example, as well as web3.

It's not always used in the most appropriate way. It is a bit of a buzzword, and we do sometimes find companies that are claiming to use blockchain, claiming to be a blockchain-led company, but actually it's really just there for show and frankly, it's not actually necessary as part of their solution.

But we are still continuing to search because we do feel that both blockchain and Web3 are going to be a big part of our future and they will be very positive applications for that technology in sustainability and impact space. So those are two big obvious ones that we're looking at at the moment.

Some other sectors that are on the radar, in mobility, of course, battery management is an interesting space. Looking at one or two opportunities in the AgTech and precision agriculture space, which we are excited about. PropTech, and most recently I've started to look into concrete and cement a little bit, which is also interesting,

So yeah, quite a broad range of sectors that we are reviewing at the moment. 


Great, great. Very interesting. And just before we wrap up, what has surprised you the most this year? Can be ESG or non-ESG related, just what made you pause? 


Yeah, there's a lot of activity in the market still, I suppose. What is the most surprising thing?

Yeah, despite the market really taking a knock earlier this year, I think what is probably the most encouraging and exciting fact that I've certainly experienced working in the venture space and in the impact venture space is that there's no end to the number of startups coming to the market, to the amount of innovation that's happening, to the enthusiasm and drive that comes out of those teams that are driving these startups.

It's quite extraordinary how companies with a real impact focus and with the teams behind them really care about their outcome. They don't give up for one second, they just keep on going. And I love to see that resilience. That fills me with a huge amount of optimism for the future, and it does catch me by surprise sometimes because the world out there is tougher and harder to navigate than one might expect.

But I think with that sort of guiding north star, the resilience that you see and the amount of enthusiasm that continues to go into startups and innovation has continued. 


Great on that very positive note, thank you so much, Kate, for joining and all the best. 


Thank you very much, Oksana. It's been great chatting.


You have reached the end of another episode of the ESG in VC Podcast. Thank you for listening. If you enjoyed this episode, please take a second to follow us on LinkedIn, Twitter, or on our website. Also, do not forget to sign up to the ESG in VC newsletter for insights and updates. See you at the next episode, and be well.