A new objective for the start-up investment

IN the space of technological startups, where the emphasis has been largely on the development of technological solutions to fill the gaps in the market, the consideration of environmental, social and governance (ESG) issues is still somewhat of a priority. novelty.

Startups typically start on a small scale and start up until they’ve gained some traction and secured funding, which then gives them the space to expand their reach and, perhaps, look into ESG. .

But with investors increasingly determined to invest and build more responsible and purposeful businesses, the ESG journey could start much sooner for startups – which is working well for 500 Global Managing Partner Khailee Ng.

“Because 500 Global has seen how quickly many of our more than 2,500 start-up investments in 77 countries grow into big tech giants, we’ve decided to take a more proactive role by integrating our next 2,500 investments into their ESG journey.

“Today, American and Southeast Asian startups must have ESG policies in place in order to receive our investment.

“It’s a requirement. We believe that one day every startup pitch deck and business plan will have an ESG page. Startups might as well start now,” says Ng.

The venture capital firm’s (VC) portfolio today includes 35 unicorns – a company valued at over US $ 1 billion (RM 4.19 billion) – including Grab, Canva, Carsome and Carousell.

Ng notes that the VC is not alone in this movement. Although ESG is not a requirement of the majority of its $ 1.8 billion (RM 7.54 billion) in assets under management, many of its institutional investors are starting to encourage ESG by allocating their capital. to startups that have such practices.

Notably, there is a growing trend for institutional investors to relax their influence in ESG adoption, which encourages VCs to install ESG in their startups. This, according to Ng, would mean that VCs can be a powerful collective driver of widespread ESG adoption.

Locally, Malaysia Venture Capital Management (Mavcap) is also looking into this area as an investor.

“Given the renewed global push towards ESG standards as well as the growing global awareness of the urgent need to tackle climate change, there is indeed great potential in sustainable investing and this is expected to continue to grow. “, he indicates.

However, Ng stresses that it is important not to confuse ESG with sustainable investing or impact investing.

“They can be very different. For example, any company can and should integrate ESG policies. Some may express their ESG as “doing no harm”, while others may proactively regenerate the environment.

“ESG makes it easy to read and assess a company to see how aligned it is with your values. The ESG makes it easy to read whether they are indeed “durable” or “durable enough” according to the criteria of the investor, ”he explains.

It also addresses the misconception that sustainable businesses have a lower or longer return on investment (ROI).

“Our data shows that the opposite may be true.

“Our investments in the best performing seeds continue to generate returns on investment in the order of 10X, or 2,000X in less than 10 years. And, they are inspiring examples of sustainable development.

He cites several 500-backed tech giants such as Canva and Grab as examples.

“Canva is a mobile app that makes it easy for anyone to create digital designs. No paper is used, trees cut or environments damaged. Canva is worth $ 40 billion (RM 167.54 billion). The founders pledged to donate 30% of their shares to create a non-profit Canva foundation, eclipsing Australia’s largest foundation by three. “Grab is also worth almost US $ 40 billion (RM 167.54 billion). Their “Grab for Good” actions and policies explain how they approach sustainability at scale within their business, as well as in the communities they serve.

“We can also look at Bukalapak, the largest initial public offering in Indonesian history and how it is improving rural economies,” he explains.

The best ROIs, he adds, can generate the best ROIs for the company. And that should be the goal of the savvy investor.

“Each startup to which our investment has been proposed has also agreed to begin their ESG journey. Not a single startup has refused it.

“This included several Malaysian startups, as well as startups from the rest of the world. They receive role models, webinars, and tips.

“Together we are taking small steps as a tech industry, but we are very encouraged by the welcome.”

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