Did you know that only 1% of global venture capital goes to black founders? The founder of venture capital firm Impact X, Paula Groves, was made aware of this fact in 2000, and it’s still true today, almost 20 years later.
To create long-lasting social change, Paula Groves believes that the answer is successful impact investing. So how does this work? Through the ‘virtuous circle’? A virtuous circle is a complex chain of events, via which each successful event leads to the achievement of the next successful event, in a feedback loop. Entrepreneurship creates jobs, builds wealth, and then allows successful entrepreneurs to help the next generation of entrepreneurs, who in turn build jobs and wealth, and so on.
Driven by an incredible consortium of founders hailing from the US, Impact X set up in the UK in 2018. The firm supports underrepresented entrepreneurs across Europe, particularly the Afro-Caribbean diaspora, with Seed, Series A and Series B rounds, within the entertainment, media, tech, health and digital industries. To find out more, we spoke to Paula Groves about their portfolio, her impressions of the funding landscape in Europe compared to the US, and her advice for underrepresented founders.
Hello Paula, thank you for joining us. We first learnt about Impact X last year and are interested to know more about your impressions of the European funding landscape coming from a US background.
First, we could jump in with your story. What first got you into investing?
I got an itch for finance and investing in 1982 during my freshman year at Stanford University when I took the Economics-101 class and suddenly a light bulb went off. I thought to myself, economics and finance play a critical role in how the world works. If we can understand finance and how capital flows, we can begin to understand how to influence economies and address fundamental social issues that plague our society such as poverty and economic well-being. I then quickly joined Stanford’s student run investment organization, The Blyth fund, obtained the position of student representative on the Committee of Investments for Stanford’s Board of Trustees, and upon graduation in 1986 with a undergraduate degree in economics, I secured a 3-year position in New York City on Wall Street at Credit Suisse First Boston as part of their analyst program. After obtaining my graduate degree at Harvard Business School in 1991, I went to Chicago, Illinois to work for Leo Burnett Advertising agency. However, as I was contemplating whether I had made the right career decision, one of my old bosses from Wall Street called and asked if I wanted to help launch a private equity fund in Boston called Triumph Capital. My guardian angel had smiled upon me. Here was my chance to return to my first love — finance — and so I responded with an enthusiastic “Absolutely!”
After helping the firm grow assets under-management to almost $1 billion, in 2000 I was confronted with a challenge. I learned that less than 4% of venture capital funding went to women and even more shocking, less than 1% went to Black entrepreneurs. Despite the world-changing ideas that were being funded by venture capitalists, women and Black entrepreneurs were not getting a seat at the table, or to quote Hamilton, they were not in the “Room Where it Happens”. Having gone to schools such as Harvard and Stanford, I knew first-hand that Black and women founders were also developing ground-breaking innovations that could not only change how our society operates but they also had ideas that could transform their respective communities that might not be readily apparent to mainstream investors and entrepreneurs. Getting back to understanding the importance of capital flows, I knew that successful venture capitalists and venture backed companies play an important wealth creation role in society whereby investment returns could be used to back the next generation of Black and female entrepreneurs, and could also bring about societal change through charitable contributions and directing funding to social impact causes.
These combined factors led me to co-found my own venture capital fund, Axxon Capital, which raised over $50 million in 2000. Axxon focused on Black and women founders of technology-oriented companies.
How did you start Impact X, and why did you decide to set up in Europe?
Eric Collins, the CEO of Impact X, and I first met in 2000 when Eric was raising funding for an online conflict resolution platform. Unfortunately, the first of three major economic downturn cycles in my career hit, the dotcom crash of early to mid-2000s, and we were not able to invest in his company. I should probably mention that the second downturn was the 2008 financial crisis precipitated by the downturn in the mortgage market. The third downturn is the one we are experiencing now, starting with the Covid-19 pandemic and impacted by the protests which followed the death of George Floyd in the US.
Eric and I stayed in touch over the years and explored several ways to get capital into the hands of Black entrepreneurs and to generate wealth for the Black community. In 2018, Eric launched Impact X which is a European double bottom line vehicle established to make direct venture capital investments in European underrepresented entrepreneurial and creative innovators including Black entrepreneurs of African descent. Impact X invests primarily for solid financial returns to LPs and secondarily for measurable social impact.
The founding members of Impact X saw the same problem that I saw twenty years ago, less than 1% of venture capital funding goes to Black entrepreneurs – worldwide. Eric called me in late 2018 to discuss this problem and asked if I would help him solve it. I was quite humbled that Eric asked me to join him once I looked at the esteemed set of individuals that were backing Impact X. The list of founding members is comprised of an accomplished and ethnically diverse group of professionals with over 500 combined years of investment and management experience from organizations such as Credit Suisse First Boston, Microsoft, AEW, Xerox, ExxonMobile, American Express, Uber, BBC, HBO, Universal, Paramount, McKinsey and more. This group also includes a Sir, a Dame, US Presidential Appointees, CEOs, serial entrepreneurs, institutional investors, investment bankers and professors at various universities.
But perhaps most importantly, I was inspired by the fact that this group, who had achieved such economic success and stature in Europe had taken it upon themselves to fix the fundamental problem of lack of access to capital for Black European entrepreneurs. They were living the cliché, “Put your money where your mouth is” and were investing in the solution. This was the principle at work of “helping capital flow back into the Black community by investing in the Black community to create economic wealth and prosperity”. I saw the light bulb flash in the recesses of my memory from my Econ-101 class back at Stanford. By now, this had become quite literally a “calling”, given that Eric had called, and I could not say no.
Could you tell us about your portfolio companies?
The Impact X portfolio consists of technology-driven companies that provide innovative solutions that help their target customers become leaders in their respective marketplaces. One health tech company is led by a Black female neuroscientist who has designed an AI powered SaaS tool that streamlines the medical research process required to initiate clinical trials. In this time severely disrupted by Covid-19, accelerating the clinical trial process for her customers plays a critical role in helping the global community find a way to combat this global pandemic.
Speaking of Covid-19, one of the unforeseen benefits of sheltering-in-place is that many are enjoying TV streaming services. In fact, Netflix demand is up over 30% and given that the pandemic has hit all communities across that globe, streaming services have increasing demand for international stories. To that end, Impact X has invested in a project that uses graphic novels, animation, video games and other forms of media to tell stories inspired by African history and culture and combat negative African stereotypes. The investment is timely because animation demand in particular is increasing and animation can be produced remotely in isolation / semi-isolation.
We’ve read about how investing into marginalized groups has been more common in the US, than Europe. Why do you think this could be?
Investment in marginalized communities in the US has a historical government foundation. In 1964 when the US Civil Rights act was passed that outlaws discrimination based on race, color, religion, sex, or national origin, simultaneously, the US Small Business Administration, an organization established by an act of congress in 1953, created the Equal Opportunity Loan Program to assist applicants living below the poverty line, in other words applicants from marginalized communities.
Many believe this program was launched in direct response to the civil unrest and turmoil of the US Civil rights era to increase economic opportunity for all US citizens.
Could you tell us your impression of the current VC landscape in Europe? Have you seen anything change in the past few years?
Covid-19 pandemic combined with the civil unrest in response to the death of George Floyd has created unprecedented conversations regarding the fate of worldwide Black entrepreneurship and Black economics at a breadth and depth that I have never seen before. The question now confronting society is what actions can be taken to bring about lasting positive change in the Black economic future.
As the first line of defense against the protests that followed George Floyd’s death, many individuals and corporations have turned to charitable giving. The New York Times reports millions of dollars have been quickly raised for racial justice groups, breaking fund-raising records for many organizations. This charitable funding certainly begins to address some of the social inequity problems noted above.
However, it is important for those with capital who seek to bring about social change to not only address the important problems solvable by charitable donations, but also turn an eye toward creating long-term solutions by funding entrepreneurship. Funding which is used to bring about social change and right the wrongs of economic inequities is called Social Impact Investing. This type of investing has its root in the Equal Opportunity Loan program created by the US Small Business Administration mentioned earlier. Using capital to address social ills is the most effective way to bring about sustainable social change. This shift from charitable giving, which is the equivalent of giving a community fish to eat, to Social Impact Investment which instead teaches a community to themselves fish, can lead to long-term sustainable growth. Entrepreneurship creates jobs, builds wealth and then through reciprocity, these successful entrepreneurs can then fund the next generation of entrepreneurs who create jobs and build wealth. This is what Impact X refers to as the virtuous circle.
What advice would you give to startups with female and underrepresented founders, who are currently experiencing pushback?
The hardest most universal aspect of raising money for a startup is the overwhelming number of “Nos” that you will get. What is even worse are those who don’t have the courage to say no, but rather keep you in a holding pattern of optimism by saying, “if you fix this one thing, I will give this idea serious consideration”. My advice is to always be a student of the universe. Getting a meeting with an experienced investor is itself quite an accomplishment. Therefore, I say, don’t just get a no, get a lesson. Chances are the feedback you receive is borne out of the money they lost based on the less than optimal investment decisions they have made in their past. Listen, learn and try to incorporate the feedback.
What are your priorities this year? What exciting things can we expect from Impact X from 2020-2021?
Our priorities are:
- To maximize returns for our investors by working with our existing portfolio to achieve meaningful exits;
- The demand for investment by Black entrepreneurs remains strong and therefore we will continue to raise money to support this ecosystem;
- And finally, we seek to create positive and measurable social impacts which is also part of our mission
As we emerge from this time of global pandemic and social unrest Impact X seeks to share its model and partner with others to generate meaningful social and economic returns for Black and underrepresented entrepreneurs.
How can founders in Europe get in contact with you, and what are you looking for?
To reach us please visit our website at Impactxcapital.com. If you would like to submit your investor presentation, please complete our client intake form. For other inquiries please send an email to: [email protected].