I admire a lot of things about Eversend, a startup that is building banking for Africa. Ugandan entrepreneur Stone Atwine, the cofounder and CEO, is meeting a very real need: more than 60% of Africans do not have a bank account, less than 3% have insurance, only 7% have access to credit, and people pay up to 31% for a cross-border money transfer. As a Black entrepreneur, Stone has experienced bias in fundraising (in 2020, companies with Black founders received just over 3% of U.S. venture capital), so the company turned to crowdfunding—and met its €550,000 ($644,000) goal in just two days. It havs won competitions, worked with top accelerators, and appeared on high-profile lists.
All of this is hugely impressive. But because Eversend completed the Techstars Berlin Accelerator, and I am the CEO of Techstars, I know certain things about the company’s business model that impress me even more.
Eversend is looking ahead at the insurance claims, payment needs, forced migrations, and more that are the predictable and well-documented effects of climate change. So this company that is striving to be “a neobank for Africans, anywhere in the world”—a goal that seems to have nothing to do with sustainability—is more likely to succeed because it is treating climate change as a factor that will substantially impact its business.
This is what it looks like when a company builds in ESG (Environmental, Social, and Governance) values from the ground up. This is why the future of business is going to be dominated by companies like Eversend—ones that see the coming changes and include them into their business models.
And this is why Techstars recently became a signatory to the United Nations-backed Principles for Responsible Investment (UN PRI), because as investors, we understand that building in ESG is simply good business.
The entire global economy is being rebuilt. Climate change is rapidly reshaping the physical world while technologies like artificial intelligence and automation are repatterning the digital one. And this means that old solutions won’t work. We are on the cusp of an extinction-level event in the business world, as old corporations hit new market forces and fail to adapt, while new companies with ESG deep in their business models are poised to become the next decade’s giants.
Of course, early-stage companies need more than a strong understanding of the importance of ESG before they can save (or rule) the world. They need an amazing founding team, a problem worth solving and a solution that works, a deep knowledge of business fundamentals, a network of mentors and industry experts to open doors and answer questions, and emotional support for the ups and the downs.
And money. All startups, at one point or another, need money—whether it comes from founder savings, family and friends, venture capital, crowdfunding, or even actual revenue—in order to grow.
Investors in early-stage companies choose winners—or at least choose who will get the chance to further prove their worth. Early investors use the limited data they have in order to make these decisions: Is there a business opportunity here? Does this founding team have the necessary skills and drive? Are they gaining traction? At the earliest stages, these are a company’s best indicators of future success.
That’s been the model. Now there’s another factor to add in. The UN PRI guides institutional investors to take ESG issues into account in their investments. And while I am proud that Techstars is making the world a better place through the entrepreneurs and companies we support, we would not have signed on if I didn’t also believe that these principles are fundamentally good business, and will allow us to make more and more profitable investments.
I hear entrepreneurs and investors alike worry that if we are not ruthless in our decisions, our returns will fall short—that ESG is a distraction. To them, I say: We are better than ruthless. We are smart. We take all the factors, including ESG, into account when we choose our investments. More than 2,000 academic studies have examined the relationship between ESG and financial performance, and 70% of them say yes, there is a positive relationship between ESG scores and financial returns.
Climate change creates business opportunities. So does social change. Acclinate is a company that helps clinical trials source diverse participants. Too often, participants in clinical trials are overwhelmingly white, and efforts to recruit diverse participants are unsuccessful, while Black and brown people die from medical neglect, discrimination, misdiagnosis, or lack of treatment—often in ways that are completely preventable.
As we cope with a global pandemic with a death toll in the millions, this brutal disparity in health care has come into sharp relief. Black and brown communities have good reason for their mistrust of medical studies. Acclinate is building trust with these populations, and we have never needed good clinical trials more. That urgency speaks to the size of the business opportunity.
Pipeline Equity, meanwhile, is taking advantage of the business opportunity around fixing gender equity in the workplace. Women are leaving the workforce in significant numbers, while the U.S. is less than three years away from a 5 million worker shortage. The U.S. alone is missing out on $2 trillion in GDP by not addressing inequities at work. So Pipeline Equity is using data and artificial intelligence to drive their analytical platform to make recommendations to the companies that are their clients that both improve financial performance and help women grow in their careers.
Companies with sustainability at their core are likewise pursuing key opportunities. Boston-based mining company Phoenix Tailings pulls valuable primary metals from the so-called “tailing ponds” full of refining waste from mines. These critical raw materials can be used for cell phones, cars, and in the aerospace industry—and Phoenix Tailings produces them without producing direct carbon emissions. In India, Craste makes and sells packaging and furniture materials made from crop residue that farmers would otherwise burn to clear the soil for the next year’s planting. The company is giving farmers extra income while cutting air pollution. Anheuser-Busch InBev is currently piloting six-pack packaging with Craste.
When companies like these succeed, everyone wins: the farmers in India, the communities around tailings ponds, the woman who just got a promotion, and the child who is getting the best asthma medication for his body. The companies, their employees, and their investors benefit. And, for that matter, AB InBev and the pharmaceutical companies that are now doing better and more complete clinical trials. The depth of this value proposition is part of what drives their success.
I hesitate to call it a virtuous cycle, because virtue and business have been so often at odds, but perhaps that’s exactly the point. Virtuous cycles like these are exactly what entrepreneurs, investors, and even informed consumers should be looking for, with good for people and the planet inextricably entwined in the process of achieving business success. A sustainable business sustains itself and humanity. It grows, thrives, and profits from every opportunity. This is capitalism at its finest.
At Techstars we recognize embedding ESG into our business practices, as well as encouraging entrepreneurs to do the same, increases an organization’s overall value proposition. If we look to support all groups of people, with a focused lens on those who are underrepresented and who have limited access to opportunity and capital, we uncover a greater number of financially successful business ventures that can create generational wealth for decades to come.
Techstars CEO Maëlle Gavet has been a senior executive at numerous large tech companies around the world, including Ozon, the Priceline Group (OpenTable, Kayak, Booking.com), and Compass. She was also a Principal at the Boston Consulting Group for six years. She is the author of Trampled by Unicorns: Big Tech’s Empathy Problem and How to Fix It.