In good company: How Obvious Ventures is disrupting venture capital

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Impact investing puts capital into funds, businesses and organizations with the goal of generating measurable and beneficial social or environmental impacts alongside financial returns.

Entrepreneurs, often lauded as "disruptors" in their fields, are now matched by a radical disruption happening in the way they get funded. Located in Silicon Valley and making early-stage venture capital investments, Obvious Ventures is betting on a way of investing that disrupts the process at its core. The firm makes investments in what it calls "world positive" companies: "Startups that create new solutions to big world problems in a profitable and scalable way."

And Obvious takes a long-term view when choosing companies to support. "The world is continually going through major reinvention, and entire industries are being re-imagined," said Andrew Beebe, managing director for Obvious. "Now more than ever, if we do that in a way that has a long-term view into the market that it's re-imagining, we think the outcomes are going to be economically better. We think we can outperform as a venture fund because of our focus on world positive companies."

The firm's team members aren't new to the game. Take co-founder Ev Williams, who previously co-founded Twitter and later Medium. Or co-founder James Joaquin, who co-founded Clearview Software (acquired by Apple) and When.com, an Internet calendar and events service (acquired by AOL), and more. The founding and managing team members' combo of entrepreneurial and VC experience led them to set the firm's three areas of focus as sustainable systems, people power and healthy living.

To date, the firm has two funds, with a combined total of about 45 portfolio companies and more than $300 million under management. "We invest mainly in early stage companies, but occasionally, maybe one in five, will be a late-stage investment," Beebe said.

And while Obvious is serious about its work, the world positive focus has brought levity to the way the company operates, sometimes in surprising ways. Case in point: The firm closed its first fund at $123,456,789 and its second at $191,919,191.

In late 2017, Obvious certified as a B Corp. In some ways, this move was, well, obvious. Certified B Corps are for-profit companies verified for their positive impact on all stakeholders, including people and planet, which connects to Obvious' intention to invest in profitable solutions to world problems. The benefit corporation governance structure, adopted by all B Corps in states where available, aligns with the goals of the Obvious World Positive Term Sheet: Both set the impact on all stakeholders as a value to be weighed with revenue potential in decision-making and help ensure the founders and all investors are on the same page.

"While we had discussed it informally for the past two years, the exploration of our second fund becoming GIIRS-certified is what moved the B Certification process forward for us in spring 2017. We knew this would not only put us on the GIIRS path, but would help us be more reflective in our company operations — cultivating more employee-centered, socially responsible and environmentally sound practices as a business," said Gabe Kleinman, director of content and marketing at Obvious Ventures. "We were able to make meaningful upgrades to company policies through the process, and we know from the data that practices encouraged by B Corps — transparency, diversity, commitment to sustainable practices — are connected to better business outcomes, deeper resonance with customers and clients, and attracting the highest caliber talent."

On the heels of its certification, B the Change spoke with Beebe about how Obvious defines world positive, where the rest of Silicon Valley is headed, and companies that are doing remarkable things.

Jennifer Kongs: How do you balance finding "world positive" and financially sound investments?

Andrew Beebe: I'll give you an example. We are investors in Proterra, which designs and manufactures zero-emission electric buses. I think 10 years from now, the idea of a diesel or even a natural gas-powered municipal bus is going to sound kooky. Our opinion is that investments in diesel hybrid engines or natural gas conversion are bad investments. We're making a somewhat contrarian bet; we've said everything is going to become electric, so we're gonna bet on those companies. That is a viewpoint that differs from the norm, but it also happens to be one that would be championed by sustainability leaders or people thinking about the environment. We think the reason this company will grow and be worth billions in the future is because of their world-changing impact.

Another example would be that we don't invest in enhanced oil recovery, which will likely make money in the short term, but will be economically disastrous in the long term. We look for things that will be resilient over time.

That's not to say there isn't a shorter-term aspect to what we're doing, too. We're investors in Planet Labs, which designs, builds and operates the largest constellation of Earth-imaging satellites. A lot of what they do is centered on mapping that is environmentally helpful; that mapping already has been sold to farmers, creating strong revenues. That's a “here-and-now view,” but we believe it will remain relevant in 20 or 30 years, too.

Kongs: How did you land on the three areas of sustainable systems, people power, and healthy communities? And what companies are you jazzed about working in those areas right now?

Beebe: The three areas are sufficiently broad to allow us to go in a lot of different directions, and they play to the strengths of the three partners and our backgrounds. I came out of renewable energy and software. My partners came out of consumer packaged goods and lifestyle products and finance. Our scar tissue, so to speak, and our networks help us navigate these three areas well.

One of my favorite companies is Plant Prefab, which is a sustainable prefab-housing company that is making beautiful LEED Platinum houses financially accessible to more people. A real tribute to their work is that wealthy people, low-income people, and everyone in between are buying these homes.

Another is Diamond Foundry, which grows real, certified cultured diamonds in California. This company is one that shows how we're not always in the traditional "sustainability" box. But we think radically disrupting the mined diamond trade is a really good idea. It makes it possible to have diamonds but not buy one that could be helping fuel wars or harming people in the extraction process.

Kongs: How did you land on the three areas of sustainable systems, people power and healthy communities? And what companies are you jazzed about working in those areas right now?

Beebe: We don't require hard metrics in sustainability or impact from our portfolio company for specific reasons. First, it's super hard. When you ask a vegan cheese company, "Please tell us your positive impact each month," how do you figure that out? Is it how many cows didn't have to get milked? Is it how much methane from each cow that didn't get produced? But then, of course, you'd have to offset that with the emissions from your delivery trucks. It's just too hard.

That's the practical reason, but there's also a strategic reason: Companies will pivot. And when they change, you have to rejigger all of those impact measures. What we do is simply ask the question, is this company likely — regardless of pivot and because of the value of its leadership — going to continue to have a positive impact on the future of humanity? On the human potential? After that point, our decisions are economically driven.

Kongs: How does that perspective connect with Obvious' decision to become a B Corp, a certification that requires rigorous measurement against set metrics?

Beebe: My partners were involved in the founding of B Lab's work. (B Lab is the nonprofit that certifies B Corporations.) But for our first three years, we didn’t try to certify, and that was largely because of an anxiety around the metrics. However, we've concluded that as companies get closer to entering the public markets, late-stage and covered-market investors don’t get to stay on the board indefinitely and don’t have the same deep understanding and relationship-building time that we have by investing at the early stage. So, metrics do become more relevant for that group of people. B Lab has done a good job of acknowledging that — that maturation matters. Intention matters up front, and compliance matters more later.

With that in mind, we have come to the conclusion that it's a great signaling of intention for us to show everyone through our own actions that we care about the B Corp metrics. Certifying also says that we will, over time, have certain expectations — as will your other later-stage investors and as will the public markets. So company leaders might as well warm up to it now.

Kongs: What other ways do you work with your startups you invest in to help them succeed as they grow?

Beebe: In our early-stage investments we often we have board seats. I would say we are infinitely involved. We are, hopefully, the first call for entrepreneurs when they hit a snag; when they’re trying to recruit somebody; when they’re thinking through a management challenge; or when they're considering a major, or even minor, change in strategy. All of our partners have substantial entrepreneurial experience. We’ve been there, so we understand how to be as strong a practical support mechanism that we can be.

We created the "World Positive Term Sheet," which is an addendum that we recommend entrepreneurs attach to their own term sheets, that clearly states and asks investors to agree that a world positive company is the kind of company we want to build. It’s a statement of intentions that includes, for example, committing to a diverse workforce or aiming to become a B Corp.

It gives the founders a way to get buy-in upfront that, when they make values-based judgments, it doesn't have to solely and exclusively be based on near-term financial outcomes. It gives founders the chance to say, "Luckily, we're all OK with this, because you all signed that term sheet that said we care about all stakeholders, not just shareholders." It’s all about expectation-setting so these values don't get lost later in the heat of working for a high enough valuation and fundraising. It's kind of like the prenup to the marriage that is taking on an investor.

Kongs: Do you all have a sense that Silicon Valley as a whole is moving this direction?

Beebe: I think this is the question of the day, the year and the decade. I think we are at a fork in the road. I think we're seeing great, small steps that people are making as a result of the exposure caused by journalists who are uncovering a lot of bad practices that have been going on for a long time.

There are many models and mechanisms that can make a positive difference. Ultimately, a lot of those mechanisms are meant to catch people doing bad things and help make it easier for people to feel safe. But we need behavioral change, too.

Kongs: What role does your firm's positive outlook, levity and general optimism play in being able to keep doing the work that you guys are doing? 

Beebe: I haven’t done it any other way. It's important to all of us that, even when things aren’t going well, we are working toward positive outcomes that remain clear to us on a daily basis.

We also try to have fun. We often talk about the four T's: timing, tech, TAM (total addressable market) and team. The reality is, we most often make decisions based on TAM and team, and between those two, it's just team. When we meet with an entrepreneur who is fired up, who is somebody that we know we’ll have a lot of fun working with even when things aren’t going well, that’s more important than anything to all of us.

Kongs: What do you say to people who call impact investing "cute"?

Beebe: That's one of the reasons we don't talk about being an impact investor; what investor doesn't want to have an impact? What if you were to ask an early investor in Tesla or in Proterra if they thought their investment was cute? They don’t care whether it was cute; they made a thousand-fold return.

You can call it whatever you want, but in reality, you just missed out.

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