The Higher Purpose Venture Capital Blog

Blog 1: An Introduction

“Poverty is not just a lack of money; it is not having the capability to realize one’s full potential as a human being.”
― Abhijit V. Banerjee and Esther Duflo (Co-recipients of 2019 Nobel Memorial Prize in Economic Sciences), Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty

Venture capital fundamentally exists as a means of channeling capital to enable promising entrepreneurs to deliver on their goals of creating scalable and innovative solutions to existing problems and gaps in a market, while at the same time delivering outsized returns on investment. Some of these problems that technology-focused founders address are of a profound societal nature. And while those problems seemingly may not always correlate with the highest potential for investor return, a generation of emerging entrepreneurs are showing the fallacy in that thinking.

Back in 2004, the late University of Michigan business professor C.K. Prahalad published “The Fortune at the Bottom of the Pyramid.” The societal ills brought on by those with money and power who do not understand or address the needs of the “have nots” are innumerable. In demonstrating that businesses can profit by serving the lowest income earners, Prahalad provided evidence for not overlooking opportunities where businesses have often neglected them. Beyond just serving these markets, however, creative entrepreneurs of today are increasingly focusing on empowering lower income earners and those surviving at poverty levels to overcome barriers that have existed for generations.

The Higher Purpose Venture Capital Blog is intended to seek out and learn from founders of venture-backed mission-driven startup companies that are helping to solve the problems created by wealth inequality and societal injustice that exists among those who are at an economic disadvantage. These problems will not be solved top-down, but rather with creative ideas that come from the source of these challenges.  As Professor Prahalad argued, “the problem of poverty must force us to innovate, not claim rights to impose our solutions.”

Impact-oriented venture capital investing is not new. There are both professionally managed venture capital funds as well as loosely organized angel groups and private investors and family offices that focus on many types of venture investing with a “double bottom line” purpose. Some focus more on supporting underrepresented founders by race and gender. Others looks at climate change and alternative energy solutions or more broadly “ESG” (environmental, social and governance). There are also investors taking a focused approach to areas such as education technology or public health.

In the past several years since I became a full-time venture capital investor with The Yard Ventures, the Harvard-oriented alumni fund of Alumni Ventures, I have been actively co-investing in at least 25 early-stage companies per year that run the gamut from seed to growth stage as well as covering sectors ranging from traditional SaaS to hardware to e-commerce, consumer, mobility, life sciences, and more.

Our job as venture capitalists is to identify highly promising companies that address problems or inefficiencies in large markets and that have management teams with the skills and temperament to scale these ideas into mega global enterprises. A significant subset of these companies is particularly meaningful to me because the problems they are solving are so big and the solutions are both innovative and demonstrating truly impactful results that are helping real people in the real world.

A common theme across many of the more impactful deals I’ve worked on has been the creative solutions that address problems faced by those with limited economic means. The “poverty penalty” that Prahalad alludes to helps explain why it so common in societies for the rich to get richer while the poor get poorer. It is a vicious cycle to break out of when one’s cards dealt in life include no access to financial credit, no access or ability to afford high quality schools and educational opportunities, no access to the best healthcare available, lack of affordable housing and childcare, food insecurity, limited transportation options to pursue more lucrative opportunities and a societal culture where the “haves” always have a leg up.

To frame the inequality gap, Oxfam reports that since 1995, the top 1% of the world’s population have captured nearly 20 times more of global wealth than the bottom 50% of humanity. Moreover, the world’s wealthiest 1% produce double the carbon emissions of the bottom 50%.

The results of such gaping holes of inequality are incalculable. At the very base of Maslow’s Hierarchy, it relates to the cost of shelter and nourishment and the cycle of poverty. When children don’t have adequate schools, they do not advance into more skilled, rewarding professions later in life. If parents don’t have access to pre-school and infant childcare without giving up their job, they have limited ability to provide for their families. It is about crime, imprisonment and recidivism. It is about basic health, wellness and personal care. It is about being able to access capital or goods in a time of need or to pursue new opportunities such as starting a small business.

Inequality contributes to the deaths of at least 21,300 people each day globally according to Oxfam, from hunger, lack of access to healthcare (including mental health), gender-based violence, as well as effects of climate change such a rising sea levels and natural disasters. In the U.S., according to the Bureau of Labor Statistics, weekly earnings on average for a college graduate are more than double that of a high school dropout. Nearly all who do not complete high school drop out for reasons that in one way or another tie back to wealth inequality. The ripple effects of living one’s life in a continuous poverty cycle are immense and impact society at large. As merely one example cited by Michelle Alexander in “The New Jim Crow,” in the U.S. two-thirds detained in jails reported annual income of under $12,000 prior to incarceration.

While these problems are stark, the solutions to many of them are real and viable to scale, both in the U.S. and globally. This blog will profile early-stage technology-driven companies that are making inroads on solutions to the problems of wealth inequality and serving the shocking level of humanity who struggle to keep up at the bottom of the pyramid.

We will cover in this blog early-stage venture capital-backed companies that are operating in the realms of both early and adult education, as well as health and wellness, financial independence, affordable housing, food security, transportation and mobility, climate change, corporate and government transparency, small business creation and other areas. Some of the entrepreneurs that will be featured in this blog will be drawn from companies that I have invested in either personally or as part of Alumni Ventures. For example, there is SoLo Funds that is disrupting the notorious payday lending industry by democratizing access to emergency capital. There is Aprende Institute that is making practical skills training more accessible and affordable for Spanish-speakers in both the US and Latin America. We will examine AllHere, which has built a communication platform that leverages artificial intelligence to combat student absenteeism in public schools. We’ll also look at Vincere Health, a Harvard-incubated company that provides through its app and handheld device a suite of coaching, monitoring and financial incentives to encourage people to quit smoking and lead healthier lifestyles. All of these businesses are proving to be both effective at their missions and highly scalable.

While the issue of wealth inequality is acute close to home in the US and where many of these companies originate, we will not be limited to national borders. Many of the income inequality problems that we face here play out at a far grander scale overseas, particularly in developing countries. Some of the problems these startups address will correlate with race and gender inequality, while others may have different societal root causes, such as treatment of urban versus rural populations or entrenched caste systems, both explicit and implicit.

This blog is fundamentally a learning journey borne out of my own curiosity and desire to be impactful in my work as venture capital investor, advisor and entrepreneur. Those who wish to ride alongside and contribute to our learning are warmly welcome to participate in this conversation about how venture capital can help empower entrepreneurs who aim to serve a higher purpose.