How SoGal Approaches Impact Investing

Breaking down misconceptions of investing in female founders

This month, I was invited to speak on the topic of impact investing at a Women With Purpose session — a community of women with a vision to engage in impact-driven work, organized by Jennifer Cheng, a serial entrepreneur and co-founder of NewChic Capital. I'm sharing some insightful points picked up from the conversation. Thanks to our intern Maxine Mak for taking notes and writing the first draft!

Is impact investing a nice-to-have addition to investing? What does your money say about what you believe in?

At SoGal, we think that impact is an inherent responsibility of investing.

What Is Impact Investing?

Impact investing aims to generate social and environmental benefits, in addition to financial returns, that traditional business models often ignore. These investments typically target sectors including affordable housing, education, environment, health, sustainable cities and sustainable energy, to name a few. According to Global Impact Investing Network (GIIN), over 1300 organisations manage $502 billion in impact investing assets worldwide.

It may also be helpful to note that impact investing is a potential approach that the private sector can use to promote the implementation of the Sustainable Development Goals (SDGs) — adopted by the United Nations as a universal call to action to achieve a better and more sustainable future for all. There is an estimated $2.5 trillion gap in financing of these goals and impact investments will pay a significant role in addressing these societal issues.

The United Nations adopted the 17 Sustainable Development Goals (SDGs) on 1 January 2016 as part of the 2030 Agenda for Sustainable Development.

Promising Performance of a Women-Focused VC

SoGal Ventures is the first female-led, next generation venture capital firm that focuses on woman and diverse entrepreneurs. We invest in the future of how we live, work and stay healthy,

100% of SoGal’s portfolio companies are led by women, people of color, LGBTQ, and immigrants. Over 70% of our LPs are women.

Our goal is to prove that investing in women not only yields greater impact, but also generates outsized returns. So far, the thesis has been proving to be true. Founded in 2017, SoGal’s first fund has made 35 investments to date (majority in seed stage), and deployed about $7M. The average valuation growth of a large group of portfolio companies is 3X, with a top performer growing at 16.7X. Furthermore, 75% of portfolio companies have moved on to the next stage, which is about 3X of the industry average.

Covid-19, The Rising Gen Z Workforce and Solving Previously Overlooked Gendered Problems

Opportunities to hire, consolidate and invest

With many of our portfolio companies experiencing accelerated growth during Covid-19, now is an opportune time for startups to hire. Not only that, the pandemic has definitely accelerated trends such as at-home education, at-home healthcare, indoor fitness, wellness, and on-demand delivery. This has translated to significant consolidation as seen in Lululemon’s $500M acquisition of Mirror (an at-home fitness company) and Uber’s acquisition of Postmates (a 10-year-old food delivery company) worth $2.65B in stock. Finally, as VC deals generally became less competitive and startups are seeking more cash runway, now is a great opportunity to invest with more attractive, less hyped terms. Examples include LARQ Bottle’s (self-cleaning bottle company) drop in valuation from $18.5M to $12M and Spinn’s (coffee maker & coffee beans market place) 95% drop in valuation from $43M to $2M. (Source: Pitchbook)

Changing the tide: It begins with an active Gen Z workforce

Gen Z is a growing demographic where they are defined by their pursuit of diversity, inclusion and sustainability. The hope is for these trends to stay and be strong enough to challenge the status quo. However, topics of diversity and inclusion have also brought to surface the vanity behind corporate initiatives that attempt to monetize such situations and boost company branding. Women-led businesses have also been scrutinized quite a lot in the past year on leadership and culture. Here’s an article that talked about this well.

Creating solutions that solve long-standing female problems

Entrepreneurs from underpriviledged backgrounds and demographics are coming forward to create solutions for problems that they experience as minorities. More of this needs to happen especially with so many gaps and blind spots that still exist in today’s world. I mentioned the book Invisible Women and the way healthcare is developed as an example, where drugs for women are mostly only clinically tested on men.

Sometimes, we don’t see these gaps and inequalities anymore because we see things in their natural form when in fact, there are so many things that are wrong.

Case Studies on SoGal Ventures Impact Investments

Though we don’t brand ourselves as an impact investing fund, we very much prioritize companies that can make an impact. For this session, I shared a list exciting case studies on SoGal Ventures’s investments ranging from health and wellness, consumer, to deathcare companies.

Everlywell — Democratizing the health testing space and the first company in the US to launch the Covid-19 Home Test Kit

SoGal Ventures’ second ever investment, Everlywell speaks to the hundreds of thousands who want to take control of their own healthcare but do not have the resources and finances to do so. Led by solo female founder Julia Cheek, democratizes access to healthcare for the average person with affordable, convenient and accurate at-home test kits. Currently you can find 30+ at-home test kits on the platform, ranging from STD tests to food sensivitity tests. Despite being a 4-year-old young company, Everlywell was the first company in the U.S. to come up with a Covid-19 at-home test kit and the first to get FDA approval. Their business has seen tremendous growth despite Covid, and is doubling sales projections to 9-digits this year. Everlywell is a perfect example of what’s possible when impact investing is done right.

Cherry Blossom — Reshaping the post mastectomy experience for Breast cancer survivors and beyond

Founded by 2 Black women entrepreneurs (Jasmine Jones with retail experience and Dr. Regina Hampton, a well-established breast cancer surgeon), Cherry Blossom is an award-winning, first-of-its-kind licensed breast health clinic and intimates boutique. The number of women with breast cancer in the U.S. amounts to 8 million, of which the majority of them are women of colour who are overlooked and underserved. With a mission to use innovative care, technology and inclusion to be the Warby Parker for breasts, Cherry Blossom has created a successful state of the art store for women and transgender people — whether they are breast cancer survivors or not — to have a wonderful experience shopping for breast prosthetics and intimates. After winning the SoGal Global Pitch Competition in March, Cherry Blossom got SoGal as the first ever investor, was accepted into Techstars, and was recently featured in Good Morning America. We are excited for the scale-up of the company!

Eterneva — Disrupting the deathcare industry with a grief-changing experience

Deathcare is huge — a $68B industry. Yet, there is a lack of innovation in the space. No millennial or Gen Z after visiting a funeral home would say “I’ll be happy with this when I die”. Led by female CEO Adelle Archer, consumer tech startup Eterneva disrupts the space starting from creating diamonds from ashes and hair of your loved ones. Especially with the ongoing pandemic, it has become even more meaningful and timely to redefine the grieving experience. In the past few months of Covid, Eterneva also took a step further to build a digital platform for antiquated funeral homes, to help those who lost their loved ones but could not have a funeral to have more options. They also fundraised to donate PPE masks to deathcare workers, who are the last frontline of healthcare defense but rarely talked about.

Other investments that I brought up included: Real, a mental healthcare company that pivoted from a brick-and-mortar mental wellness club to a digital platform in 10 days due to Covid-19 and helped hundreds of people to cope with loneliness, anxiety and fear; Unbound, a womxn's sexual wellness brand that focuses on changing the perception and taboo around sexual wellness with a strong stance on racism, sexism and sex worker support; Lovevery, a design-driven baby toy company that saw tremendous growth in revenue this year from helping parents in quarantine; and Archer Roose, a sustainable and delicious wine brand in cans and alternative formats and the first canned wine brand to be on a major US airline (JetBlue).

Drawing The Line: Investing in Female Founders or Startups, or Both?

It is fascinating to hear game-changing ideas that female founders have managed to execute and bring to life. A question that we hear a lot is, whether VCs invest in companies just because they have female founders or if they truly believe in the company. The underlying assumptions are: female-founded companies are a limited pool; male-founded companies might be of higher quality; female-focused investors are not as selective about female-led companies. All of them are questionable and reflective of our biases.

I challenged the audience: funds can focus on a specific region or a specific industry and that seems okay. Some funds ended up with an all-male portfolio and no one questions if they’ve missed out. However, if a fund like ours focuses on half of the population, it’s considered limiting. It is a misconception. The rise in successful female-led exit cases also validates that investing in female-led companies can create great if not better returns.

Take SoGal Ventures as an example, we review more than 8,000 deals every year with no shortage of high quality deals, and we only invest in 10–15 companies per year. The scope and selectiveness are probably much higher than an average VC fund. Within our own portfolio, the growth rate and “graduation” rate to the round of our companies are significantly better than average. Ultimately, it still depends on the investor’s ability to attract and select the best opportunities based on a well defined and thought-through thesis.

Paving The Way Forward

“We need to think about what we can do to advance women as a group. One woman succeeding doesn’t necessarily mean that more women can succeed. It’s about changing things in a more systematic way.”

The participants of the meeting agreed that for accredited investors, one of the most scalable ways to create impact is to become a limited partner (LP) and invest in fund managers who are committed to impact-driven investing.

For everyone that’s reading, we all need to pay more attention to the gender issue on a systematic level, and not mistake isolated women’s success stories for overall improvement in women’s situations with health, wealth, workplace, and domestic life. Take part in conversations like this to allow your beliefs and assumptions to be challenged. Only then, can we begin to integrate impact as an inherent responsibility of investing and understand what it means to break down social constructs and create opportunities for all.