In the run-up to ImpactFest 2019 on 5 November in the Fokker Termial, we visualize various players, trends and developments in the impact economy. That is how we started talking to impact investment manager Wouter van Westenbrugge van DOEN Participaties.
What types of companies are eligible for financing from DOEN Participaties?
At DOEN Participaties we focus on entrepreneurs who want to improve the world. That is the core. We have a number of specific focus areas, and broadly we look at sustainable and social entrepreneurs who play a pioneering role and operate mission-driven. Entrepreneurs who solve a social problem with their company and look at the market in this way.
Like a company like MUD Jeans that tackles the enormously polluting textile sector with the sale and lease of jeans made from old denim. More than 5 times less water is used in the production of these trousers than in the production of regular jeans.
Impact first, but it must be a company that also makes money. It makes no sense if it is not economically sound. There must be a correct commercial story behind it. When it takes a little longer, grows less fast or is not a unicorn is all part of this market.
What instruments do you use to invest in impact entrepreneurs?
We support startups with convertible loans and direct investments. In addition, we also make investments in funds, which in turn serve startups. Our added value is, among other things, in our large network and with it the possibility to connect different parties. We facilitate mutual exchanges between entrepreneurs from our portfolio, because we have found that sharing experiences is enormously valuable. In addition, we make the companies in which we invest more visible: through the channels of DOEN and the National Postcode Lottery, we reach a wide audience. But it also works the other way. The Postcode Lottery has made its prize package more sustainable and products from entrepreneurs from our portfolio fit in well here. An example of this is the Seepje from The Hague: Seepje’s sustainable soap products are now part of the Postcode Lottery prize package. By initiating this, the Postcode Lottery has a sustainable product and Seepje a large customer, but above all a large direct reach for consumers.
DOEN Participaties has a clear mission with the startups to which we are committed. We really ask: “What can we do for you?” Our goal is to make them bigger, stronger and more visible.
How large are the investments?
We prefer to get in at an early phase of a company. We look at what suits the company when we sit down for the first time. In the early phase, the investment will be anywhere between € 50k to € 500k. What makes us different from other investors is that we can invest in subsequent rounds. For example, we have companies in our portfolio in which more than 4 million has been invested. With us it is not the case that you can only get one round of investments and then have to pass the baton. We can start small, grow and be patient. We work together with a company to realize their mission, to realize that impact in the long term.
How is the balance determined between social impact and financial return?
Impact is our number 1, 2 and 3 for all our investments. No balance sheet is drawn up at the expense of impact. It’s all about achieving the mission. It is important here that there is a business model that is scalable and that social impact ultimately increases.
Do you often have to deal with parties who have a very good idea but who, for example, do not yet know the market well enough? Or don’t have their business case in order yet?
That happens, they often use our subsidy with resolutive conditions. These parties are in an early phase and are still very investigative. Product market fit is often a point of attention. At the same time it also happens with companies that are further in the process. Sometimes parties have received a lot of investments, but then it appears that they cannot grow sufficiently. Then adjustments have to be made. We are also flexible then. As long as the mission remains intact, we can easily move with it and we will also contribute ideas and use our network to jointly make progress.
An example of a slow starter because the market was not ready for it is Zonnepanelendelen (Solar Panel Parts). They focus exclusively on crowdfunding of solar energy projects in the Netherlands. We quickly realized that it was going to be a very good market, but that market is only really going up now while we entered 5 years ago. Together with them, we looked at whether certain matters had to be adjusted or whether it was a matter of being ready when that market was ready.
That is what you have with precursors: sometimes they are just too early.
We focus on impact, but what we also look at is whether startups have the capacity to set an example and serve as inspiration for other parties.
A company such as Fairphone was the first to launch a modular fair trade phone, which is crazy in itself. Apart from the fact that we hope that they will sell as many phones as possible, they have also managed to make the entire production chain of the telephone transparent. It was always said by regular parties that this was impossible because there are too many suppliers among them. Because Fairphone has made the chain transparent, other producers can no longer claim that this is impossible. We would like to see such an example role!
How large is the fund and where does the money come from?
The DOEN Foundation was founded by the National Postcode Lottery to support small, innovative initiatives. Every year Stichting DOEN receives a contribution from all three Charity Lotteries: the National Postcode Lottery, BankGiro Loterij and the VriendenLoterij. With this DOEN supports more than 250 innovative initiatives every year, mainly with subsidies and loans. The investments are made from DOEN Participaties. This is a full subsidiary of the DOEN Foundation. DOEN Participaties has been operating as a revolving fund for 2 years. This means that all the money that we receive from our investments (eg interest, dividend, exit proceeds) is reinvested. We have now invested around 180 million in 60 companies and 15 funds.
What distinguishes DOEN Participaties from Venture Capitalists?
Veel VC’s willen snel rendement zien. Daarom worden er allerlei voorwaarden verbonden aan investeringen voor het geval het bedrijf niet snel genoeg oplevert wat men wilt. Bijvoorbeeld jouw aandelen verkopen of mensen ontslaan. Zo zitten wij er helemaal niet in. Wij weten wat innovatie en impact voor uitdagingen met zich mee brengt en geduld is hierin essentieel. Wij stellem ook geen exit voorwaarden in de contracten. Het grootste verschil is dat we een veel langere termijn perspectief hebben: we zijn gedreven door impact, niet commercie. We hebben ook geen achterliggende investeerders. Vaak is het zo bij Venture Capitalists dat ze geld ophalen bij investeerders op basis van voorwaarden zoals “Over 7 jaar hebben we je geld terug met een verwacht rendement van XX%.” Hierdoor verwacht je als VC van je bedrijven dat ze snel gaan opschalen, anders kun je dit niet waarmaken.
Many VCs want to see a quick return. That is why all kinds of conditions are attached to investments in case the company does not deliver what they want quickly enough. For example, selling your shares or firing people. We are not at all like that. We know what innovation and impact on challenges entail and that patience is essential in this. We also do not set exit conditions in the contracts. The biggest difference is that we have a much longer-term perspective: we are driven by impact, not commerce. We also have no underlying investors. It is often the case with Venture Capitalists that they collect money from investors on the basis of conditions such as “In 7 years we will have your money back with an expected return of XX%.” As a result, the VC expect your companies to scale up quickly, otherwise you cannot live up to this.
We have the luxury of not having underlying investors who expect returns. This does not mean that we do not cooperate with commercial parties and VCs though.
Zebras or unicorns: what is the difference and what do you prefer?
VCs always go for unicorns. They want to dominate an entire market with that one company. We focus on what is now called “the zebras”, the ecosystem. If you place enough zebras next to each other, it will also become one large group. This does not mean that if it is an impact-driven company that is growing enormously we are not interested, that is of course also fine – but the reason why we invest in it remains the impact. So I would say that the zebra metaphor suits us better.
What do people really need to know about the DOEN Foundation?
1) What people need to know is that we prefer to get in touch with companies too early rather than too late. 2) We are investors, so we will have an opinion about your company, but we are certainly not always right. We want to think along and develop together. 3) We like to talk to entrepreneurs. We have a nice job but what the entrepreneurs do is the best! We cannot do anything without them. Our door is therefore always open.
Are you an impact entrepreneur who would like to meet with the DOEN Participaties team and use an early sparring partner? Or are you ready for the next step? DOEN Participaties will be at the Reversed Pitching Meetup at ImpactFest
Don’t have a ticket? Go to www.impactfest.nl.
Can’t attend ImpactFest, but would you like to talk to DOEN Participaties? Then look for more information here.