How impact acts as a source of value: Insights from our portfolio

Published

Written by

Hayley Hand, Investment Director
Nick Andreou

Recently we’ve written several blogs hypothesising how impact might act as a source of value in building a winning startup. Now we’re engaging our portfolio to develop case studies of how this plays out in practice. You can find these over on our Medium page. Here we summarise the key learnings from our first four case studies – three in financial inclusion and one in worker tech, leveraging different business models and at different stages:

  1. Ophelos is an AI-powered, challenger debt resolution platform committed to building a fairer debt resolution process for everyone. Ophelos operates a B2B model selling to enterprises and has just raised a £5 million seed round.
  2. Urban Jungle is a digital insurance platform leveraging technology to provide affordable home and contents insurance to previously underserved people. Urban Jungle sells directly to consumers and raised £16.5 million in its latest series A funding round.
  3. Wagestream is a financial wellbeing app providing a range of financial services to meet the needs of frontline workers – from real-time information on shifts and pay, to more affordable financial products. Wagestream partners with employers, who then offer the app to their employees as a financial wellbeing benefit. Wagestream is now available to over two million workers and the company closed a $175 million Series C round in April this year.
  4. Oyster is a global employment platform helping to create a more equal world by making it possible for companies to hire people everywhere, simply, and affordably. Earlier this year Oyster raised a $150 million series C round at a valuation of over $1 billion.

Our case studies validate the idea that impact can be a source of value in building a business

While writing these case studies, we spoke to founders, CXOs, heads of data and impact, and investors. Across the board there is agreement that, contrary to the belief that impact may hinder performance, the pursuit of impact can be a source of value. Our revised thinking now groups the mechanisms by which this happens into four key areas:

  1. Talent
  2. Investors
  3. Regulators
  4. Customers

Talent

Across our four cases studies, the same clear narrative emerged: an impactful mission helps to attract, retain and inspire top tier talent. Given talent is fundamental to startups, this has lots of knock-on benefits from building a better product to more effective customer acquisition strategies. Tony Jamous, the CEO of Oyster, explained how it has played out in their case: ‘Our mission has acted as our north star. It has allowed us to assemble incredible talent from across the world, achieve an engagement score that is in the top 3% for VC-backed companies, and attract more than 12,000 applicants to our job postings each month.’

Investors

Similarly, in the case of investors, Oyster, Ophelos, Urban Jungle and Wagestream have all appealed to impact investors through their impact mission. The mechanism to add value here is around expanding the pool of investors that one could potentially raise funding from. In one case, we have seen that through being an impact company it can also help non-impact investors look at your product and sector differently. This is neatly summed up by Amon, founder at Ophelos: ‘With the debt collection industry’s reputation, what we’re pitching to investors is already a stretch. If we didn’t have a social impact mission it’d be a near impossible task.’

Regulation

For regulators, again, it was a fairly consistent story. Building an impactful business helps you to stay ahead of the regulatory curve and avoid shocks to your business model. We’ve seen regulation increasingly focussed on impact and ESG issues, for example around unhealthy foods, unethical pricing practices in insurance, and interest caps in lending to vulnerable groups. Ethical business models operating in the space tend to do better over the long-term as they benefit from the shakeups to business models affected by incoming regulation (e.g. the case of Urban Jungle and acquiring customers as a result of the ban on price walking in the insurance industry).

Customers

When it comes to the customer dynamics, how impact drives value can look very different depending on the context. Below we take a look at how impact has driven:

  • Customer acquisition;
  • Customer retention;
  • And the development of platforms on which to scale.

Customer acquisition

For Urban Jungle, an impact mission has helped build a product to serve customers who were not being served at all. Urban Jungle provides access to more than 95.5% of applicants and in its latest customer survey found that 63% of its customers had never had insurance before. This compelling value proposition has led to Urban Jungle converting customers at 2x ecommerce average.

In the case studies, we can also see how impact helps acquire business customers. For Wagestream, focusing on an impact problem has led to considerably higher rates of customer acquisition when compared to public SaaS companies. Wagestream is now the market leader in the UK, and the most widely-used financial wellbeing platform globally. Being an impact company helped Wagestream in the early days of customer acquisition. Wagestream’s focus on broader employee financial wellbeing beyond Earned Wage Access meant that they were aligned with their key customers’ (employers’) interests as well. Wagestream has been able to re-frame the category, giving its first and then subsequent employer customers comfort with the impact of the new service.

Ophelos has also seen a similar trend. An impact mission gives it traction with senior stakeholders (CEOs, COOs, etc.) and their customers. While they are often not the key decision makers for Ophelos, they can help to open doors to those decision makers, giving Ophelos a competitive advantage compared to incumbents. It’s also worth noting that there are early indications that Ophelos’ impact focus has led to a far superior product relative to competitors. Once these proof points mature, we’re hopeful that a superior product will also help to drive customer acquisition.

For Oyster, again it’s slightly different. It is leveraging the shift to distributed working to try and solve global income inequality. Doing so means it is focusing more on underserved countries. This unique characteristic means that it has an added value proposition to its customers. Not only does Oyster help them hire remotely, but it also helps them increase diversity across their workforce, an emerging priority for businesses globally.

Customer retention

Across these case studies we have also seen how impact can drive customer retention. The extent to which this plays out in retention data varies by company as some have only been around for a few years. However, for those newer companies, there are emerging signs of customer retention through high customer satisfaction. For example, Urban Jungle is one of the highest rated home insurance providers in the UK (4.8 out of 5 stars on Trustpilot with over 4,600 five-star reviews). It has been listed on Trustpilot since 2017 and is in the top 25% of rated insurance agencies across the UK.

For Wagestream, by demonstrating that it is improving the financial wellbeing of frontline workers and that this improvement in financial wellbeing has a positive impact on business performance (lower staff turnover, overall productivity etc.), it has considerably higher rates of customer retention compared to other public SaaS companies .

Platform to scale

Finally, we looked at how being an impact company can help develop a platform on which to scale to offer more services to existing customers. For Wagestream, the focus on understanding the problem of the end-customer and the associated solutions has led to a high level of trust and engagement with the platform. Users often log into the app dozens of times per month, and its savings pot feature has uptake rates that are more than 300x those of typical workplace savings schemes. This foundation of a highly engaged user base has given Wagestream the platform to begin building out its service as a fully-fledged ‘financial super-app' - offering services to those frontline workers including insurance, savings and energy switching. This adds value to Wagestream through providing a platform for product expansion, while also expanding the impact Wagestream can have on its underlying users.

Final thoughts

Despite the clear links between these companies’ pursuit of impact and the value this delivers, as an ecosystem, our understanding of these dynamics is not fully formed yet. Ultimately, this means we’re leaving value on the table. Investors might be able to uncover greater value in thinking through investment propositions in this way. Similarly, founders might be able to accelerate growth of their companies by considering impact in more depth.

Our early thinking on how these dynamics apply in practice with portfolio companies demonstrates that impact can drive value in lots of interesting ways. When it comes to talent, investors, and regulators, this is straightforward. When it comes to customers, there are several different dynamics at play and deeper thinking is needed here to understand the full range of possibilities. This is something we’re actively working on with others who are equally excited about the potential in developing a framework that articulates how impact can be a source of value in building a startup. If you want to explore how impact is driving value for you, please get in touch, we’d love to hear from you!

Hayley Hand

Hayley Hand

Investment Director
Talk to me about:
Impact venture and social lending
hhand@bigsocietycapital.com