Funding to improve lives of 3 billion people, not to find next unicorn

• US$60mil to invest starting in 2019, with US$300k at seed stage and up to US$2mil in follow on
• Impact investing gives investors ‘feel good’ factor in addition to financial return

DANISH-based 3B Ventures is moving into the Southeast Asian (SEA) market by setting base in Malaysia. However, this early stage venture capitalist (VC) fund claims it is not in it to cash out on the next Grab or Asian unicorn, but instead focuses on impact investing into startups solving real-world issues in line with United Nation’s Sustainable Development Goals (SDG).

When asked whether they will consider shifting focus to hunt for unicorns, Christian Honore, a general partner at 3B Ventures brushes aside the possibility. “We have a very specific investment thesis that we need to stick to because that is what we have promised our investors.”

With the intent to impact the lives of the next three billion people, the US$60 million (RM248.3 million) fund aims to begin investing in January 2019 into 60 startups – 40 pre-seed companies at US$50,000 each and 20 seed level companies at US$300,000 each with a potential follow on of up to US$2 million. Among the technologies they will invest in are blockchain and virtual and augmented reality.

“The key part of our fund is we have allocated enough to follow through with the great startups we work with,” says James Digby, a managing partner at 3B Ventures, claiming most first time funds lack this foresight.

Bridging Nordic tech with SEA market access

The fund is looking to bring over Nordic tech companies to Malaysia for access to a larger market and new issues to solve. Digby, shares, “We are moving to SEA where there is a potential market of 600 million versus only 5.5 million in Denmark and 3.5 million in Norway.”

Jan-Cayo Fiebig, general partner at 3B Ventures, explains that having Nordic companies work out of Malaysia will allow immersion and better understanding of the problems in the region. “Humans resolve issues and find solutions based on the problems surrounding them.”

With the Nordic region known for its high quality of life, Fiebig says, “The idea is to take this smartness and innovation and take it to countries where it can scale and create impact.”

As for their decision to set up operations base specifically in Malaysia instead of Singapore, Fiebig attributes it to the latter’s high costs while Digby further explains why Malaysia is an ideal testing ground. “In addition to English being widely used here, the mix of Malay, Indians and Chinese represent three large Asian markets. If we can grab the market here, we can expand beyond.”

Why choose impact investing?

As of now, 3B Ventures has secured US$12 million from the Nordics and will close at US$ 30 million before beginning to invest, with funds coming from high net worth individuals, family offices, corporates and even pension funds. Honore shares, “Pension funds are not really used to venture funding – it’s new to them but their interest in it is increasing.”

Apparently, it is more than the prospect of returns that fuels this interest. “There are so many funds out there if you’re looking to invest purely for financial return but for impact investing, there is a ‘feel good’ factor involved. You can actually leave behind a legacy,” Honore explains.

Fiebig also highlights how impact investing is a cross between capitalism and philanthropy. “The two are often at polar opposites. With impact investing, it’s about taking the capitalistic approach of giving money to those that can make a difference and get it back at a better rate.”

In terms of what they look for in startups before investing, the three partners shared that it was indeed the ‘X factor’ or as they term it ‘the magical unicorn dust’ that draws their attention. One quality that founders must possess is the fighting spirit. “Can they pivot their idea if needed? Also, it’s important that founders think beyond financials and the short term exit – they need to think about solutions, customers and how the world can be.”

AI and data-driven screening tool

Interestingly, 3B Ventures’ screening of applications is largely AI-driven with Hatcher, a system that scores and provides a snapshot of a startup’s performance. “It even gives us a predictive score of the company’s future activity as well as data on how far the company has come and fundraised,” Digby shares.

With this data in hand, Digby claims the decision-making process is a more informed one. “Then, it is up to us to understand the founder and the team - how they communicate and work together.”

While they do receive applications through their website, the team believes that the best deals come through their personal networks. “Because of our specific focus on impact investing, many of our contacts, which include other VCs, recommend us startups that are better suited to our portfolio and mission.”

The agenda for change

With big goals of changing lives in SEA through education, healthcare, energy, agriculture and water, it is certainly important for the VC fund to forge partnerships with governments in the region to effect pragmatic, top down change. But Fiebig says working with them will come at a later stage since governments are risk averse.

“We want to test and validate the solutions we invest in first by going through our connections, such as education solutions in private schools within our network.” Approaching governments will come later once they show some successes within their portfolio.

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