Impact Investment: Raising Cash When VCs Don’t See The Problem

Impact investment is on the rise but how easy is it for startups raise funds if the problem being addressed is largely hidden from view?

According to figures published by Research and Markets, impact companies are on track to raise $495 billion this year, rising to $955 billion by 2027.

That’s probably not surprising. Investors are always on the lookout for companies that are solving big problems. And as things stand, businesses that provide solutions to, say, the ravages of climate change, poor healthcare, inadequate housing or food shortages have the potential not only to deliver social and environmental benefits but also big returns for investors. These are, after all, big picture issues and the likelihood is that capital will continue to flow.

But what about startups that are addressing problems that aren’t quite on the collective radar screen of the VC community? How easy is it to attract impact investment if the customers and beneficiaries exist in a largely forgotten corner of society?

Recently, I spoke to two the founding team at Ride Tandem. The company has just raised £2.3 million, but finding initially, finding investors who understood the problem was a challenge.

A Transport Solution

Ride Tandem is a relatively young UK company established to provide transport solutions managed by an app that matches providers with customers. Nothing usual there. From ride-sharing to e-scooter hire, the world is full of transport providers doing similar things. But Ride Tandem’s users sit outside the usual demographic. Rather than being middle-class ride-sharers or youthful urban professionals perched on scooters to make the last-mile journey from the metro station to the office, the company is aiming its services at blue-collar workers, many of them on minimum wage. Its impact goal is to provide people who cannot afford to own cars with a means to get to work in far-flung places.

A Hidden Customer Base

This is a customer base that rarely gets talked about. All over the U.K., there are factories, warehouses and offices that are not served ( or well served) by public transport. This makes them inaccessible to anyone who is not in a position to buy, insure and maintain a vehicle. And here’s the thing. Those who are unable to work because they can’t get to where the jobs actually are rarely feature in TV documentaries and nor are they discussed much by politicians. It is, to all intents and purposes, a hidden problem.

Co-founder Alex Shapland-Howes first became aware of the issue when he spoke to a group of people in Rochdale, a town in the North West of England. Keen to work they were prevented from doing so by the fact that jobs all the jobs on offer tended to be miles away.

“I realized there were huge swathes of the country – mostly in places outside London – where you have to have a car to go where you want to go,” he says.

Shapland-Howes saw an opportunity to use the app technology that facilitates mobility solutions in transport-rich cities like London to enable people in less well-served places to simply get to work. “We started with a pilot in Skelmersdale (another Lancashire town), working with a local taxi firm,” he says. The idea was simple. Those who signed up for the app could use it to share a taxi and in doing so considerably cut the cost of getting to work.

After the pilot, the company launched its first commercial service in Wellingborough. Over time, the focus shifted from taxis to buses. Rather like Uber, Ride Tandem managed the service but did not provide vehicles. In parallel, there was a shift towards a B2B model. The company approached employers to adopt the scheme rather than marketing directly to end users. The logic was that employers were finding it hard to find the people they required. Despite Covid, growth has been consistent. In 2020, revenues came in at £125,000, rising to £1.25 million a year later and £4.4 million in 2022, “We hope to double that this year, “ says co-founder Tatseng Chiam.

Raising Finance

The company has required equity investment and has just raised £2.3 million in its latest round. But as Shapland-Howes acknowledges convincing investors was initially difficult, not least because the problem is not one that most VCs are aware of.

“It’s very easy to explain the merits of a speedy grocery service aimed at city dwellers to investors,” he says. “None of our investors had experienced the issues we were addressing. We weren’t going to ask a group of investors to come up to Skelmersdale. So, convincing investors was a challenge.

As Chiam points out, this was not a unique problem. Startups working in the Femtech sector can face a similar awareness gap, with largely male VCs sometimes struggling to see why a particular product might be a game-changer for women.

Segmenting Investors

So what was the solution? “We started to segment the investor base,” says Chiam. “Focusing on investors who were looking for social and environmental benefits as well as commercial returns.”

The company also spread its net outside London, finding angels and VCs who might be more aware of the problem simply because they lived closer to it. That sounds simple enough but in practice pinning down the right investors required more than a list of names. “It was relatively easy to come up with a long list. It was harder to identify the short-list,” says Shapland-Howes.

This was in part because even those investors who declare an interest in impact don’t necessarily provide a lot of detail on their websites about what that actually means to them. And it can, as Shapland-Howes says, be just PR.

So Ride Tandem’s leaders also spoke to portfolio founders for advice and guidance. This helped them not only to identify prospects but also to ascertain if there was likely to be a genuine alignment.

Shapland-Howes declares himself very satisfied with the company’s investors. The £2.3 million just raised will go towards improving marketing and hiring new developers. The company is also in the process of starting operations in Germany. “The same problems exist there,” he says.

Chiam sees scope for further internationalization with the UK as a jumping-off point. “We are selling more to enterprise-level clients,” he says. “They often have international operations.” As things stand, clients include Royal Mail, DPD and supermarket group Liddl.

Impact Metrics

But what about the impact? The big one is perhaps an estimate of £50 million in wages enabled so far. That figure is based on the earnings of people who would otherwise have been unable to take jobs. Another key metric is the cost of travel – an average of £12.59 per week as opposed to £75 to run a car. Chiam says interest in these metrics is a good sign when engaging with investors.

A business that is largely focused on blue-collar workers in Britain’s regions may not be an obvious magnet for VC cash, but by choosing investors carefully and presenting a good business case, it has been possible to raise the necessary funds.