ESG, the UN and investing at the early stage - Tikto Tidbits #10
We want to make investments that have a positive impact. Putting ourselves in a position to see those deals means having a framework for understanding that impact + knowing our own limitations.
An impact protocol
We would love to be in a position to come up with a proprietary framework for understanding and evaluating impact. However we are not quite at that point in our evolution as an organisation. So, we need to crib from someone else's sheet and there's nothing better out there than the UN's Sustainable Development Goals.
We've taken a huge amount of inspiration from this work and what we love is how they make it easy to contextualise at a high-level as to whether the opportunities that we're looking at have real, positive impact. Put another way, it's a way to keep yourself honest and avoid any unintentional greenwashing or spurious net-positivity.
Layering on our own thinking
We want to make investments in ESG companies. Indeed we, and our investors, are so keen that it's the only part of our investment strategy where we are prepared to compromise on the "tech" elements of our deals. When we make that compromise we want to ensure that it counts, in terms of impact, and that it is the right opportunity for our return expectations.
It's only our opinion but it would be easy to classify anything in a medical vertical as ESG, and many ESG investors in the market do. However, to us, true impact isn't delivered when you are a generic supplier to the NHS. Take an outsourced laundry service provider as an example. Yes, having clean sheets/scrubs/etc. is crucial part of running a health service. However running a laundry business isn't very impactful per se. Indeed, dependent on the methods of washing and cleaning involved, emissions could be very high for that kind of company.
Fortunately, the UN's "SDGs" go further than the infographic above and get a little more prescriptive. Take the business take we mentioned in our last letter in the commercial kitchen space.
If you use that company's technology a kitchen will have lower food waste though accurate input ordering and the ability to produce tailored menus for different preferences among their customers' customers. As we can see from the SDG 12 below, globally, 17% of food waste happens at the point of consumption.
To us making a dent in that horrendous 17% food waste figure, one commercial kitchen at a time, makes the world of sense.
Tikto
At Tikto, we purchase majority stakes in breakeven or EBITDA profitable tech businesses then follow that up with incremental growth capital. We bring our network of entrepreneurs and operators to help execute a business plan for the next phase of our portfolio companies growth.
Until next time.