Improving funding and support for minoritised entrepreneurs

How our investment teams are helping to level the venture capital playing field

We are proud to announce that Nesta Impact Investments has been certified as a Level 2 Diversity VC Standard fund. Now we want to create even better outcomes for diverse founders and our investment teams.

At Nesta, we want to make sure that the capital we invest is accessible to everyone, and that the companies we invest in are supported in the best possible ways. As has been shown by multiple reports, over the past 10 years, teams led by minoritised ethnic groups or female entrepreneurs have received a fraction of the available VC funding compared to all-white teams and male founders. Funding is also skewed along particular socioeconomic lines, for example 72% of VC funded businesses have founders who went to “top tier” universities. Investors need to do more to address the barriers to funding that diverse founders may face and we are proud to be making progress in this area, both across our impact investment work and via our Mission Studio partnership with Founders Factory.

The benchmark for inclusivity in the investment sector is the Diversity VC Standard, an assessment and accreditation process that sets guidance for best practice when it comes to diversity and inclusion in the venture capital (VC) sector.

Diversity VC Standard accreditation – what it is and why it matters

The assessment reviews a wide range of practices, ranging from how deals are sourced, to investment processes, recruitment and how organisations work with portfolio companies, alongside internal Equity, Diversity and Inclusion (EDI) policies and initiatives. The Standard was launched in 2020 by the nonprofit Diversity VC, in partnership with Diversio and OneTech, to improve practice across the industry and bring together a community of committed investors. As the accreditation is a holistic certification that recognises everything an investment fund does, it was important for us to view our VC practices in connection with Nesta’s wider ED&I commitments.

Nesta’s Impact Investments and Arts and Culture Finance teams have been certified as some of the highest performing fund managers that have participated in the certification process to date. In many ways, this is just the beginning of our journey, so we thought it would be useful to share how we got here and to assess the future potential.

What we did to get here

Last March (2021), Nesta launched a company-wide EDI strategy.

As part of this strategy, Nesta’s Investment team carried out a literature review of the latest research on diversity in the venture capital industry. Then we reviewed over 35 different aspects of our own investment policies and processes. This included conducting a review of our own employee and portfolio company demographic data as well as our hiring practices and employee support programmes. We have also rolled out an environmental, social and governance (ESG) questionnaire, which includes questions on diversity, for our portfolio companies. With this data we will be able to benchmark and support our current portfolios’ ESG performance in line with the VC sector.

Some of the key policies and practices that enabled us to be accredited to a Level 2 standard included:

  • internal policies: family leave policy; flexible work policies; harassment and discrimination policies; annual equal pay analysis; organisation-wide ED&I-specific goals; cultural competency training; having a chief D&I officer.
  • investment strategy: having an investment-specific ED&I strategy; having ED&I-specific investment targets.
  • recruitment: policies reducing bias in the hiring process; proactive engagement with recruiters focussed on diverse talent
  • external engagement: participating in diverse founder office hours.

Our findings also indicated that there were some key improvements that could be made to ensure we continue to improve on our equitable investment processes. These are:

  • ensuring transparent and easily accessible investment criteria
  • standardising initial founder meeting mechanics and questions
  • broadening our deal sourcing processes to proactively widen our applicant pool

What’s next for Nesta Impact Investments?

We are looking forward to joining Diversity VC Standard’s community of accredited funds, and to learning from and sharing with others how we can effectively improve EDI in VC. We have committed to an initial target – that by 2025, 25% of our investees will be led by those from minoritised backgrounds. However we hope to surpass this target!

Our initial priorities are to:

  • more rigorously collect ED&I data across our entire investment process
  • broaden the support we offer to our portfolio companies such as exploring training on EDI in tech and on how to collect ED&I data
  • support portfolio companies in recruiting diverse talent at the executive and board level
  • work to deliver our portfolio target of 25% of investee companies to be led by people from minoritised backgrounds
  • consider how to meaningfully incorporate socioeconomic factors into our investment process and ED&I strategy

Our Arts & Culture Finance team’s strategy for increasing the diversity of their portfolio can be found here.

Calling all founders

If you are a founder looking to raise capital and your business aligns with our investment strategy, please get in touch with us . We invest £500k-£1m in Seed-Series A ventures working in the areas of healthy ageing, edtech, foodtech, healthtech, climate tech, the future of work and productivity. These sectors reflect Nesta’s core impact goals:

Nesta is an impact investor, looking for high growth, commercial ventures that also deliver strong social or environmental impact.


Announcing our 7th investment into edtech venture Cogbooks

DC Thomson Ventures and Nesta announce £1.75 million investment in education technology

Nesta Impact Investments and DC Thomson Ventures, the venture capital arm of private media group DC Thomson, have made a significant investment in Edinburgh-based edtech company,CogBooks.

The investment forms part of a £1.75 million funding round by DC Thomson Ventures, Nesta Impact Investments and the Scottish Investment Bank, the investment arm of Scottish Enterprise.

For over ten years CogBooks has been pioneering the use of adaptive learning technology, with a real focus on personalised learning for students. Highly rated in reports commissioned by the Gates Foundation, CogBooks’ learning platform targets improved educational outcomes and student retention.

The platform is used by publishers and institutions in the US and UK post-secondary education market, including Edinburgh University, the OCR exam board and many others.

DC Thomson Head of Strategy and Development Ben Gray said:
DC Thomson Ventures is looking forward to working with CogBooks as it builds on its position as a leading provider of adaptive learning solutions. We believe that true adaptive learning technologies have the potential to fundamentally change the way that education is delivered at all levels, creating positive outcomes for learners.”

Matt Mead from Nesta Impact Investments said:
“Educational technology has the potential to radically change education, especially in secondary schools where there are real opportunities to support learning in the classroom with online work. But that technology can’t be a one size fits all solution. We invested in CogBooks because of their unique approach to personalised web-based learning, which sees them put the student at the heart of their technology. By really understanding how young people learn and working with education providers to ensure content is relevant, CogBooks enables learners to get the most from their experience while also supporting teachers.”

Kerry Sharp, Head of the Scottish Investment Bank said:
“Having supported CogBooks through seed investment we are pleased to further support them as they enter this exciting stage in their development. CogBooks has already been recognised as a leader in adaptive learning technology and this new investment will help the company deliver its growth ambition and extend its international reach.” 

CogBooks CEO Jim Thompson added:
“Throughout the world, we face the problem of how to make the highest quality education available to everyone. We believe that a new generation of learning technologies, of which CogBooks is an example, can help to solve this problem. We are working with our partners to bring these new technologies to teachers and help them to transform the way that learning is achieved.

“Our work with the Gates Foundation, Ufi Charitable Trust, the OCR, Edinburgh University and other leading schools and colleges will allow hundreds of thousands of students to benefit from advanced personalised on-line learning, delivered using the CogBooks adaptive platform.

This new investment will allow us to continue to expand our company and provide improved learning experiences for more and more students.”

We reveal the first social entrepreneurs backed by Nesta Impact Investments

At Nesta Impact Investments we are very excited this week to be announcing the first four investments made from our social impact fund.  Our fund is all about investing in talented entrepreneurs with a vision to make a real and lasting difference to society.  We are proud to be building an interesting portfolio of organisations tackling issues such as elderly care, poor educational standards and financial exclusion.

So here they are:

Oomph! – an award winning social enterprise improving the health and quality of life of older adults in care homes through innovative group exercise classes, such as  ‘chair cheerleading’

Ffrees Family Finance – a unique type of current account that helps families to save as they spend

Movellas – a new online story sharing community aimed at improving literacy skills amongst teenagers

Sherston Software – a company developing innovative educational software designed to motivate children and boost their educational performance

It’s been an exciting year for us and for the wider impact investment market.  Just over a year ago we brought together a really valuable group of social investors in Nesta, Big Society Capital and Omidyar Network.  Investors that are committed to building a vibrant social investment market in the UK.  We are seeing signs that there is a growing ecosystem to support social ventures, set to receive a further boost in April when a new tax relief for social enterprises comes into force.

We are also seeing a wave of interesting and talented entrepreneurs using their knowledge and skills to try to tackle some of the big social challenges we, as a society, face – the deals we are announcing today are great examples of this.

This is only the start of what promises to be a very interesting year 2014 for us and for the social investment market.

The question every impact investor should aim to answer

The aim of Nesta Impact Investments is to scale high impact solutions addressing our target outcomes, and to make a financial return for our investors.  This double bottom line approach to investment is challenging.  The impact investment market is still a nascent market, and we still don’t really understand the interplay between risk, impact and financial returns in such investments.

Given our dual aim; one question which I seem to be asked quite often in the market is “are you finance first or impact first?” I find this polarised statement quite unhelpful in defining how we approach impact investment, aren’t all impact investors chasing a blend of both? Or else we wouldn’t be impact investors.  This view seems to take us back to the idea that organisations are either about making profit or about changing the world, and I thought the very idea of impact investment was trying to bring the two together.

A more important question, and one which we should aim to answer is “what is the trade-off between impact and financial returns?” Unsurprisingly no one quite knows the answer to this question yet, and we are probably a long way off.

One of the key factors hindering the development of the impact investment market is the lack of evidence to be able to demonstrate the spectrum of impact and financial returns that can be achieved through impact investing, and where the trade-offs lie.  Once we can evidence this and showcase examples of successes (and failures), then we will be in a position to attract more capital and highly skilled entrepreneurs to the sector.

The aim of the impact investment market over the next 5-10 years should be to start to demonstrate this.  It will take time – there is no short-cut for creating a track record.

The formation of venture capital in the 1960’s pioneered a new approach to funding innovations in the private sector.  At the time this was a bold move which required a new form of capital, a new way of doing business, and the backing of patient risk takers.   Venture capital went on to change the way we do business and the way we invest, and is behind some of the great innovations of our time: Google, Apple, Intel to name just a few.

The emergence of microfinance in the 1970’s pioneered an innovative approach to poverty alleviation through funding small scale enterprise in the world’s poorest regions.  Initially many saw it as a utopian idea.  Today microfinance is a recognised asset class estimated to be worth over $30bn and reaching over 200 million of the world’s poorest people globally.

Both of these markets took time to formulate successful practices that worked and that led to their success.  The Impact Investing market will get there by doing, learning, being patient and being transparent. 

Katie Mountain – June 2013

Why 2013 should be really interesting

Happy new year, and it promises to be an exciting new year, as late in 2012 we launched a new venture fund, but a fund with a real difference, a fund that is explicit about its intended impact in some areas of major need in the UK. A fund that is looking to drive both impact return and financial return and to help grow the UK Impact Investment market.

I thought it worth capturing some of my thoughts at the start of the year, as we look to begin investing the fund  – it will help remind me of what is important about what we are trying to build but also I hope, be an interesting signal of our ambition and intent.

We have spent a year bringing the Nesta Impact Investment fund to life, we have brought together an initial set of 3 cornerstone investors – Nesta, Big Society Capital and Omidyar Network, assembled a really interesting investment committee and created a team that is passionate about backing innovation for public good.

But why do this – most of my career has been in venture capital, backing early stage innovations with the aim of growing companies of value and making a return.  This fund is no different in so many ways and I think many of the lessons I have learned will be very relevant  –

  • We want to back early stage innovations that address some significant challenges in the UK -the ageing population, the education and employability of young people and how our communities become more self sustaining. As in venture capital innovations are created by people, our job is to find and work with great entrepreneurs – leaders with ideas, vision, drive and a mission to tackle some of these large challenges -finding and working with these entrepreneurs is what makes early stage investing so exciting and fun!
  • We want to help grow the organisations we support through the capital we provide and the network and people we can introduce.  The ventures we back have to grow – we want ambition – an ambition to deliver the product or service to everyone that can benefit and therefore an ambition to have a big impact – real impact at scale is our objective. Our team has to work hard to bring this “value added investor” promise to life
  • We also want to make a return and here we are both similar and dissimilar to pure venture capital.  The return we seek is primarily about impact – not just growing an organisation’s outputs but proving that the innovations we back truly have a positive effect in the areas of need we have identified. We want to measure that impact and tell others about what our ventures and we have learned.  However importantly we also seek a financial return for two reasons – primarily as without growth and profitability the ventures we back won’t be sustainable for the long term but also importantly our capital is to help finance risk and if we want to bring more long term capital into the Impact investment market we have to show different types of investors that returns can be made.

So 2013 should be really interesting – creating a fund is always exciting, bringing a fresh approach to a growing market is also a real challenge.  Our whole team is excited about the journey we are embarking on – we have a real mixture of talent in our group -and have the opportunity to create something.  We want to build our network, work with our investors, work with other players in the impact market,  help build organisations that make a difference and have some fun on the way. I know there will be challenges but we will learn from those and I hope over the years build an impact investment organisation of real substance.

If you have an interest in the impact market follow our journey here. If you are an entrepreneur with a growing opportunity or a great idea – please get in touch with us!

Matthew Mead – Chief Investment Officer

Announcing Nesta Impact Investments

Today we’ve announced the first closing of Nesta Impact Investments, a £25m impact investment fund for social ventures. In the first closing, we’re delighted that Omidyar Network, Big Society Capital and Nesta have committed £17.6m to get things underway.

Nesta Impact Investments brings together Nesta’s impact investing and venture capital expertise to invest in areas that have been at the core of our work for sometime:

  • the health and wellbeing of an ageing population;
  • the educational attainment and employability of children and young people; and
  • the social and environmental sustainability of communities.

Already we’re seeing some exciting innovations with the potential for really significant impact, in fields such as telehealth for older people with long term conditions, adaptive learning technology for school children, or aggregation of demand for electricity to get lower fuel costs for people on low incomes.

And we can already see some patterns in these proposals that illustrate some of the important things about the fund.

The first thing that’s clear is that there are great ventures out there pursuing social impact through their products and services who don’t define themselves by their legal model (private company, charity, social enterprise) but by rather focus on how they deliver value and impact to their users and customers. The fund has some specific social outcomes it is seeking to improve, but we don’t assume any one sector (public, private or social) or any legal structure is particularly better at achieving these.

The second thing we excited about is the role that technology is playing in the innovation that we’re seeing – speeding up services, enabling better access, and creating more sustainable business models. Telehealth solutions help medics to have easier communication with, and monitoring of, older people in the patient’s home, improving their quality of life and reducing the NHS’ costs. Adaptive learning technologies use artificial intelligence to bring the benefits of really high quality personal tutoring at very low cost and so within reach of families on middle and low incomes.

The third thing that’s clear is that our focus on the standard of evidence that an innovation can provide is going to be crucial in helping to direct capital to innovations that really have an impact. Most of the ventures we’re speaking to are at a very early stage – they perhaps only have a prototype product and a theory as to why it will have an effect on one of our target outcomes. We can’t just scale up these innovations. We will be investing in further testing and evaluation to progress the standard of evidence for impact so that we can be certain we’re growing impactful social ventures.

Today, Nesta Impact Investments has crossed the start line – we’re open for business and really excited about meeting and working with some really inspiring entrepreneurs who want to achieve significant impact over the coming eight years of this new fund.

Joe Ludlow, Impact Investment Director

Nesta Impact Investments is managed by Nesta Investment Management, a wholly owned subsidiary of Nesta which is authorised and regulated by the Financial Services Authority.

We have also published today ‘Standards of Evidence for Impact Investing’ describing our approach to the use of evidence in assessing impact performance in Nesta Impact Investments. Download the report.