The start of the Covid-19 lockdown coincided with a call from Redsand Ventures to connect with entrepreneurs and investors in the green finance space.
It’s led to an incredibly busy period for the Redsand team, as we explore the
opportunities offered to innovators during what many have called an unprecedented time.
Redsand’s Nicole Anderson and Pete Edgar both sat down to explore how the arrival of the pandemic has impacted the world of venture capital (VC) and green fintech as well as offer advice for entrepreneurs and investors looking to launch or work with sustainables ventures…
How has Redsand Ventures evolved its mission during the pandemic?
Nicole Anderson (NA): We’ve been involved in ventures for a long time as entrepreneurs, working across various venture building models.
Because of this, it was natural for us to offer our value and learnings to an array of entrepreneurs, all underpinned through areas important to us around sustainability and climate change.
We spent the spring looking at how the innovation community has risen to the current challenges in the market. This goes beyond Covid-19 but the pandemic has obviously been a fantastic use case to show how fintech can provide immediate and resilient support for those most in need.
Are there any specific geographical areas where you’re seeing the most
Pete Edgar (PE): Scandinavian businesses are very progressive when it comes to clean energy and renewables. For impact, we’ve seen a number of interesting projects in Africa, countries like Nigeria, Kenya and South Africa.
Necessity is the mother of invention so it’s natural to see the growth of innovation in these emerging markets. We’re also seeing plenty of projects centred on solving problems in emerging markets but based out of Europe which is an interesting dynamic.
We also see a lot coming out of the UK too. Our work and interests focus on the intersection of fintech with energy, health, agriculture, health, real estate, transport and more.
Launching a new venture comes with risks, challenges and opportunities. What do ventures need to focus on and how can they align their objectives?
NA: It depends where they are in their maturity. For those who are in the very early stages, the healthiest stance is to sit tight, readjust and rethink in a few months.
For those businesses who have come to market but are still new, cash flow is tight and there might not be too much headroom around reserves. They are perhaps most in danger so the only thing to do is excel on service levels. You need to lock and load your run rate of revenues and to do that, you need to go the extra mile for customers.
For more mature fintech companies, the best thing to do is look at expenses and reduce your operational costs. Physical infrastructure and recruitment
freezes are two obvious places to start. Your business needs to pull together and of now, of course, office space is not needed as much.
This is a spectrum of ideas that seem very logical but you’d be amazed at how the decision making process becomes murky when you are in the midst of it. For all, it’s about surviving this time.
Do you think there’s a greater appetite for sustainable innovation? Are there more opportunities for green ventures now than there was before?
PE: We’ve seen more. Investors want to be seen to be doing good – and we hope this means they see long-term value in opportunities which have a positive impact on the planet.
One of the challenges we see is around the ways fund managers measure how green or impactful investments really are. Many need more education about sustainability and how it impacts short-term financial returns.
The reporting side of ESG is an emerging industry in itself as there are numerous solutions out there allowing companies to compare and benchmark ESG targets.
The last time we counted there were an estimated 150 different rating agencies and we’re seeing a steady stream of startups all looking for funding who have their own take on how best to score sustainability.
In the financial news, there’s been much made about the resilience of
sustainable investing. What does this mean from a green fintech perspective?
NA: I’m excited about the role of fintech right now. The innovation opportunity is bigger than ever – for example, how are we going to steady the economy, keep SMEs in business? How will the aftermath of the pandemic change business models and the way people view their financial future?
Then you have this even bigger issue around climate change. We live on earth so how can our financial resources protect our precious resources, the planet and our people – there’s a lot to be done and we are running out of time.
Are there any differences in how fintech has responded to Covid-19 compared with the response to the crash of 2008?
NA: Yes, 2008 was predominantly a delayed reaction to a liquidity crisis, which is why it was called a credit crisis. Fintech was invaluable as it unlocked different ways to access funding, creating greater transparency around the movement of money and at a lower cost.
Now there has been a far more acute response – there are existing fintechs really trying to supplement or compensate for the traditional financial community.
The fintech community has kicked in and demonstrated its importance, whether it be in moving money across the world through contactless payments or resilience via online banking. There are a number of ways the sector has made a massive difference to people’s lives.
While we have been locked down, there have also been great minds working very hard and thinking about the future very differently. It is the perfect time for people to think differently and embrace new ideas. We should expect to see a real resurgence in great innovation coming out of 2020.
As an investor during this time, how are you preparing for the future? Are there any behaviours or actions you’re taking for a long-term view?
PE: We’re seeing a lot of projects referencing Covid-19 in their pitches, usually as a product opportunity rather than a learning for resilience. As Nicole has explained, we treat resilience as a major area of sustainability so that’s one of our focuses long-term. We know some investors who are worried about their existing portfolio but we have been hard at work rethinking VC as a result, in a more sustainable way. The traditional VC model now needs to be looked at with a sustainability lens.
From a perspective of an innovator, are there any behaviours or actions you can recommend or take?
NA: There are a few obvious things we need to say. Never forget or lose track of where your market is. Because you thought you had a market three months ago, this does not mean it will continue to behave in the same way as it did then. Even if you did test, you need to retest in a robust way.
Don’t become too attached to your ideas as the world changes constantly. If you’re in sustainable fintech, it is about finding models to rewrite the financial valuechain.
To do that, you need to understand how the traditional models exist. There is a big responsibility for fintech entrepreneurs to understand the green agenda, the taxonomies, how industries need to adhere to regulators as well as their customers.
The last thing I’d suggest is do not delay how you think about fundraising. From the very first time you put pen to paper and begin to map out your vision into a project, even if you have some capital to get you through the first six months, think about and research your investor targets. They become more important to you than you can ever imagine. You need to pick investors who really understand your market segment. And knowledge exchange is something we are very passionate about. Sustainable VC assumes there are multiple ways funders and founders can benefit each other and this in turn assumes there is enough knowledge between the parties to foster a long term relationship. This is no longer about a transaction. This is about forging strong bonds to drive sustainable change forward.