Heidi Patel Is On A Mission To Help Female-Founded Companies Make A Real Impact

Advice, female founders, Impact Investing, venture capital, Wednesday Wisdom

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Heidi Patel is a Partner at Rethink Impact, the largest U.S. based impact venture capital firm investing in early-stage, technology-driven, female-led and socially-impactful companies.(1) A Stanford MBA, Heidi worked in finance before becoming an impact investor. We had the opportunity to chat with her about her transition to impact investing, what makes impact investing different from other kinds of investment, her advice for female founders looking to pitch her, and the company she would build if she wasn’t investing in founders.

Photo credit: Dana Underwood

What is impact investing, and how does it differ from other kinds of funding?

Impact investors look for entrepreneurs who are building businesses that create positive social and environmental outcomes, alongside rapid company growth and performance. Impact investing has an intentionality and problem-solving focus to it that socially responsible investing does not, and impact investing’s focus on financial returns separates it from philanthropy.

What is the one key thing that sets Rethink Impact apart from other venture capital firms?

As an impact investor, Rethink Impact looks for returns-oriented business models tackling one or more of the UN Sustainable Development Goals.  We are biased towards companies that use technology to achieve sustainable impact at massive scale.

However, what really sets us apart is that we are an institutional-scale, female-led firm, with an investor base that is 50% female, and a 100% focus on supporting female entrepreneurs.  We believe that the next generation of extraordinary businesses will have women in leadership roles and positive social missions that attract and retain the best talent and the best customers.

Rethink Impact launched as one of the largest VC firms dedicated to investing in female-led teams, and one of a handful of VC firms founded by women (Jenny Abramson). What drives your firm’s focus on women founders?

We are so proud to be a female led firm that is investing in female-led companies, at scale.  Research shows that female CEOs are building great businesses that are often more capital efficient, more profitable, have stronger cultures, and are better-positioned for long term success.(2,3) So, it’s surprising that only 3% of all VC funding goes towards female CEOs. We and others in the space see this as a big untapped market opportunity for investors.(4)

What is an example of an area where impact investing has had a particular influence or effect on society, and where would you like to see more impact investment efforts focused in the next few years?

What’s really exciting is that impact investing and sustainable investing have become some of the fastest growing parts of the financial services industry, doubling in AUM in the last year.(5) For many business schools, a growing number of applicants are actually mentioning impact investing as a primary interest in their applications.(6)  This is pretty amazing as “impact investing” as a phrase was only coined about 10 years ago. It’s exciting to see the next generation of finance professionals eager to learn the business of investing without having to check their values at the door.

According to a recent Morgan Stanley study, over 75% of all investors and 86% of millennials are incorporating their social values into how they make investing decisions.(7)  This is starting to influence not only corporate behavior but also the types of investing products available to the average investor.(8) With initiatives like Boardlist, #AllRaise and #FoundersForChange, we’re also seeing gender diversity at companies, on boards and within venture firms come to the forefront and be recognized as vital building blocks for successful companies.

After earning an MBA at Stanford, you spent a year working for a social enterprise in India. What was that like, and how has your experience living abroad shaped the way you approach investing?

It was hard!  That type of immersive experience is so important and was truly transformational for me.  I came away thinking about paths to scale, managing diverse teams, and even conducting diligence and market research in totally different ways.  It gave me more agility and creativity in combining high tech and low-tech ways to get things done. It also really inspired me to return to a direct investing role and help bring impact investing out of a “quasi-philanthropic” zone to a place where it has the same level of rigor, discipline and focus on returns as conventional investing.

If you were to ever find yourself on ‘the other side of the table’ and become a founder yourself, what company would you build?

Well, given that that is one of the hardest jobs ever, it’s unlikely I would make that switch anytime soon!  However, as a partner at a first-time fund that had to pitch investors on a really unique strategy, I often feel like an entrepreneur bringing a disruptive new approach to a conventional industry.

What was the last company or pitch that got you really excited and why?

I recently met a company trying to address a $100 billion market opportunity and bring enhanced financial security to senior citizens in the US. It had that compelling combination we look for:  1) significant scale of opportunity and 2) potential to leverage technology, marketplaces, and financial innovation to tackle a pressing problem facing an underserved population.

What advice do you have for female founders who want to pitch you or another impact investor? How should they go about making their case?

My advice is to approach your pitch with the same passion, optimism and authenticity that led you to start your business in the first place.  Paint me a picture of how you’ll build a big company and generate huge impact alongside venture style returns for your investors. Be clear about what sets you apart from others in the space and what gives you an “unfair advantage.”

Given that Rethink Impact focuses on Series A and B stage companies, be ready to show some early proof points that you can get traction in the market and create (and measure) the type of impact we care about (evidenced based health outcomes, educational outcomes, economic advancement, or environmental improvements).

What trends in your field have you most excited about the kind of impact startups can have on solving society’s most complex problems?

We are super excited by the growing number of digital health companies tackling issues of healthcare access and affordability for historically underrepresented groups, whether that’s bringing digital cognition assessments developed by Stanford PhDs to the rural poor in China or offering dynamic drug discounting programs to people struggling with Type II Diabetes or chronic hypertension in the US.  Similarly, we are seeing great new companies at the intersection of environmental innovation and fintech, and education and fintech, that give us hope that we can build a more just, sustainable and inclusive economy in our lifetime.

 

References:

  1. https://www.businesswire.com/news/home/20170308006003/en/UBS-Wealth-Management-Americas-Partners-Rethink-Impact
  2. https://techcrunch.com/2015/09/24/the-surprising-bias-of-venture-capital-decision-making/
  3. http://www.babson.edu/Academics/centers/cwel/thought-leadership/diana/Documents/diana-project-executive-summary-2014.pdf
  4. http://www.babson.edu/Academics/centers/cwel/thought-leadership/diana/Documents/diana-project-executive-summary-2014.pdf
  5. https://www.barrons.com/articles/impact-investors-hold-us-228-billion-in-assets-1528294454
  6. https://poetsandquants.com/2016/07/11/b-school-impact-investing-boom/3/
  7. Institute for SustainableInvesting, “Millennials Drive Growth in Sustainable Investing,” Morgan Stanley, August 9, 2017, https://www.morganstanley.com/ideas/sustainable-socially-responsible-investing-millennials-drive-growth, accessed November 2017
  8. https://www.thinkadvisor.com/2018/04/02/ellevest-enters-the-impact-investing-space-portfol/