Business is a powerful force. It can harness human ingenuity to solve problems, create value and drive change. And as all powerful things, it can lead to both positive and negative consequences. With power comes responsibility. Applying ESG (Environmental, Social and Governance) thinking can help businesses deliver positive outcomes beyond value to customers and return to investors.
ESG factors are sometimes bucketed into one category, but they are perhaps better thought of as three distinct lenses through which to view investment policy and strategy.
Environmental
At the onset, most B2B software startups have an exceedingly small direct impact on our planet’s natural ecosystem. Initially, they are tiny operations with no or limited customer reach and negligible resource use. However, in time, their impact can be vast. SuperSeed’s investment strategy is all about helping automate and optimise the way business is done. And in turn, automating and optimising business is all about driving resource efficiency.
An inefficient business process is a wasteful business process. If a process requires more of anything than it needs to (be it equipment, material, energy or labour), by definition, it is using precious resources that could be better used elsewhere. SuperSeed invests in companies that automate and transform business processes to make them more efficient, reducing the waste of resources in developing and supplying goods and services.
With this lens, almost every SuperSeed investment has the potential to make business more resource efficient and, therefore, most sustainable. Seen through this lens, helping businesses become more sustainable is an integral part of what we do.
Some specific examples
Many manufacturing processes are much less resource-efficient than they could be. An example of this is subtractive manufacturing (CNC Milling). With CNC milling, cutaway manufacturing materials often can’t be reused directly. And even where they can, substantial energy is used to reprocess the material so that it can be used again. Contrast this with additive manufacturing (3D printing), where there is almost no material waste. SuperSeed is invested in Ai Build, a leader in software for large-scale additive manufacturing. Ai Build is currently working with a range of automotive and aerospace manufacturers to transform how large-scale manufacturing is done.
Another area is extrusion or injection moulding as used in plastics manufacturing. Notwithstanding the drawbacks of plastics, they remain a vital part of the global supply chain, used for everything from food and drinks containers to automotive interiors. And as long as we use plastics, it is essential to ensure that they are produced efficiently. SuperSeed’s portfolio company ThingTrax enables manufacturers to make things using fewer resources. In fact, one of their customers recently told us that ThingTrax enables them to produce in 5 days what was previously done in 7 (and using only the same equipment), with much less energy consumption as a result.
SuperSeed’s investment strategy is to invest in companies that make business better and more efficient, resulting in lower prices for customers, better economics for suppliers and a reduced burden on the environment.
Social
Economic access is one of the important byproducts of business efficiency. When businesses become more profitable and resource efficient, prices can be reduced, and more consumers can access innovation.
As a society, automation enables us to produce much more with fewer resources. This ultimately makes it possible for more people to enjoy greater wealth. Automation is the only reason we can share the benefits of our economic and technological progress with as many people as is the case.
In 1943, Thomas Watson (then president of IBM) predicted that there would be a world market for “maybe five computers”. At the time, computers were exceedingly big and exceptionally expensive. When the Apollo 11 mission landed on the moon 26 years later, they were supported by several computers from IBM, including 5 IBM/360 Model 75s, the prototypical original mainframe. These systems cost $3.5m a piece in 1965 when they were launched, which equates to about $29m today. And according to Gene Kranz, who was NASA’s flight director for the Apollo missions: “Without IBM and the systems they provided, we would not have landed on the Moon”[1].
However, today, we can all purchase a smartphone which is a vastly more powerful supercomputer than the IBM S/360 mainframe NASA used to land on the moon. And because these have become so inexpensive, more than 3.5bn people in the world have a smartphone[2]. Interestingly, this is more people than the entire global population of 3.3bn in 1965[3]. Only automation in materials extraction, design, manufacturing and logistics has enabled us to deliver such phenomenal technology access to such a broad group of humanity.
Governance
We see corporate governance as an essential aspect of creating both shareholder and stakeholder value. This is supported by academic research, which has found that good governance significantly increases the return of public companies[4].
Good governance starts early, but it should be applied intelligently. It is especially important for seed stage companies to look for governance measures that are commensurate with the limited resources they have available.
In particular, we look to appoint independent directors to boards (in addition to founder and investor directors). We also arrange frequent board meetings (between 6-10/year) to ensure that founders are both supported and held accountable.
As startups grow, we typically work with them to implement additional governance structures, such as audit committees, remuneration committees etc. All the while bearing in mind that any governance structure has to be appropriate for and proportional to the size and type of business.
[1] https://www.ibm.com/thought-leadership/space/
[2] https://www.oberlo.co.uk/statistics/how-many-people-have-smartphones
[3] https://www.worldometers.info/world-population/world-population-by-year/