Investors’ Circle believes that good job creation should be an inherent element in early-stage impact investing and entrepreneurship. Whether it’s a company deliberately creating employment opportunities for the underserved or a tech platform with limited employment needs, impact enterprises should be considering how their human capital strategy and culture enhance success for the company and the community. Embedding people policies is not simply a nice thing to do, but it also comes with a competitive advantage for both the entrepreneur and investor.
On the entrepreneur side, Yale Professor James Baron studied several hundred high tech Silicon Valley startups from the mid-1990s to 2002. He found that firms with a culture of engaging all employees for the long-term performed better and endured longer than those that focused rewards on a few star perfomers at the expense of the rank and file.
Investors also directly benefit from encouraging a focus on human capital from the beginning of a venture’s lifecycle. According to Dr. Solange Charas, whose research was profiled in a February 2015 Pitchbook article, there is a strong relationship between employee engagement and financial returns. In many cases, human capital can drive economic value creation by up to 40%.
While research has demonstrated the value of investing in human capital, experience has, too. I recently spoke with IC member, Ed Briscoe of Weave Social Finance, who invests in companies with targeted employment strategies. He shared the story of Danimer Scientific, a bioplastics start-up in Southwest Gerogia with a mission of bringing good jobs back to the community in which the founders grew up. In this example, Briscoe outlined the founders’ initial experience of needing to move to Atlanta after college to find employment. They wanted to challenge the assumption that “just because you’re a chemist you need to move away from your home community.” The response: Build a plant in a shuttered carpet mill in rural GA. Danimer now provides jobs in the community and is also actively partnering with a local community college to train young people in the kind of sciences Danimer needs to thrive. Danimer founders are building the pipeline for their future workforce – brilliant!
Briscoe discussed another company from his portfolio, Knotty Tie, a Denver-based custom tie, bowtie and scarf company that seeks to create dignified employment opportunities for skilled resettled refugees. 50% of the company’s workforce are refugees while the other 50% are millennials. Company founders design jobs around the needs of their workforce, including embedding language training and acknowledging cultural and religious holidays. “Knotty Tie designs the job for the person to be hired rather than trying to squeeze humans into a rigid process,” Briscoe shared.
Lastly, Briscoe shared tips from his own due diligence process to incorporate human capital considerations. He looks for a “shared prosperity mindset,” where the founders’ personal and business values are clear and aligned with the perspective invesors’ values. He also suggested checking the turnover rate and having a conversation early on about how an exit event may impact employees, not just founders.
There is a common notion that “bad jobs” at start-ups are simply the norm, yet Briscoe’s experience and data both help to demonstrate that “bad jobs” are a choice. As an impact community, how can we challenge this? How can human capital considerations become a natural component of early stage impact investing? Please share your feedback and ideas with Renata!