For the 9th episode of our Zero One Hundred Conferences ESG & Impact Talks, we had a delightful conversation with Paul Miller, OBE Managing Partner and CEO at Bethnal Green Ventures.
Paul has pioneered tech for good since 2008 as one of the co-founders of Bethnal Green Ventures. Over those years he’s supported many of BGV’s most successful portfolio companies from program through to exit. With over 15 years of experience as a CEO, he’s an expert in strategy, fundraising, leadership, and others. Previously, Paul founded and led the ed-tech startup School of Everything. He’s also spent time advising on strategy for multinational companies and governments and has written for the likes of the Financial Times and the Guardian. In 2020, he was awarded an OBE for services to startup investing.
When we recorded this episode, Bethnal Green Ventures had recently closed its Spring 2024 Tech for Good Programme. In April they had already released the first cohort of startups joining the program and receiving investment from their latest fund.
Why did you decide to launch a VC firm with such three challenging topics which are climate change, inequality, and health? And also in the riskiest stage of startups, which is the early stage?
Well, the honest answer is that it was a kind of necessity when we started. So we were passionate about using technology to solve those kinds of social and environmental issues. But at the time we started investing, which was back in 2012, really there wasn't much in the way of deal flow if you like.
So there weren't that many later-stage companies that would call themselves tech for good businesses. So, if we wanted to support that kind of business, we had to start at the early stage. That's why we created the program that we still run, which is essentially a sort of onboarding program for founders who want to use their skills for tech for good.
We work really with them when they're at a prototype stage, a team of two or three people has a really deep understanding of the social environmental issue problem that they're trying to solve, but they may not have that much experience of running a startup. And we've done that from the beginning, and we still love working with entrepreneurs at that stage. But now obviously, we also work with them when they've built those companies up to be quite large companies, and they have very different issues that they face when they've got hundreds of employees and turnover and all those kinds of things as well.
So now we work with them from real startup idea prototype stage, through to seed, that's our kind of key phase if you like, but we still very much in touch with some of the companies that have either, you know, gone on to raise larger rounds or exited as well.
And how is this process now you do from program to fundraising? So what's the type of support? How is this process? Because you have a specific process for this, right?
Yes. So we have an open call for applications twice a year. So roughly speaking, we get disclosed applications, well over 300 applications for the 10 investments that we'll make. We choose those companies based on their potential to both be commercially successful and have an impact on the lives of millions of people. And we have three impact themes that we're looking for.
So, there's a sustainable planet, an inclusive society, and healthy lives. And usually, it's roughly an equal split, kind of three or four companies addressing each of those in a cohort.
And then, once we've selected that cohort of 10 to 12 companies, we bring them together. We work with them very intensively for six weeks. And we're addressing issues like, how you link your business model to impact. How do you build a culture of success in a mission-driven company? And how do you think about responsible leadership? Those kinds of issues that we're working with them as well as looking at the product that they're building and how that can grow.
And after those six weeks, we continue working with them very closely more on a bespoke basis rather than on a cohort basis though, after the six weeks. And then we make follow-on investments into the companies that are showing real promise after that process. So, you know, they could be raising their pre-seed or using their seed and we're able to invest roughly speaking a million pounds of follow-on investment into the companies that are successful after that initial program.
So, when you collect this first round you also invest some money in these companies.
Exactly. So yeah, for every company that we choose from that open call for applications, we invest £60,000 for 7% of the shares in that company.
And that's the same for all the companies at that stage. But then the follow-on investments, they're more on a case-by-case basis. So obviously depending on the rate of progress, and the valuations other investors might want to see all those kinds of things.
But yeah, that initial investment is the same for every company that we invest in.
You select around 12, right, in each cohort. And out of those, how many make it to the follow-on?
Yes, so about half. There's a pretty high failure rate even, you know, at that stage. And I think people often ask, well, isn't that difficult to choose between the companies at that stage? But, honestly, the founders sometimes they'll come to us and say, well, we just don't think it's working. You know, they've pushed it for maybe, you know, six, 12 months.
They've tried their best to find a business model or to raise further investment. And they conclude that it might not, it's just not working. And then obviously the ones that are thriving, then it's, again, it tends to be a bit more obvious.
And then we, you know, we can make follow-on investments into those companies. But yeah, it's about half of the ones that we make that program stage investment into, then go on to raise further capital. That's great.
And when they go to raise further capital.
How is that process? Do you normally take part in that process as well?
Yes. So we've found ourselves working with them very closely to try and help them meet other investors. I'd say typically after our first investment, those investors are often angel investors.
So, you know, they've been from across Europe, the US, you know, real, real geographical spread. And those angels are making small investments, obviously, but they bring skills as well. And that's great.
And then when they get to the seed stage, that tends to be the time that other funds get involved as well. And interestingly, like when we first started out, I think a lot of funds that we worked with were just like impact funds. But as time has gone on, we found that the kinds of startups we back are very interesting also to sort of much more mainstream VC funds now.
So again, I think it's about half and half, actually, in terms of often, you see companies raising a mixture of self-described impact funds, and then more mainstream venture funding as well. So it's, and I think that's a really good sign that the mainstream venture funds are now like they see the value in backing impact, impact-led or mission-led companies.
Yeah, I remember we were saying that there are not that many businesses investing in such early-stage impact-oriented startups, you're saying that, yes, there are mainstream VCs that do a little bit of this, but there are not that many ones that do what you do, for example.
Yeah, so I think there's very, there's very few funds that go as early as we do. There's been a real growth in impact VC funds overall tend to be slightly later stage. So they pick things up some of them are sort of Series B and onwards, but some seed funds occasionally come across kind of pre-seed impact tech funds.
But it has grown a lot over the last 10 years. But still, actually, I think most of our startups, they, they need to go out beyond just the impact world, they need to talk to angels who may be much, much more mainstream, or also to funds that are traditionally just sort of mainstream VC funds who've developed this interest and impact as time has gone on.
So if we go back a little bit more from an investor's perspective, when you were fundraising at the early beginning of Bethnal Green Ventures, you said no, that there were not that many funds that did what you were planning on doing. So you had to reach out to some LPs and ask them for funds. How was that conversation?
I mean, when we first started, I think people thought we were mad, to be honest, it was certainly like the idea of VC funds that was tech for good was most mainstream LPs, but I think thought, oh, that's, that's what charity does.
You know, that's not commercial, as it were. But we did find, you know, some people who were starting to think, hang on, there might be something in this impact investing, as it was just beginning, beginning to be called back in 2012. The first investor was a foundation in the UK called Nesta.
And the reason they were interested was they got this idea to raise for their later-stage impact tech fund. And when we approached them, they thought, oh, hang on, that that is interesting, because, you know, there is this problem of deal flow for impact investors, which is where does the early-stage stuff come from? So they invested 150,000 pounds back in 2012, in our first cohort. So very, you know, small investment by the standards of VC.
And it was really what was just a pilot, just let's see whether this works. And they, I, you know, forever grateful to them for taking that risk. I mean, it turned out to be a very good investment for them.
But yeah, I think when we first started, we were only able to talk to people who were willing to try it out, because in the world we didn't have a track record, there wasn't a track record, even of impact investing in VC, more broadly. So we really were very reliant on pioneers of pioneer LPs, if you like in the early days. And then we also we did we attracted some funding from the UK government as well, which was very important for us.
So we, the government actually helped to cover some of the running costs of the program that we run, and so on in the early days, that was also very, very helpful. And then over time, we built up our track record and have and then have started to attract more, you know, conventional LPs, if you like, who can see that, you know, the impact is, you know, very, what can be very linked to commercial success as well. So over time, as we've built up our track record, as they as LPs can see the kinds of company we back, the way that those develop, and they can see like the, you know, the interesting things that are happening in tech for good investing, we've attracted much more conventional LPs.
And now to the point where, you know, we just announced the first close of our biggest ever fund, which is the cornerstone by the British Business Bank, who are, you know, the largest LP in UK venture capital funds. So yeah, we've managed to go from those pioneers, if you like, through too many, much more mainstream LPs over the 10 years that we've that we've been working on this. That is awesome.
Congratulations on the round. And I wanted to tell you, because you do focus on climate crisis, inequality, and health, these three topics, which when you talk to your LPs, which one or which topic is the most relevant one for them? Do they pay attention to a specific one? Or do you just care about like overall strategy?
I think it's changed over time. So our LPs, I say that all of the ones that I've talked to about, you know, their impact interests, if you like, they're interested in all our impact themes, they might have some different LPs have a different emphasis, I would say.
So some are more interested in the climate side of things, some are more interested in inequality, and some are more interested in health. But they they recognize also, I think that they're linked. So that certainly I've had conversations with our LPs where they're like, okay, yeah, on paper, we're, you know, we're more interested in climate, but we recognize that you know, we're not going to have a just climate transition if we don't address issues of inequality alongside that or, and also spoken to investors where they, they may well be more interested in health, but they recognize that, you know, climate and climate change is going to have a massive impact on health.
So, tended to find that people are, they might have different emphases, but they recognize that all of them are important. The inequality piece is interesting. Yeah.
So I think we used to call it we used to call that theme like a better society. But really, we were, you know, when we were honest about it, we were addressing inclusion and inequality. And so we, you know, we decided to just name it the way that we thought about it.
And I think we've seen more and more LPs who are interested in like, the change that venture capital can make in terms of opportunity and inclusion. And they're also really interested in diversity and inclusion in tech more broadly. That's, that's something that's much, much more interesting to LPs over time.
And I think, you know, often from a, from a commercial point of view, they're like, oh, they recognize that actually, the venture capital market is like missing a trick by having such sort of narrow view of like, you know, what, who can be a founder, you know, obviously the diversity stats for, for venture capital are terrible. And so the fact that we've built up a real track record on addressing diversity and inclusion through by venture capital, that has definitely attracted quite a few LPs. And we get approached relatively often by LPs who are like, oh, you know, we, we've seen like that your diversity and inclusion stats as BGV are very different from the rest of the market.
And I think we've, we've seen, yeah, more and more LPs who are interested in that over time.
And how do you do it? I mean, how do you manage to have like such good diversity inclusion stats?
We've always thought that you know, to address these big, difficult social environmental problems, you need diversity of background and viewpoint in order to solve them. The solutions to those kinds of problems aren't just going to come from one sort of person.
So that's, that's always been part of our investment thesis. I think it's been really helpful that we as an investment team are also pretty diverse. Like say, we're a majority-female team, with very well-represented ethnic minorities.
Actually, we're not all from the same sort of academic or professional background as well as the real mixture in the BGV team. So I think when founders look at us as a team, they can also see, oh, hang on, but that's not just a team of white MBAs who've all looked the same if you like. That's been very helpful.
But yeah, to be honest, it's just, it's just part of our way of thinking. We're always looking for, you know, people who can solve the problems that we think need to be solved. And that means looking for people from different backgrounds and from sort of diversity.
And that's just always been part of our way of thinking about making successful investments.
You mentioned that you make sure that every founder has an opportunity to apply through your program, right?
My colleague Dama introduced, partly based on feedback from founders, no warm intros. This is basically the rule. If we do get a warm intro from somebody we know, that doesn't give anybody a shortcut.
So it doesn't mean that anybody who's got sort of similarities of background, if you like, to people in our team or in our network can shortcut the process in terms of applying. So our application process is the same for everybody. And we try to make that as inclusive as possible.
Unfortunately, I think a lot of VCs still are based on this idea of warm intros. Like if you get introduced by somebody that the partners at that firm know, which means that it's likely to be people who've got the same diversity characteristics as those partners at that firm, then you're more likely to get funded. And that's just a self-reinforcing system.
So we try to break that by having this kind of no-warm intros approach to how we assess startups that come to us for funding.
But I also think that the warm intros build a little bit of trust, no? Because you trust better someone that you kind of know.
Yeah, I absolutely get the reasons why people do it.
And I think it's definitely got advantages, but I think it means that you end up with this self-reinforcing system where you're going to end up with very similar types of founders applying or that you're talking to all the time. And I think we just felt that that wasn't in line with our investment strategy. We were deliberately looking to try and get out of our own social networks if you like.
And having the open application process has been very helpful in breaking that cycle of just talking to people like us. Sure. And the founders that normally apply, they are based in the UK, right? Yeah.
So mainly in the UK. We do work with founders from all over Europe, all over the world, to be honest. But yeah, they're predominantly UK-based.
So yeah, often very diverse in terms of where they've come from, but they may well have moved to the UK already. So most of the companies that we back are UK-based.
And your idea is to keep focusing on UK-based startups?
So actually, no, in the longer term, we think the opportunity around Tech for Good and the scale that this really works on is European for us. So I think it's very, very hard to be a global VC firm. I think you spread yourself too thin, to be honest.
But I think that the kind of Europe-wide phase, we think in the next 10 years the number of talented founders who are going to start addressing these kind of big social environmental issues is growing very well across Europe. I think maybe the UK was a bit ahead of the curve. There's already a really strong ecosystem of Tech for Good founders in the UK, but it's getting stronger and stronger all the time across Europe.
So in the medium term, we certainly think maybe our next fund will be more European-focused rather than just UK-focused.
And within the European focus, do you have any specific countries that have the most number of founders that tackle certain topics? For example, I don't know, health founders, are they maybe in some country focused more on helping these firms to actually...
I think health is an interesting one. Health seems to be very well spread.
I think there's like every country has health as an issue, obviously, but different systems. I think climate-related stuff has, we've seen probably more growth in the Nordic countries in Scandinavia over the last few years. But then we've also seen lots of really interesting Tech for Good startups coming from Spain and Portugal as well.
And then founders approached us from whole swathes of Eastern Europe as well. So there are pockets of like really good Tech for Good founders. I think sometimes based on what other investors are there, what kind of government support is available for startups, and so on as well.
But I think our general picture is that overall, just the numbers and the talent of startup founders who are addressing these big issues, it goes up every year across Europe and there are different pockets at different times and in different places, but the scale of it is increasing every year.
So just to wrap up a little bit, maybe you can tell us a little bit more about this last call for companies that you had that ended two weeks ago, as you mentioned, with around 300...
Yes, I think it's 380 companies applied to us. Really strong. I mean, pretty even split between our impact themes. I think we've seen a real mixture between stuff that's maybe a bit closer to market if you like, and some also some real deep tech stuff as well.
So people approach us with innovations that nobody's seen before if you see what I mean. So that mixture of deep tech through to stuff that may be more immediately commercializable. That's really interesting.
Again, yeah, a real mixture of founders, everybody from people with deep experience in the tech industry already through to... I noticed there were a few kind of social workers and teachers and real mixture of backgrounds in there as well. So I think my reflection on just going through applications over the last few weeks is the depth of talent of people who want to be, you know, working on this is really, really strong.
How do you make sure that everyone knows all across the UK that they can apply? Everyone actually has the opportunity to show what they're doing.
Yeah, I'm sure we could do better. We're not a household name in the UK, if you know what I mean. I think we we've tried to make sure that we're well-known in places where we think there could be potential founders.
But it's something that we're working on all the time, trying to improve our profile, our reputation as like, you know, the kinds of funders that you can approach, you have a chance with. It's a constant thing for us to try and increase our brand presence if you like, and to make sure that our deal flow is as strong as possible. But I think one of the things that we have in our favor is that we've because we've been doing this for a while, we've been going for, you know, just over 10 years now, we've got a portfolio of over 150 companies that we've backed.
And some of those are very, very successful. So, you know, when people come across some of our portfolio companies, whether that's companies like Fairphone or Dr. Doctor, there are many more examples in the portfolio that other founders will come across, then they sort of tend to look, oh, I wonder where they got their break, where they got their first funding from. And they find Bethnal Green Ventures through our portfolio.
And obviously, that's a great way for them to find out about us because it shows exactly the kinds of things that we're looking for. That's great. And that's true.
So I have a question that has nothing to do with this. And it has to do with the Order of the British Empire award given. Now, I just want to know a little bit about it. Like, what does it mean? What does it mean to you?
Oh, yeah, it's interesting. So it was a massive surprise when I found out about it. It's funny, the way you find out you you literally get a letter through the post, and it was completely out of the blue.
I had no idea it was coming. And then you have to keep it very, very secret, which is which is quite hard. And yeah, I, I was surprised I didn't.
You know, they don't they don't really tell you that much about why you got it or who's nominated you or anything like that. So it was Yeah, it is a great honour in the UK as part of, you know, a system, the honor system, as it's generally called in the UK, which I, you know, has its quirks. And it's obviously quite controversial sometimes as well.
But I think just the fact that it, it was essentially recognising that we as Bethnal Green Ventures had put tech for good on the map. I think that that felt like it was really important. And so ultimately, I think it's a recognition of all the work that we've done as Bethnal Green Ventures to try and build the tech for good movement in the UK.
And that has had, you know, an impact on the broader investment world as well. So yeah, no, it's a great honor. And it's, it's, um, I think people maybe take us a little bit more seriously, because, because, because I have it.
And that's, that's also quite useful. In fact, I don't think I'm betraying any confidences where, like, when I got it from now King Charles, although he was Prince Charles at the time, you know, he said to me, Oh, I hope this is useful. And I think that's kind of what it has been actually, is it's helped to make other people take us a bit more seriously, which is which is really, really good.
Of course and it's like a great honor having it. And also, it's great that it recognizes something so relevant as what you do, right? Giving a space to start up investing and putting tech for good on the table.
Yeah. And it became obvious very quickly that, like the King, he knows all about impact investing. So, you know, I'm sure he'd been briefed, but I don't think he could have been in terms of he, he has an interest in it.
And, yeah, I think impact investing is something that's quite close to his heart. Yeah. And that's a great signal that the King cares for it.
