From Fund I to Fund II: our learnings

It has been almost five years since our first investment from our Fund I. Since then, we have doubled the team size, achieved great social and environmental impact, invested in 16 companies, of which one exited, and reviewed over 1,200 investment opportunities. Building on the success from our Fund I, we have even bigger ambitions for our Fund II. It’s an exciting time for Amplify Capital.

But in those five years, we have also learned some valuable lessons that have allowed us to grow and evolve. With the increasing interest in impact investing and the relatively easy access to capital, many new impact funds are emerging in the Canadian ecosystem and elsewhere. While starting a fund might be an easy endeavour, succeeding can be a different story. We want to share some of our learnings so that we can collectively achieve the greatest impact.

Stay excited but do the work

Being a good impact investor actually starts with doing the diligence. While this may sound obvious, it is very easy to get caught in the hype. Finding a start-up with a compelling mission and a promise to revolutionize the world is both easy and exciting. The hype can be a powerful force in determining which company gets an investment and which ones don’t. It is one of the reasons why WeWork was valued at $47BN and why Theranos raised $400M and was valued at $9BN with no actual results.

Having a robust diligence process increases the likelihood that investments actually end up delivering on the expected impact and financial returns. Part of the review process includes understanding the market dynamics, key players, financial projections, operating model, team’s backgrounds, and the complex technologies developed by start-ups. We get it: the story is much more appealing than a patent or financial projections. But these pieces of information are critical indicators of the future success of a company.

At Amplify Capital, we dive deep into the “what” and “how” of a product or service but also the “why” it needs to exist. As such, we seek founders who are problem-motivated, personally tied to solving the problem, and will iterate on the product, the technology, and the team. Additionally, insights gathered from our 20+ industry experts and advisors give us the assessment capacity required for every investment.

Stay excited about impact mission-driven companies disrupting the status quo, but do the work to ensure the returns, both financial and social/environmental, are there.

Focus on urgent problems

We can all agree that most problems are important and that solving them would be beneficial for society. What we really have to focus on is those problems that are both important and urgent. Helping restaurants thrive through online ordering, providing a better stay for travellers, or offering a more efficient marketplace are all great solutions - and relevant ideas - but we don’t believe they are socially or environmentally impactful and demand can be fickle as the economy and our social constructs fluctuate and affect how we behave or spend.

By urgent, we mean those problems that cannot wait until tomorrow to be fixed. Solving climate change, eradicating COVID, reducing inequality through democratization of healthcare and equal access to career opportunities, and getting the right education to children from all backgrounds - all require us to take action today. Amplify Capital focuses on education, health care, and clean energy as we believe this is where some of the most urgent problems of today’s Canadian society lie.

Urgency serves as an indicator of customers’ willingness to pay for a product or service. Products or services solving large urgent problems, with multiple stakeholders and little competition, will likely yield important impact and financial rewards.

We recently invested in Sylvatex and AltTex, two enabling technologies addressing the urgent problem of climate change by decarbonizing the transportation and fashion sectors respectively. Sylvatex has developed a nanoparticle, made with renewable plant-based inputs, that can be used to produce low-carbon diesel as well as reduce the energy requirements to manufacture batteries. AltTex has re-engineered food waste into a biodegradable textile with polyester-like performance, preventing microplastic water pollution and diverting CO2 emissions from the production of polyester.

The definitions of importance and urgency will vary from one person to another, so having diverse teams - and multiple different impact funds - is critical to ensure that every generation, race, ethnicity, gender, and sexual orientation is involved in determining what constitutes a feasible solution to an important and urgent problem. Our diverse team at Amplify Capital - with a mix of generations, family origins, gender, and experiences - allows us to take into account various perspectives in our investments.

From status quo to contribution

If funds are serious about achieving lasting impact, then impact cannot be an afterthought. It has to be a key component of the diligence process. We leverage the IMP (Impact Management Project) framework, of which one dimension we find particularly critical: contribution.

Contribution asks if the societal/environmental outcome from a company is going to be significantly bigger than if the company had never existed. What this dimension gets at is that the market is dynamic with numerous stakeholders and levers evolving together. Companies with poor contribution might see their technology become obsolete, be challenged when looking for customers or find themselves unable to compete against stronger competitor offerings, especially in crowded markets.

As investors, we need to allocate our resources to companies whose contributions to society are high. For example, we invested in Classcraft, which uses gamification to improve engagement and ultimately Breyer academic outcomes through Positive Behavioural Interventions & Support (PBIS) in both the real and virtual classroom. In 2020, it had reduced the instances of negative behavior by over 50%, compared to the baseline of 16%. We also invested in Verto Health, a management of care software that ensures no patient data is lost in care transitions between various caregivers, clinicians, and administrations. In 2020, it increased clinical throughput by 40-70%.

The status quo alone would not have yielded those results. These companies are having direct positive contributions to our society.

Final thoughts

It has been five years since our first investments. Our successes and lessons learned are what have brought us to this point. We ask that you contribute to this conversation and share what your insights are. If we purposefully use our experience and intellectual capital and allocate our collective financial resources, we can make tomorrow a significantly cleaner, more equal, and healthier place than it is today while achieving outstanding financial returns for investors.