By Ivan Meakins with Evan Maindonald
This blog has been taken from Episode 7 of the Climb podcast, a show that was recorded for the Climb23 event, hosted by Gordon Bateman and Investor Ladder.
Find the full conversation with Evan Maindonald here.
In a world obsessed with quick profits, Evan Maindonald, Founder of Hyperlight Ventures, is playing a different game. A tech aficionado and sustainable investor, Evan is not just investing in tech companies. He’s investing in companies that aim to change the world for the better.
This is a concept that leaves us with two pressing questions: what kind of social impact are investors really looking for, and is sustainability alone enough to seal the deal?
Sustainability vs profitability
Although Evan invests in companies that create positive and social impact, he’s still on the lookout for profitability. So, he’s adopted a model that turns traditional impact investing on its head.
Evan: “We’re not just going after impact. We’re going after niches with a significant demand for products and services that create social and environmental impact. We look for companies that generate exceptional profitability by taking advantage of their demand or market trend. And then, we invest in those companies to help them accelerate profitability and drive impact.
So, in essence, we’re looking to invest in companies that will grow quickly, have a strong competitive advantage, use that to generate profitability, and ultimately, accelerate impact.”
What else do investors look out for?
Evan has already provided a sneak peek into one of the key factors impact-led investors would like to see in the businesses they back – competitive advantage.
But there’s more. According to him, investors also want to see three things:
- Founder-problem fit
- Impact-problem fit
- Product-market fit.
Let’s look at each of these key factors in more detail to see what they really mean for your business.
Competitive advantage
Evan: “We look out for businesses that have a flywheel, and it starts with a strong force of competitive advantage. Are they able to protect what they do? Because if they can protect what they do in some manner, it’s a form of unfair advantage, which means they can generate more profit than their competitors.
Another question we tend to ask is: do they have patents or a unique technology? This would mean that nobody else can replicate what they do. Is there a market sector that they have dominated or could dominate, which gives them a walled garden, making it difficult for competitors to come in?”
There are a lot of ways competitive advantage could be derived, but it’s so critical because, without that upper hand, you can’t protect what you do. And if you can’t protect what you do, you can’t generate exceptional profits and drive impact.
Founder-problem fit
In many cases, investors aren’t just investing in the business – they’re investing in the entrepreneurs themselves, the faces behind the brand. And for Evan, there has to be an emotional connection between founders and the problem they’re trying to solve.
Evan: “When you look at the founders of the business, do they have a reason for doing what they do, outside of just making money? If people are doing things because they’re on a mission – maybe there’s a problem that has really frustrated them, and they want to deal with it – they’re going to be much more closely connected to that problem.
Ultimately, they’re going to compete much better than somebody who’s just doing it for money. So we look for founders that are on a mission, and that’s really what founder-problem fit is about.”
We can surmise then that investors really want to see a high level of emotional commitment to solving a problem. And it all boils down to one question: why do you do what you do?
Impact-problem fit
While the founder’s motivation is critical, your business ideally has to tick all the boxes, including having a strong value proposition. Evan brilliantly sums up the concept of impact-problem fit:
Evan: “Impact-problem fit is actually specific to what we do at Hyperlight Ventures. We have to be able to sum up the impact that the business creates in a single sentence. And we often find that the startups that we end up investing in aren’t necessarily that good at being able to explain that themselves. So one of the ways we can actually help them is to clarify the value proposition in the way in which it connects to impact. And that can actually open them up to opportunities.”
As a founder, it can be hard to articulate your message because you’re too close to the business. You don’t have the broader perspective and you may not be able to easily spot gaps and potential opportunities.
That’s why it’s so important to speak to an investor or VC in order to get that external perspective you may be missing.
Product-market fit
Evan’s final criteria is one ALL investors look out for, whether you’re running an impact-led business or not. The product-market fit lies at the centre of your entire business. Without it, every other pillar you’ve set in place crumbles.
Evan: “Product-market fit is really about being able to see some clear traction for the product in the market. And usually, that’s in the form of sales and strong sales growth. But it can also be defined another way. If you give this product or service to a person and then you take it away from them, they’ll say, ‘I need that. I can’t be without it.’
Once you’ve got that, you’ve finally achieved some form of product-market fit. You have a clear demand for that product or service, which is unique and can’t be fulfilled in any other way.”
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For more of Evan’s insights, check him out on LinkedIn or visit Hyperlight Ventures.
You can also hear Evan’s full insight on Episode 9 of the Climb podcast, sponsored by Investor Ladder. To find out more about Investor Ladder and upcoming events, click here.
If you enjoyed this blog or listened to the Climb podcast and wanted some advice on how to create regular thought leadership content for your business, get in touch with Write Business Results today.