Israel earned the title "Startup Nation" thanks to brilliant young people who transformed the country into one of the world’s leading technology powerhouses. But the time has come to turn Israel into "Impact Nation," a country that creates a better future in which people will blossom economically and live in a world that is cleaner, fairer and more responsible.
The impact revolution is shaping a new capitalism that fosters social and environmental returns alongside financial profit. Some businesspeople say it’s impossible to ride two horses at once, to profit financially and simultaneously create positive change in the world. But reality proves otherwise: If we are striving for unicorns, why not strive for "impact unicorns" that are worth a billion dollars AND also improve lives of a billion people?
This revolution is changing the way we think about social responsibility, business models and investments. The day is not far off when it will have become one of the identifying achievements of the 21 st century, similar to the way that the technology revolution epitomizes the 20 th century. In both cases, the driving force is young entrepreneurs.
At the age of 26, I founded a business in a field that was entirely new at that time - venture capital. The business became Apax Partners, which currently manages more than $75 billion across the globe. Back then, friends said to me "Maybe it would be wiser to gain some more experience." But I thought it was impossible to learn how to swim by doing exercises on the beach. As it turned out, jumping right into the water, learning quickly and amassing experience before anyone else did was actually the best thing I ever did. And that’s exactly what young entrepreneurs need to do in the new field of impact ventures.
One of the main factors in facilitating the speed and scale of the technology revolution was the availability of venture capital which funded the new technology companies - a sector whose current value, taken together with private equity, is approaching $10 trillion. In the space of just three decades, startups whose existence was known only to a few - companies like Amazon, Apple, Google and Facebook (today Meta) - pushed aside giant corporations and shot up to top the list of the world’s most valuable companies. The early entrepreneurs were not just technologically savvy; they were able to convince investors they could make huge profits by breathing life into their entrepreneurial vision.
When investors decided to put their money into the early venture capital funds to back these early tech companies, it was a leap of faith. I know this firsthand because in the early 1980s, I was one of those investors. Apax invested in almost 500 startups, including Apple, AOL and PPL Therapeutics, the company that cloned Dolly the sheep.
A primary reason for my choosing to become a venture capitalist was that I could have a positive influence on society, while making money. Apax backed hundreds of entrepreneurs who became rich and enriched the people around them. They created thousands and thousands of jobs. I believed that the creation of new jobs would improve peoples’ lives.
Commitment to humanity and the world
I’ve always felt committed to helping others and the world, perhaps because of my personal history. When I was 11 years old, I left Egypt with my family. I arrived in Britain as a refugee, with a suitcase, 10 Egyptian pounds and a stamp collection tucked under my arm. A very special teacher at high school told me I should continue my studies at Oxford University and helped me prepare for the university’s entrance exams. I was accepted and gained the best education, first at Oxford and then at Harvard University, where I discovered venture capital pretty much at its birth. The Henry Fellowship, which funded my first year of studies at the Harvard Business School, required me to contribute something of value to Britain upon my return after graduation. The thing I brought back with me was venture capital investing, for which I was knighted in 2001.
During my career, I have played many roles as an entrepreneur, an investor, a philanthropist and a government advisor. Each one of these roles gave me the opportunity to see the world from a different perspective. It also brought me to realize that my hope that the gap between rich and poor would diminish not only was not achieved, but in fact, the gap grew wider. Inequality deepened, and our social and environmental problems intensified.
Today we know that companies - which we had hoped would benefit the world - sometimes caused considerable damage. I began to understand that we must create a different path. I decided that when I turned 60, I would leave Apax and devote myself to promoting the use of investment to bring about meaningful change. I didn’t want my epitaph to read: "He achieved returns of 30% a year." I knew my life had a higher purpose.
The impact investing model, whose basic idea is to generate profits for investors alongside measurable social and environmental benefits, is not only morally attractive but also worthwhile from a business standpoint. The Impact Revolution, like the tech revolution that preceded it, depends on investment. This is, after all, the fuel of our economic system.
Today, this means focusing on both profits and impact - and measuring both. Why? Because generating positive social and environmental impact has become an influential factor for many investors in deciding where to invest. The fact is that today the new methods of measuring impact are converging with the desire of customers and employees to be involved in successful companies that also make the world a better place.
It is my view that investing for impact has become a mega trend in financial markets. ESG investing, which has the intention to create impact but does not measure the impact created, is over $40 trillion. Impact investing proper, which measures impacts, is growing rapidly. Some proof: Since 2016, the impact investing market has doubled in size every year. In 2017, the market was valued at $230 billion; just a year later, in 2018, it surged up to $502 billion. In 2019, the market was valued at $750 million. Last year, I estimated it to be more than $2 trillion.
The World Bank’s International Finance Corporation (IFC) estimates that investor demand for impact investment now reaches no less than $26 trillion - more than 10 times the market’s size in 2021. Given this level of demand, it can be expected that the impact market will continue to grow - rapidly - in coming years.
You can see it happening in Israel, with high-growth impact ventures such as Optibus, OrCam, Selina, N-Drip, Circles, RiseUp, and Venn, among many others. Impact investments are creating a chain reaction. Some of the world’s largest asset managers and pension funds are moving to impact investing because that’s what their customers demand - especially young ones.
A critical time
According to research by U.S. Trust, millennials, more than any previous generation, invest in organizations that prioritize the collective good, while a McKinsey report found that millennials were twice as likely as other generations to invest in companies that exert a positive social influence. In coming decades, millennials will inherit lots of money from their Baby Boomer parents. This windfall will reach $30 trillion in the United States alone.
The European Union is a big supporter of impact entrepreneurship. The EU’s Social Impact Accelerator is a 243-million-euro fund that invests in social impact funds focusing on social initiatives in Europe. Some countries, such as the United States, France and Italy, are moving toward formulating new legal frameworks. Governments feel growing pressure from their citizens to carry out profound changes, and they know they have to act fast. A 2019 report from the OECD found that governments must help promote and nurture the impact market by developing measurement and reporting standards, building market infrastructure and creating incentives for investors. Even in this era of political polarization, the right and the left can agree on the report’s need to harness market forces, entrepreneurship and innovation to achieve social mobility and fairer distribution of social and economic opportunities and returns.
We are at a critical moment in time. The world’s problems are intensifying and the need for solutions is getting ever more urgent. The Impact Revolution is the response. The time has come for tech entrepreneurs to leap into the water, innovate, reap profits and do good. The last generation of tech entrepreneurs were concentrated just a few places, like Silicon Valley. Now, impact entrepreneurs using technology can prosper wherever there are social and environmental challenges. Israeli entrepreneurs have the opportunity to turn Israel into Impact Nation, improving not only the lives of Israelis, but of people all across the world.
The writer, who founded Apax Partners, is one of the fathers of British venture capital and is numbered among the world’s most outstanding impact leaders. The Hebrew edition of his new book "IMPACT: Reshaping capitalism to drive real change" is being launched this week by Matar Publishing.