November 12, 2020

Sir Ronald Cohen: “The VC industry has to wake up”

The 'father of British venture capital' shares his insights into tech as an impact leader to change people's lives and fix the planet.

Connor Bilboe

9 min read

The past few years has seen impact investing — investment that measures social and environmental factors — become increasingly popular. In 2019, Europe held €668bn of assets in sustainable funds, a 58% increase from 2018. 

Meanwhile, Europe has gained heaps of investors and support groups financing impactful businesses and initiatives, including global early-stage VC firm Antler, Swedish “climate-only” VC Pale Blue Dot and UK-based social investment company Big Society Capital (BSC). The latter was cofounded by renowned investor, philanthropist and social innovator Sir Ronald Cohen.

Cohen — who pioneered British venture capital when cofounding private equity firm Apax in the 70s — has spent his later career spearheading a number of social enterprises. He chaired the G8 Social Investment Taskforce, publishing a 2014 report calling for governments to grow the impact investing market to $1tn, a milestone which is on track to be reached by the end of this year, according to Sir Ronnie.


His other notable ventures include cofounding impact investment firm Bridges Fund Management in 2002, which has since raised multiple funds and has over £1bn under management. He’s also published a few books on entrepreneurship; and his latest, Impact, released earlier this year, maps the current impact landscape and what entrepreneurs, investors, businesses, philanthropists and governments need to do next to accelerate it further.

As the size of the global impact investing market draws closer to hitting $1tn, what does Cohen — often called the ‘father of British venture capital’ — have to say about how to push this movement to the next level? Sifted sat down with him to talk about the state of the impact economy today, how VCs can step up their impact game and why it’s easier than ever before to measure impact just like profits.

What do you think that venture capital is getting wrong at the moment?

I think the VC industry has been largely unaware of the fact that sustainable investment can be profitable and can deliver measurable results.

...the VC industry has to wake up.

The VC industry is becoming aware of it but hasn’t completely understood that it is the way to deliver superior returns in the decades ahead. If you look at how many firms from the VC and PE industry have signed up to the UN Principles for Responsible Investment — which states that you take into account not only natural considerations when making your investment decisions but social and environmental ones as well — about one third of VC and PE firms have signed up. So two thirds don’t know anything about it, and so the VC industry has to wake up. 

Tech for good is a major change — it’s what the new generation of entrepreneurs want to achieve and it’s what investors want today — and those VCs that are stuck into this model of just risk and return will quite simply lose out.

What are some smart ways for ‘impact’ to be measured?

The Harvard Business School Impact Weighted Accounts Project doesn’t just measure environmental impact of companies, it also measures employment impact and product impact.

In recent years, more impact data is available through some decades worth of work in some cases by different organisations like SASB or GRI. And now we are able to express it in financial terms and show it in the accounts of companies, reducing their profit or increasing it according to the net impact that they create.

Is there a challenge that there seems to be no clear definition of impact or tech for good? 

We had the same thing with venture capital for nearly a decade. Essentially, the most important thing was for the investors in VC funds and the entrepreneurs who were raising money to understand what it was about — patient capital, which doesn’t expect a running yield, and involves hands-on support for the entrepreneur — and that understanding came as the examples of it multiplied. I don’t think it’s a semantic education we need to provide, we need to provide constant examples of it happening.

Tech for good is optimising risk, return and impact and measuring all three, and we think it’ll deliver better returns, which is evident from companies like Tesla. This is why you’re seeing the biggest VC and PE groups and others raising dedicated impact funds; ESG is outperforming other forms of investment today. It’s a process of a new word coming into use to describe a new way of doing things and you understand that by seeing an increasing number of examples of it.

I don’t think it’s a semantic education we need to provide, we need to provide constant examples of [impact] happening.

On your website you say “we are moving towards a better and fairer world where markets drive doing good while making profit and people want to do good and do well at the same time.” What’s preventing this from happening faster, and are there any ways we can take it mainstream more quickly?


We have a self-defeating system where companies create environmental and social damage in their pursuit of profit, often oblivious to the scale of that damage. The way to change it is to make everyone conscious of it — the consumers buying companies’ products, the employees working for them, the investors investing in them, and even the governments that tax them — because when you begin to get that transparency you can get to a fairer tax system. Essentially, the more positive impact you deliver, the less tax you pay, the more damage you deliver, the more tax you pay.

This is an important new dimension of the conversation coming out of Covid. This transparency can get us to a situation where governments can tax companies directly for the damage they are making, environmentally and socially. They can incentivise other companies to deliver positive impact, perhaps by taxing them on the difference between their positive impact and their profit.

Do you think that the climate we are living in now will help to accelerate the impact on the economy?

I think it will because the Covid crisis has shaken up our habits and beliefs and led us to question capitalism and democracy. I believe that this change will spill over into our systems to impact-driven economies. It’s led to a rotation in investment portfolios towards healthcare-based companies which were brought into relief because of the health issues, but it’s also shifted portfolios in the direction of tech because tech companies have not been as inhibited in their activity by Covid as traditional retailers have been.

I believe that this change will spill over into our systems to impact-driven economies.

What roles do tech entrepreneurs need to play to ensure they are impact-friendly while doing well? 

Over the last three decades, tech has created the water on which every ship must sail, and impact will bring another layer of water on top of tech which is going to disrupt existing business models. A good example is how Tesla revolutionised electric vehicles.

I think what’s going to happen now is that VCs and investors are going to realise that if tech entrepreneurs don’t have a positive impact, you run the risk of talent leaving you, consumers leaving you, investors leaving you, governments regulating you and governments taxing you. So, I am a firm believer that optimising risk, return, impact will disrupt whole industries in the way that Tesla has disrupted the automobile industry.

I am a firm believer that optimising risk, return, impact will disrupt whole industries in the way that Tesla has disrupted the automobile industry.

For tech investors, what do they need to do to ensure that their money is being distributed to truly impactful individuals and businesses?

[Companies] are already asking venture capitalists and other fund managers what their approach to impact is. But there are gonna be some companies that are managing money that will say: “Well we’re just going to add an ESG dimension and we will report qualitatively.” Others will say, “When we invest, we’re going to ask our portfolio companies in our investment agreement to commit themselves to measuring specific impacts that we have defined,” and I think the money will increasingly flow to the latter. 

Those that have rigorous impact measurement will attract the most money. So, investors are now looking for the tools to do it.

On the customer and employee side, how can impact be leveraged more?

With the data becoming available now it will be increasingly deep and broad. It’ll cover every company in just a few years in my view, and if governments mandate transparency on impact it will hugely hasten it. 

We will have apps, you’ll take your phone and you’re going to point it to the barcode on the product that you want to purchase and it’ll give you the health and environmental impact of the product and of the company making it — then it’s your choice what you want to buy.

What initiatives stand out to you that’s driving positive change?

An important one is the Task Force on Climate-Related Financial Disclosures, which Mark Carney [former governor of the Bank of England] is leading and the EU is about to pass legislation on reporting. But while reporting is well and good, it won’t settle the issues sufficiently and clearly for companies to change their behaviour. If we can shift financial reporting to financial accounting for impact, however, that would be a big step forward.

We currently have 600m children in the world who are either not learning, out of school or not learning in school.

Another different kind of initiative is education. We currently have 600m children in the world who are either not learning, out of school or not learning in school. In order to make a dent in that you want to use impact investment by creating outcomes funds [a philanthropic fund that pays for the outcomes achieved by social and development impact bonds]. 

You can also create outcomes funds to reskill the unemployed, to train apprentices so that they can get great jobs and to help the homeless who are going to be increasing in number to get back into homes and into employment. If we can aid organisations, philanthropists and governments to get behind these funds, it’ll be a real worthwhile effort.

*This conversation has been lightly edited for length and clarity.