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Impact X’s CEO on the opportunities from differentiated deal flow

Published: 2 April 2024

Impact X Capital Partners has announced a £12m first close for its fund backing underrepresented entrepreneurs. CEO Eric Collins highlights the opportunities that differentiated deal flow can bring in terms of impact and venture scale returns for its investors.

Impact X’s investments include California-based Bump, a fintech AI company for the creator economy | Impact X Capital Partners

London-based Impact X Capital Partners (Impact X) announced last week that it had raised £12m at first close for its £100m IX Global I fund backing underrepresented entrepreneurs, particularly women and founders of colour.

The close, which took place last October but has only just been announced, included what CEO Eric Collins described as a milestone investment from Bank of America, alongside investments from the Visa Foundation, Guy’s and St Thomas’ Foundation and VC tech investor Atomico. Impact X hopes to reach final close by the end of the year.

IX Global I is one of two funds managed by the company, both of which invest in late stage seed and Series A funding rounds led by diverse entrepreneurs in the digital and technology, media and entertainment, and health, education and wellbeing sectors.

The company’s first fund, named Impact X Launch, was a pilot fund, fully funded by high net-worth individuals and family offices, which Collins says allowed the firm to establish a track record for its double-bottom line thesis of return on investment and impact through job creation.

“We knew that if we could achieve the right kind of metrics we would be able to attract institutional investors,” he says. “This is why we’re especially pleased to have Bank of America on board. They invested from their balance sheet which shows they believe in our thesis.”

But what really sets Impact X apart from the crowd is its focus on identifying what Collins calls “differentiated deal flow”, which not only meets the company’s aims to redress the balance of low access to capital faced by underrepresented groups but also takes advantage of what the company believes is a significant return on investment from untapped potential.

Eric Collins, CEO of Impact X Capital Partners | Impact X Capital Partners

Differentiated deal flow

“We’ve looked at what our peers are investing in in Europe and globally and have found that the vast majority of funds, including funds with a sustainability angle, do not have proportionate representation in their portfolios of women and people of colour based on the demographics of their local populations or indeed the world,” he says. “Unless you believe that people are not demographically similar, and that certain demographic groups are void of great ideas and unable to create businesses that can disrupt the status quo, then it stands to reason that there’s a huge opportunity set ripe for investment.”

This is why Impact X invests primarily in female-led businesses and entrepreneurs of colour, because that is where you find some of the greatest demographic disparities in terms of investment.

This is borne out by several studies, including the 2023 State of European Tech report,  which found that just 3% all venture capital investment in European tech went to all-women founding teams, 15% to mixed gender founding  teams, leaving 82% of investments in the pockets of all male founding teams. Another earlier report from 2019, looking at venture capital investment across sectors in the UK, found the situation for founders from ethnic minorities even more stark. Whilst black and multi-ethnic communities comprise 14% of the UK’s population, all-ethnic teams received an average of just 1.7% of the venture capital investments made at seed, early and late stage between 2009 and 2019.

The company also targets the sectors it does, because according to Collins this is where underrepresented entrepreneurs “over index” in terms of their participation, both in terms of absolute and relative numbers.

“If you were to look at entertainment for example, the number of people of colour leading businesses far outweighs their demographics. Every day of every week we are presented with a huge number of opportunities to consider for our pipeline,” he says.

The third and final consideration in identifying differentiated deal flow is the stage at which Impact X invests. Collins explains that the difficulties facing underrepresented groups getting their hands on first capital were great but grew increasingly challenging as they scaled and required follow-on investment.

“Many entrepreneurs, regardless of their gender or ethnicity, never raise a second round. There’s a drop-off rate of more than 60%. But those numbers are even greater among underrepresented entrepreneurs. That’s one reason why, for us at least, late stage seed and series A, is the sweet spot,” he adds.

Future-proofing impact

To ensure impact is sustained, Impact X’s portfolio companies are required to produce quarterly reports and include a demographic breakdown of their employee base.

For Collins this is key to ensuring the company’s double-bottom line is maintained and that underrepresented founders are future-proofing their businesses.

“For our double-bottom line, a company able to deliver venture scale return and hire people from underrepresented groups into future resistant decision-making roles, is the perfect storm,“ he adds.  

Breaking the bias

Collins names three forms of demographic-related bias stifling investment into underrepresented groups, which he says includes search image bias, in which investors search only for companies led by people they associate with disruptive businesses, based on phenotypic or class observations; network bias, in which investors only approach those belonging to certain networks or privileged groups, often people they went to school or university with or from the same social groups; and last but not least, repeatability bias.

“Repeatability bias is about continuing to invest in the same old businesses for the sake of efficiency or even laziness. The big names from Silicon Valley such as Apple, Netflix, Amazon or Google, are all run by white men. People often have these demographic blinders on and don’t think about expanding their horizons beyond what they already know,” says Collins. “That’s why we have started the conversation about differentiated deal flow and why this type of disruptive investment is important.”

Collins believes that asset allocators have a bigger responsibility to put  “their faith, confidence and money” into the general partners and fund managers that not only share their values but are representative of society at large, and “leverage a more diverse range of factors to deliver differentiated deal flow leading to a return on investment.”

“That’s the way to change things,” he adds.

Fund investments

IX Global I fund targets investments primarily in Europe and the UK, but will consider companies elsewhere in the world if the right opportunity arises, such as its recent investment in Los Angeles, California-based Bump, a fintech AI company for the creator economy.

The fund has made a total of eight investments to date and expects to make up to 50 investments when fully invested. Other investments, which underscore its focus on differentiated deal flow, include Iknowa, a property and building services platform focusing on end-to-end, retrofit, renewable and digital conveyancing services at scale and several projects including a mystery video game from Good Gate Media.

Notable investments in Impact X Launch include insure-tech business Marshmallow, lease-and-reuse consumer tech firm Raylo and epic superhero fantasy series IYANU from YouNeek Studios.

Impact X was founded in 2019 by Ursula Burns, former CEO of Xerox and the first black woman to head a Fortune 500 company, Sir Lenny Henry, British actor, writer, comedian and television presenter, and Ric Lewis, chairman of Tristan Capital Partners, a London-based real estate investment firm.

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