October 9

Lauren Cochran / Grace Horwitz

As Impact Investors, Here’s Why We Need to Elevate Human Capital

Editor’s note: Throughout 2017, NextBillion is organizing content around a monthly theme, dedicating special attention to a specific sector alongside our broader coverage. This post is part of our focus on impact investing for the month of October.

Each week brings with it a new batch of headlines uncovering the ugly underbelly of another Silicon Valley pet gone wild. Scandals have hurled Uber, Kleiner, SoFi, 500 Startups, Google, Zenefits and others into unexpected PR nightmares. With the bad news coming fast and furious, it has become apparent that startups and venture capitalists have not factored in a key asset in any company’s growth, talent and culture.

The “grow or die” mentality is certainly part of the story, as process and controls are outstripped by the need to hire, but chronic underinvestment in human capital likely drives much of this chaos. The tyranny of the urgent:

“Our technology is broken!”

“Our biggest customer hasn’t paid!”

“We run out of cash next month!”

In a race to bring product to market, forethought and structure around human capital falls lower on the list.

Under-investment in talent is crippling in the markets in which Blue Haven invests. Across sub-Saharan Africa, for example, we’ve found that there is no forcing function for management teams and investors to prioritize and formalize best-in-class human capital practices. At a startup, it’s easy enough to find the first few hires through the ever scientific “I know a guy who knows a guy” technique. Similarly, it’s all too common for investors to believe that retention issues can be solved with an employee stock ownership plan (ESOP) and a foosball table rather than on-boarding and professional development. After all, developing talent is expensive and burn should focus on growing the business, right? But therein lies the rub. We must not forget that a business is the sum of its people, and short-sighted human capital practices directly impact return on investment. Without a strong human capital engine managing the hiring, training, and retaining of talent, management teams and investors will struggle to build effective companies.

Mirroring the startups they invest in, venture capital firms are often the creation of a couple of founders with teams that expand over time as assets under management grow. Very few VCs, impact investors included, have any semblance of an HR function. Thus, human capital and organizational strategy are rarely prioritized during due diligence or at the board level. Why should they be when most investors don’t have any experience devoting resources to human capital within their own firms?

While it has become axiomatic that “people are a startup’s most important resource,” the gap between rhetoric and action persists. Most investors assume that blasting job descriptions via twitter or combing LinkedIn is sufficient support for a portfolio company drowning in CVs and short staffed. It’s better than nothing, but it’s neither a sustainable nor efficient way to build world-class teams. Many of our peers just don’t know where to start. It’s not in an investor’s “wheelhouse” to debate talent strategy, but like everything, we need to learn by doing. There are more tools and more data than ever before and we need to use all of it to address issues across the human capital value chain. At BHI, human capital is front and center to all parts of our investment process. Here is what we’ve learned:


Know What You’re Buying

Integrate human capital into the investing process. During due diligence, BHI probes how managers meet the human capital challenge. Who does the hiring and what is the process from entry to senior level? Is your management team diverse? Do you hire diverse entry-level candidates? How do you find them? Once someone is hired, what does onboarding look like? How do you keep people happy? What professional development opportunities are available? How do you promote from within? We want teams that hire the absolute best people for every position. Lazy hiring and people development result in mediocre investment performance every time. Note what it will cost to integrate proper training programs to develop and retain people (even include it in the uses of funds!) and manage and monitor relevant metrics (retention, time to hire, job performance) as any other key performance indicator.


Partner, Know How and With Whom

We invest in early-stage companies in some of the toughest markets in the world. Entrepreneurs have to manage a lot and can’t (shouldn’t) do everything. Pieces of the value chain are sometimes best left to experts, especially when it comes to talent management, where time spent reading CVs and doing bad interviews adds up fast. We have tested and now recommend a number of service providers across the value chain. For hiring junior and mid-level folks, our portfolio companies work with Shortlist, whose data-driven talent screening product combines competency assessments and chat-based interviews to better match talent with required skills. (Full disclosure: Paul Breloff, CEO of Shortlist, is a senior advisor to BHI). On professional development, Nairobi-based Spire Education builds training programs that cultivate the skills and attitudes entry- to senior-level employees need to be successful on the job. We also leverage rock star partners, including Rippleworks that matches top tech expertise with social entrepreneurs and Omidyar Network that bring years of human capital expertise to bear for its portfolio companies (several of which are co-investments of Blue Haven, lucky us!).


Invest in Human Capital Companies

The best investment thesis is born from experience, and when it comes to human capital problems, we have it in spades. Too often impact investors take a narrow view of the investable universe, particularly in Africa, focusing only on companies that directly count low-income people as customers. The reality is we need to build infrastructure to support the growth we are looking for, both in the broader economy and to improve employment opportunities for individuals. BHI invested in Spire and Shortlist after working with them and observing the results. These are great business models addressing enormous problems led by incredible teams, but their customers aren’t always living on less than $5 a day.

There is no one-size-fits-all approach to the challenges an entrepreneur faces daily, but these steps can help stave off another bad talent movie in many cases. We are eager to share our experience and have no pride in ownership. If more investors focused on small upfront investments of time and money in human capital, all of our venture capital would go a lot further.

If you’re headed to SOCAP in San Francisco next week, Lauren Cochran will be speaking with Omidyar, Rippleworks and Shortlist at 3:45 p.m. on Wednesday (Oct. 11) on a panel titled “The Other Capital: How Impact Investors Can Help Portfolio Companies Tackle Talent Challenges.” Come join the conversation!


Lauren Cochran is Director of Private Investments at Blue Haven Initiative.

Grace Horwitz is an Associate at Blue Haven Initiative


Photo by on Unsplash




Impact Assessment, Investing
business development, impact investing