Dollars and Change interviews AeraVC founder Derek Handley

Derek Handley for website

Derek Handley’s professional triumphs have landed him among some of the world’s biggest names and corporations (and maybe even in space).

The New York-based social entrepreneur, speaker and author was previously the founding CEO of B Team, where he collaborated with Sir Richard Branson to catalyze better ways of doing business. Last month, he became our third Social Innovator in Residence and launched his latest project, Aera VC, while at Wharton.

In this Nov. 2 interview with Katherine Klein and Nick Ashburn on SiriusXM’s Dollars and Change, Handley tells his origin story as a social entrepreneur, beginning with a pivot away from his award-winning global mobile marketing company, Hyperfactory.

What was the turning point where you decided to switch from a global technology company to socially impactful business?

In the lead up to December, the Hyperfactory was burning a lot of cash and it was looking like within 10 weeks it would be out of cash. At that time, it was almost impossible to raise money. I was trying to get to grips with what life would look like with this company disappearing and collapsing.

Until that point I tied up everything that I was with this company: my identity, my kind of lifestyle, my relationships—they all were intermingled with the company. So having that period of reflection, I just started asking, “what’s the best use of my life? What’s the best use of my time? Is it to build and do these kind of things or is it to start asking the biggest questions and the issues I hadn’t really thought about, whether it’s the environment, poverty or sustainability?”

I had to change track and figure out how whatever I could bring to the world could be contributed towards those issues.

What is your venture capital fund, Aera, and what does it have to do with your larger mission of purpose and positive impact?

After I left the B team, I set up a small, charitable trust in New Zealand called Aera. The idea was that it would incubate different concepts in imaginative ways that could address social and environmental issues, and they could be for-profit or non-profit. Aera VC is one of the children of that effort, and what I was looking at around the world was that we needed to have more early stage capital for socially oriented start ups and entrepreneurs that wanted to build venture backed companies, but had a very clear social or environmental mission.

Aera VC is effectively that, it’s trying to participate and fill in the gap when people are raising 1 million or 1.5 million dollars, have a very clear mission, and a technology enabled business they’re trying to grow and scale. We’re taking positions in that kind of company, those kind of stages.

The interesting thing about how it’s made up is the partners, or the investors, are a collection of families from around the world.

“I’m trying to also build a global community of families, especially the next generation members in multi-generational families who are more interested in investing in this way.”

This is a way for them to participate in exciting, interesting, innovative, globally oriented social impact VCs, but it’s also a way for them to learn from each other. It’s kind of a two-fold social impact strategy for the fund itself: One is to participate, support, and back companies and the other is to build a community of families that invest and do things together.

Who are these families investing in Aera, what are they looking for, and why is it so important for you to build that community?

For me, I try to make whatever I do as much fun and as interesting as possible, and for me a lot of that is about social interaction and building relationships. In more and more of these families from around the world—whether they’re in New Zealand or Tokyo—the younger generation wants to participate and invest in these types of companies, but it’s harder for them to make those first steps. In a way, we’re creating a safe place to start.

They’re often just getting into positions where they are taking reign over a foundation or some investment in the family office, and this is a way for them to access this type of capital asset class as opposed to others that they have a lot of other choices in, such as microfinance and other impact classes.

Part of it is about giving them an entry point, and part of it is about making it fun and interesting and inspiring for them to participate.

What inspires you to invest in a company?

We take a venture view, so it has to tick all the other boxes: it has to be able to scale, raise full on capital, have a great team and model, have a massive market. So it’s all the same traditional metrics that any early stage VC would have, except we have the social mission at the core as being our first gate, and then the second being that they have an aspiration to measure it.

We also developed over the last couple years what we call Aera terms, which is essentially a social terms sheet.

“The number one principle is that the company incorporates the social mission in their DNA. It needs to be the center point of what they’re doing.”

The second characteristic of the term sheet is they must aspire to measure at least one key social impact metric, so they can see how they’re tracking with the issue they are trying to solve beyond revenue, margin, etcetera, which most start-ups wouldn’t be tracking.

We need them to think about that not only because we think it’s the right thing to do, but we think that if they’re measuring the right social impact metric, it should be a great North Star for them to achieve whatever they’re trying to achieve as a business.

What are some companies you invest in?

There are all sorts of categories where there’s an explosion of new types of companies. Look in the education space: people transforming how education takes place through cloud-based tools. We’ve put money into two education start ups, one in Brooklyn and one in Melbourne.

The one in Melbourne is called Maths Pathway, and it’s looked at how people are taught math— which is one textbook, one class at a time, 30 kids in a class. The math teachers that started the company said that every kid should have their own pathway through the curriculum, because they have different strengths, weaknesses, pace, ability, etc.

So they’ve created a cloud-based platform that gets rid of the textbook and every kid in the class is at a different point in the curriculum. The amazing ones can roar ahead and the ones that are struggling get more attention. It turns the teacher into a coach and they get a dashboard of what’s going on, as opposed to the textbook being used as the primary tool.

For those guys, they thought that math should be learned a lot faster and a lot more efficiently and so they created a social impact metric called rate of learning. They believe that if schools use that platform, then they would get students through the math curriculum 2-3 times faster and they are now proving that in hundreds of schools in Australia.

Tell us a little about what you’re observing in the leaders of these businesses.

The common characteristics are probably the same as the entrepreneurial ones you look for: coachability, commitment, and full dedication to building the start up.

The slight difference is that the person has come from the problem they are trying to solve, so if you look at the two education companies and a couple of media ones, the leaders have all come from the issue.

They were in the periphery of an industry and figured out there was a social injustice or problem and decided to build a start-up as the best way to solve this social issue.

What does it take for a business to have a synergy between its financial and social mission?

In looking at this, we’ve tried something interesting that not many VCs have.

We have a bunch of criteria on the website to describe what we look for, and the last criteria is if the company in its early stage is capable of receiving grants or philanthropic funding alongside VC funding

That’s the sweet spot. That means that a company is doing its social mission in such a way that a foundation is willing to grant it money and think that that company is among the best ways in which they can use that money to address the social issue.

On the other side, if a venture fund which doesn’t really have a social lens looks at the company and goes, “this can return and create a great market opportunity,” to us, it’s the merger of those two.

Out of the seven companies we fund, three of them have equal hybrid capital and it’s a fascinating position, because some of the investors are just there for the commercial opportunity and other investors are there because they are socially oriented.

Do you have a response to the myth that social mission compromises financial returns?

I’m not looking for any companies that are compromising their financial opportunities by having social ends. I think there are lots of companies that can do that because it’s a spectrum, and it really is up to an entrepreneur how they deal with their profits, their margins, their revenue.

We’re focused on companies that have a really strong business model where people will buy their product anyway, at that market price, because it’s better than the other products. It just so happens that they have a clear social mission and they’re making a huge difference.

This interview was recorded live on SiriusXM on Nov. 2, 2016, as part of “Dollars and Change” on Business Radio Powered by The Wharton School. It has been edited for clarity and length, and was transcribed by Devon Turner, C’20, Wharton Social Impact marketing fellow.