Pioneers in impact investing

Lightrock is a global impact investor. So first of all: What is impact investing?

Pal Erik Sjatil: Impact investing essentially means intentionally investing to enable a better future: It refers to investments made with the intention to generate positive, measurable and long-term social and environmental impact alongside a financial return. The investor commits to measuring and reporting the impact performance of the investments.

"Positive impact" sounds quite abstract. It can be achieved in so many different areas – which ones do you focus on?

We provide capital to companies that pursue innovative business models to address the world’s most pressing challenges. We focus on three key impact themes: people, planet and productivity/tech for good. Within these themes, we invest in companies that have developed scalable, often technology-driven solutions in sectors such as education, healthcare, renewables and food. 

Can you give an example of a company that you personally find very inspirational?

It's hard to pick only one, but I’d highlight Togetherall, a company whose services have become crucial during the pandemic. Togetherall is a 24/7, safe online community for people who are experiencing mental health issues. In one way or another, we've all experienced how the number of people who are stressed, anxious or feeling low has dramatically increased with many societies being locked down and socially distanced these days. Togetherall combines clinical expertise, innovative technology and a safe community to offer self-guided courses, resources, and peer-to-peer support 24 hours a day. The latter is moderated by trained practitioners and has proven to have a positive therapeutic effect. Togetherall has recorded more than 100 percent increase in new user registrations and increase in activity on its platform during the first lockdown in the UK. 

Why did you decide to go into impact investing? 
I find the intersection of growth, tech and impact exciting. I am convinced that this eco-system will become even more important in the future. I dare say that sooner or later, all investments will be categorized according to their positive or negative impact on this world. I am excited to help drive this development in my new role and contribute to a more sustainable form of capitalism.

You have declared your goal to become a global leader in the dynamically growing field of impact investing. Where does Lightrock stand today?
Lightrock’s impact investment activities started in 2007 – back then, the term "impact investments" was not even used. Lightrock was among the pioneers. Today, we manage a portfolio of over 60 high-growth companies globally, which constitutes one of the largest impact-focused growth portfolios in Europe, Latin America and India. Some of our portfolio companies have become unicorns in the meantime, such as CMR Surgical which increases the availability of minimal access surgery through next-gen robotics, or Lilium, the sustainable aviation company.

What sort of investments are we talking about, and what amounts do you usually invest?
Lightrock provides direct private equity to mainly growth-stage entrepreneurs. We typically offer to invest USD 20 to 75 million but can go up to USD 100 million if such a ticket is an appropriate fit for a company we look at.  

In what ways has the pandemic changed the outlook for impact investing?
You might expect me to talk about how much the pandemic has thrown us back. That might be the case with most businesses globally. But not with us. So far, the pandemic has had a positive effect on impact investing.  

How surprising! 
Is it though? In fact, the Covid-19 crisis has further strengthened the need for more thoughtful deployment of capital. Early industry analysis suggests that ESG investments – another form of investing sustainably – were more resilient during the Covid-19 market crash. The pandemic has further fueled investors' interest in impact investing all around the world.

I assume you have made the same observations at Lightrock?
Yes, we have. We were also successful thanks to our closeness to our companies: When the pandemic hit the different regions, we started collaborating with our entrepreneurs even more closely. Together with the companies’ management, we focused on the safety of employees and clients, as well as on stabilizing operations and finance.

So, you've been observing that it's stable and innovative companies that survive the crisis.Not only survive. Yes, most of our portfolio companies’ business models have proven to be very resilient to the pandemic’s impacts in the mid-term, but what's more interesting: These companies have become even more in demand in a post-Covid world.

Can you give an example?
Smartcoin is an Indian FinTech company that provides micro-loans through its app. It focuses on underserved segments such as blue-collar workers, small businesspeople and young professionals. As we've all learnt, it's sadly always the weakest that a crisis hits the hardest. The same goes for these people. As the initial economic shock of the pandemic threatened to paralyze them, Smartcoin accelerated the implementation of a number of technology-based changes and innovations to further extend access to finance for their target group. At the same time, they ensured the performance of the business. The result: Compared to the previous year, Smartcoin has observed an immense growth – not twice as strong, but triple as strong.

Why do you think is that?
I think it's mainly thanks to their tech-oriented, scalable models – many leverage innovations in digitalization and artificial intelligence. A lot of our portfolio companies have already implemented and scaled innovations in sectors that have moved into the focus and are now capable of immediately stepping up with the jump in demand. We have also noticed that investors – both private and constitutional – are increasingly interested in directing capital towards such future-proof high impact companies.

Does that mean that investors are becoming more altruistic? 
Well, that's the beauty of impact investments: You can be focused on your returns and still pursue selfless goals. In other words: No, investors haven't simply become more altruistic. I think it's both because investors realize those models provide pragmatic solutions and need capital, but also simply because they constitute quite attractive and uncorrelated investment opportunities. 

Let's get back to Lightrock: Your investment platform will be independent of LGT Group as a result of the restructuring. What will this change for you? 
 

As a result of the restructuring, we are a separate legal entity since January 1, 2021. We are fully standalone with regards to most of our operations and processes, but we will continue to collaborate closely with LGT Capital Partners and LGT Private Bank.

How important is the connection to the Princely Family for Lightrock?
The relationship and support from the Princely Family and from LGT provides a strong anchor for the company. HSH Prince Max von und zu Liechtenstein is the Founder and Chairman of Lightrock and as such continues to help shape Lightrock’s vision and strategy. LGT is our major investor and our active collaboration will remain crucial for Lightrocks' success.

A very specific question: What does Lightrock’s offering to LGT Private Banking clients look like?
While it is too early to talk in detail about the offering to LGT Private Bank clients, I can say that, together with experts from LGT, we have carefully selected a portfolio of 26 strong performing companies across Europe, India and Latin America that LGT’s clients will have the opportunity to invest in.

And now a personal one: You spent most of your previous career with McKinsey?
I have always been passionate about investing. At McKinsey, I was involved in serving our private equity clients who managed large funds in Europe, and privately, I own multiple investments in different regions. Also, I see synergies and similarities between consulting and investing, more than I actually expected. At McKinsey, I have served clients across multiple industries and have gained a lot of experience in assessing investment deals. As the CEO and Global Managing Partner of Lightrock, I now have the privilege to support world class entrepreneurs in bringing positive impact to scale. Lightrock is a group of extremely passionate and committed professionals who are fun to work with.