About ImpactPHL Perspectives:

ImpactPHL Perspectives is a multi-part content series that explores the many facets of the impact economy in Greater Philadelphia from the perspectives of its doers, movers, shakers, and agents of change. Each volume is written directly by a leader in this space to discuss best practices and share lessons learned while challenging our assumptions about financial and impact returns. For more thought leadership like this, check out the full catalog of ImpactPHL Perspectives.

Justin Desrosiers & Kendall Bedford, SustainVC

SustainVC’s Approach to Investing in Pennsylvania for Financial Returns and Positive Impact

Recently, there has been a surge in discussions within the investment community about the role financial institutions play in addressing social, economic, and environmental challenges. Over the past five years, venture capital (VC) investments in the U.S. have soared to over $900 billion, highlighting their crucial role in driving innovation and economic growth. However, the vast majority of this capital is being directed toward “traditional” companies: those not specifically striving to make a positive impact in the world, and that are located in the three big VC hubs (The Bay Area, NYC, and Boston). At SustainVC, we take a contrarian perspective. We believe that business can be a force for good and cities like Philadelphia can be ideally positioned for VC investments, especially if funds adopt a nuanced approach to VC investing.

“ … business can be a force for good and cities like Philadelphia can be ideally positioned for VC investments, especially if funds adopt a nuanced approach ...”

Over the last 15 years, the SustainVC team has developed a successful and unique VC strategy. Rather than concentrating our investments in a few major cities, we span the entire country with a notable focus on emerging entrepreneurial hubs like Pennsylvania, where half of our team resides. Additionally, we are not chasing unicorns, but rather favor investing in entrepreneurs with lived life experience in the problems that they are attempting to solve. They accomplish this through business models that can scale sustainably without the need to raise and burn a lot of capital along the way. We believe our strategy not only benefits cities with a smaller VC presence, but it also paves the way for more venture investors and entrepreneurs to achieve success, which can be a flywheel for further economic growth in these regions.

Our team at SustainVC knows we can achieve strong financial returns while addressing social and environmental challenges. Companies in our portfolio still undergo a rigorous diligence process, simply with the added lens of meaningful, quantifiable, social good. Smaller cities are home to many undercapitalized entrepreneurs doing this remarkable work. These founders may not fit the typical Silicon Valley CEO mold but nonetheless demonstrate exceptional leadership and build strong, capable, and committed teams. Consequently, two-thirds of our portfolio companies are located outside the traditional VC hubs, 80% are first-time founders, and more than 50% of the founders we support are individuals who identify as women or BIPOC.

Our team also acknowledges that founders often require more than just financial support; they need mentorship, guidance through challenges, support structuring term sheets, and partners who can assist in syndicating future financing rounds. The entrepreneurial journey can be long and solitary, which is why we pride ourselves on actively partnering with our founders, regardless of their background, industry sector, or location.

Many VC financial models focus on chasing unicorns, leading investors to seek entrepreneurs with specific profiles, pedigrees, and company headquarters in the aforementioned major VC hubs: New York City, Boston, and San Francisco. In fact, over half of all VC dollars flow to these three cities. While this model has proven extremely financially successful, our team takes a different perspective.

“ … two-thirds of our portfolio companies are located outside the traditional VC hubs, 80% are first-time founders, and more than 50% of the founders we support are individuals who identify as women or BIPOC.”

We focus on ventures that can quickly scale commercial revenue and typically exit for $50-$100 million. Although we are not averse to larger exits, and have seen them in our portfolio -- the fact is that exits below $100M are significantly more likely. Further, if the company’s capital needs are more moderate, less dilution means that early investors and founders will retain a higher percentage ownership. Our fund model and due diligence process are tailored to this mid-range exit scenario. By investing at the right valuation early on and helping our companies to be capital efficient, we enhance the potential for our portfolio companies to achieve compelling returns for everyone, oftentimes with an exit that ensures the impact can live on. And although no one has yet become a billionaire, the founders we back have received millions of dollars in proceeds (oftentimes life changing amounts money) and they then have the ability to invest in other projects and companies serving their communities.

One of our current portfolio companies, KickUp, perfectly illustrates our strategy. Co-founded by two Philadelphia natives with backgrounds as former Teach for America corps members, KickUp aims to enhance professional development for educators — a crucial step in improving teacher retention nationwide. As of 2023, the company has grown to 35 team members, many of whom are local hires, thus benefiting the Philadelphia community and creating jobs. Their platform has positively impacted nearly 500,000 school staff across the country, with projections to surpass 150,000 active users by year-end. We’re proud to have invested in KickUp early on and remain actively involved as a board member, supporting their growth and financing strategies.

Data report infographic posted on LinkedIn via Carta

Another Pennsylvania portfolio company, Honeycomb Credit, was founded by a sixth-generation community banker from outside of Pittsburgh. He co-founded the company to address his personal observation of the loss of community banks, and how this impacted small business lending. Honeycomb Credit provides a platform for local community members and funding organizations to invest in their favorite small businesses, connecting entrepreneurs directly with patrons. The company has seen significant success in Pittsburgh and is now replicating their model in Philadelphia. Currently, the city of Philadelphia alone represents more than 20% of the businesses on the platform’s offering page. Additionally, more than 80% of Honeycomb’s loans overall have gone to businesses in low to moderate income communities or are owned by woman- or BIPOC-identifying individuals. Since its inception, the company has facilitated the deployment of over $30 million to small business borrowers.

Recent data reveals a thrilling trend that aligns well with SustainVC’s investment strategy: when capital needs are more moderate, cities like Philadelphia can rise to the top. According to Carta, Philadelphia has ranked among the top 20 U.S. cities for companies securing investment rounds under $1 million over the past year! We are excited about the future for impact investing in Philadelphia, and more broadly across the state of Pennsylvania. With the right VC approach, it’s not just an opportunity for social good — it's a smart and sustainable strategy for strong financial returns.

Justin Desrosiers is passionate about using impact investing as a tool to benefit underserved Americans and has over 22 years of experience as a consultant, entrepreneur, and investor. Through his previous entrepreneurial experience, his time with Investors’ Circle, and the last 12 years working with SustainVC, Justin has developed expertise in evaluating business plans, vetting business models, conducting due diligence, and advising companies through exit. Justin has strong sector experience and interest in energy, sustainability, education, and health & wellness sectors, having supported and served on the boards of 12 portfolio companies. Justin has a BS and an MS degree from Tufts University and an MBA from Duke.

Kendall Bedford pursued a career in impact investing as a way to further her joint interest in sustainable business innovation and equal access to high-quality services for all. Prior to her time at SustainVC, Kendall was employed as a Project Manager at an early-stage project developer and environmental consultancy firm. During her time at business school, Kendall was selected as an Impact Capital Managers Mosaic Fellow, working with ClimateTech private equity fund for two summers. She originally joined SustainVC as an Impact Fellow whilst she was concurrently serving as co-president of the Wharton Impact Investing Partners. Kendall has received a BA from Princeton University in Ecology and Evolutionary Biology, and a dual-degree MES/MBA from The Wharton School at the University of Pennsylvania.