Why not-for-profits can be better than VC investment

VC can’t offer everything climate tech startups need, says Amali de Alwis — and some founders should even consider running their companies as not-for-profits. De Alwis runs Subak, a not-for-profit offering funding to climate startups, as well as funding research positions. Before taking the reins, she was managing director of Microsoft for Startups UK and former CEO of Code First: Girls. 

This interview originally ran in our Climate Tech newsletter — sign up here.

What’s the VC world lacking when it comes to climate tech?

“Not all problems which we need to address to solve the climate crisis are going to have a return in a five-year, traditional VC model,” says de Alwis.

“VC can’t be everything. We’re trying to solve climate change, we’re not trying to make a profit. And I’m not saying that the two need to be mutually exclusive, but they won’t always be mutually inclusive.”

It’s particularly an issue for capital-intensive deeptech climate solutions, she adds. “When you’re talking about things like carbon capture or carbon sequestration, it’s not a 10x return in five years.”

The timeline VCs work to means we’re discounting solutions that could be great climate mitigation or adaptation tools just because they don’t fit into fund return schedules, de Alwis says.

Aside from VC, what are the other options?

De Alwis ran her company, Code First: Girls, a coding school for women and girls, as a not-for-profit. It’s a structure she thinks could fit some companies in the climate tech world too.

“Not-for-profits do not necessarily equal charities. What we’re talking about is companies which are building income in other ways and raising revenue in other ways,” she says. They typically raise from donors or grants, rather than investors that they need to provide a return to.

The structure gave de Alwis’s startup an edge, she says. “If we went to a commercial client with a like-for-like offer, offering a quality product at a competitive price, we often had the upper hand, as we not only offered a commercially competitive product but our revenue from that work was also going to a great social mission.”

In the UK, companies can be Community Interest Companies, or CICs, a type of limited company that exists to benefit the company rather than private shareholders. “I think CICs are a great construct,” says de Alwis. “It’s about saying that you have a mission.”

How does Subak work?

More and more grant structures are popping up in the climate space, de Alwis says. “It’s still not as big as the equity space but the money is a little bit more secure and grant-givers don’t need to get a return.”

Subak was set up nine months ago and gives out grants to not-for-profit startups focused on climate solutions, as well as funding research positions. It’s already given out £1.3m, which it raised from private philanthropy. It’s particularly focused on funding climate solutions coming out of the global south or parts of the world that receive less funding.

Freya Pratty is a reporter at Sifted. She tweets from @FPratty and writes our Climate Tech newsletter — you can sign up here.