Software may be eating the world…but it can also change it for the better
A brief introduction – sorry it’s taken so long
For those of you who know us at Silversmith, you will agree we haven’t been first in line in terms of press and marketing. To be quite honest, we’ve probably been pretty close to the back of it, peering around the corner and wondering when the door was going to open. Part of that was our ethos – we want to talk about our companies and entrepreneurs and not ourselves. Part of that was just common sense – we wanted to have something to talk about before we…started talking, as we agree with Lincoln that, “it’s better to remain silent and be thought a fool, than to speak and remove all doubt.” That said, we recently concluded we can hopefully do both. To share our thoughts in general, and specific to new investments, while hopefully having Lincoln in our ear to not take ourselves too seriously. It is in that spirit we are excited to share our first Silversmith New Investment Spotlight on our recent partnership with what we think is an incredible company, Higg. As we will (briefly) walk through below, the company sits in between two meta trends in which we believe deeply:
1. the power of data to enable vastly improved decision-making
2. the private (technology) market stepping into the breach to help solve problems that were historically the purview of government institutions
While we are admittedly biased, we believe that CEO Jason Kibbey, and the talented team at Higg, have the chance to leverage these two trends to make massive, positive change.
The power of data to drive change – you have to know what before you get to how
The world is burning. We won’t belabor the endless list of current, seemingly daily, examples of climate change driving this point home. Luckily, we’ve begun to see the global consumer products market, most notably the apparel industry, embrace sustainability as a way to play a role in bending this dangerous curve. Part of this increased Environmental, Social, and Governance (ESG) focus is a result of the push of regulatory pressure. In Europe, for example, the EU is proposing a Digital Product Passport that will provide consumers information on the sustainability of their goods1 – akin to an environmental nutrition label for your clothes. While regulations are still evolving, companies have realized that it is not a matter of if, but when, regulations will be enacted. Additionally, we have observed the pull that is driving companies to start ESG initiatives. Consumers are seeking more product-level transparency about the environmental and human impacts of the goods they purchase. As Millennials and GenZ gain more buying power, we expect consumer demand for ESG transparency and ethical sourcing and production to increase further.
Obviously, in order to build these kinds of eco-labels, constituents need to somehow access – and make usable – an enormous collection of messy, often-unstructured variables. Enter Higg. The Company enables customers to measure, and then importantly improve, their environmental and social footprint via its SaaS platform to categorize, quantify and analyze every input in a company’s supply and value chain. Higg provides access to multiple environmental and social impact assessments and tools; they are the exclusive licensee of the Higg Index, the most widely used ESG measurement framework in the apparel and footwear industry today.² Higg also offers a measurable carbon management program for manufacturing facilities through their partnership with Aii (Apparel Impact Institute).
Through its measurement and analytics offerings, the Company provides its constituents with a simple, yet powerful, signal to help quantify both the magnitude and trendline of their environmental and social impact. And given its collaborative, contributory data model, customers not only receive their own performance scores, but equally importantly can benchmark these results against industry norms as a foundation for continued improvement and change. The result is a virtuous cycle, driving improved results in the underlying value chain, and moving production from the worst to the best partners and suppliers. The Chinese proverb says that a journey of a thousand miles begins with one step. Higg powers those willing participants in that journey, leveraging data to help them navigate our increasingly complex world, taking that first step towards sustained, impactful change.
Private sector to the rescue
Winston Churchill once said about capitalism as an economic system, like democracy as a political one, “it’s the worst one…except for all others.” While the private market continues to receive well-deserved criticism for the excesses of its bad actors, at Silversmith we believe, and believe deeply, that entrepreneurs are much more likely to play a role solving the world’s most intractable problems than they are creating them. We believe this not only because we side with Churchill, that the private market’s incentive system is vital to driving innovation, but also because not being fatalists, we somewhat have to.
In the above graph which plots US employment by sector, we see the dramatic effect the 2008/09 housing recession had on the US labor market. But while both public and private went into freefall on similar slopes, the private sector rebounded much more quickly, erasing the loss of roughly eight million jobs over the two-year recession to add over twenty million to 2018. Public sector employment, however, did not begin to rebound until several years later and only reached 2008 levels recently. Said differently – there are essentially the same number of local, state and federal employees in the US as there were fifteen years ago, despite the fact GDP has grown by 43%.³
Without venturing into the public square to debate whether this outcome is good or bad, it’s safe to say that the political will for previously accepted levels of public investment simply doesn’t exist. And yet, the government’s responsibilities didn’t magically disappear when the headcount did. The public sector simply had to do more with less. At Silversmith we have spent considerable time thinking through this dynamic and its implications, and believe that the private sector in general, and entrepreneurial companies like Higg in particular, have the opportunity to jump into the breach and fill this gap. Jason Kibbey, Higg’s CEO, would argue they have the responsibility too.
The right team at the right time
Like most of the entrepreneurs we back, Jason wasn’t a hammer in search of a nail – he had deep, personal experience with the problem he chose to solve. While running a high-growth apparel company, he faced the challenge of trying to measure the sustainability impact of his products, eventually leading him to first, lead the development of the industry’s first universal measurement framework, the Higg Index, while CEO of the Sustainable Apparel Coalition, then ‘co-found technology company, Higg to tackle the problem of scaling solutions head on. Under his and his team’s leadership, the Higg platform today serves nearly 50,000 factories, and thousands of large and small brands and retailers, including Amazon, H&M, Walmart, Target, Calvin Klein, Allbirds, Keen, MATE the Label, and Williams Sonoma.⁴ Higg’s platform is unique in its full value chain perspective – customers can see the environmental and social impact for their entire operations, all the way down to an individual product level. Higg users can know what’s in a product, where it was made, and who made it. We see a future where Higg is collecting data for every consumer goods product in the world, allowing consumers to make purchase decisions based on not only the price, size, and color, but also the sustainability impact data available via on the Higg platform. Using data from Higg, the Sustainable Apparel Coalition (SAC) and Textile Exchange, the WRI reported that the apparel sector emitted an estimated 1.025 gigatonnes (Gt) of carbon dioxide equivalent (CO2e) in 2019, or roughly 2% of annual global greenhouse gas emissions. Using Higg’s customer-driven data insights, the apparel industry has the potential to significantly reduce their environmental and social impact – with other huge swaths of the economy following suit in the future.
We are thrilled to have led Higg’s $50.0 million Series B investment, along with our new friends at Galvanize Climate Solutions and existing investor Titan Grove. We believe that Higg is an example that while software (and data) may be eating the world, it also has a chance to change it for the better.