Why Scaling an Impact Business Can Undo the Impact

What We Need to Grow, Episode 019: Scale Can Be the Antithesis of Impact. A Founder Talk conversation with Sam Hasty, Partner at Active Impact Investments. Cleaned for readability; the words are the speakers' own.

Caleb Pedosiuk: Sam, in VC land, making stuff happen. You've got an understanding, a finger on the pulse, working in the environment, seeing a lot of these projects, some of them ones you get behind, but seeing projects where people are looking to really make a difference in terms of what's actually happening in the real world. A lot of stuff lives in the pixels, on screen, a lot of stuff moves with finances and numbers. But it's really special when these real projects can move the needle, where they impact water or land. So I'd love it if you could take a moment to share a bit about yourself, introduce yourself and your company and what you're focused on.

Sam Hasty: Thanks Caleb. It's been a really weird path to the seat I sit in now. I haven't figured out how to say this super succinctly, but I'll do my best.

I actually started my career teaching seventh grade math. I taught in Memphis, Tennessee. I'm from New York City originally, but I did a teaching program and got placed in Memphis. In the process of teaching seventh and eighth grade math I was exposed to a lot of things I didn't expect to be true in the 21st century. New York has its share of poverty and inequality, but Memphis is on a totally different level of systemic oppression, institutional racism, things that are more alive and well in certain pockets of the US than in others.

While I was teaching, I started a nonprofit with a friend of mine to help low income kids launch businesses. It was really exciting work. We would actually invest dollars into these individuals, or rather give them resources, to build a vision they had for a product or service that was lacking in their community. Several years in we got data showing the average student who had been through our program was making a starting salary 15 percent higher than the median household income in their city, which was pretty compelling. We then got funding from some huge national foundations, from Steve Jobs' family office and from the Kresge Foundation.

Part of the reason was that this wasn't just about building a business over a 16 week period, which was the core program. We also had wraparound services focused on compounding the skills you get while building a business, skills our schools are not doing a good job of teaching and certainly not doing a good job of compounding as young people grow.

In the mid 2010s I started to believe that part of our political divide was driven by an opportunity gap between rural and urban areas. Poverty in Memphis is pretty severe, but if you go two and a half hours outside Memphis it's a different level of inequity. Memphis sits right at the corner of Mississippi, Tennessee and Arkansas, and those three states have their share of real economic challenges. So I started thinking about how we could bring a program that had had some success in urban areas into rural ones.

I got a Fulbright grant to research that in Poland. Poland is a super interesting place for this research for a bunch of reasons. I spent a year there, and as part of the Fulbright I got to go to startup competitions all around the continent, because my research was focused on economic development in rural areas. I got to see these really cool startups, and ten years ago Europe was ahead of the curve on what we now call impact investing. So when I saw a really cool startup I would send it to some of the family offices and foundations that supported my nonprofit. I'd say, hey, I don't know anything about this satellite company tracking methane emissions, but you care about this stuff, do you want to take a look? They started writing cheques into some of the startups I sent them, and I would write small angel cheques alongside them.

It was an irresponsible amount of money for me at the time. I was making 40,000 dollars a year writing 10,000 dollar angel cheques. It was the worst portfolio construction you could possibly imagine. But it was a really cool experience, and those reps were worth their weight in gold. When I came back stateside after the Fulbright, I had written cheques myself, I knew where some follow-on money was, and I had a little bit of experience assessing startups. Those are all pretty valuable for venture capital. So I got into venture capital, and I've now been doing it for eight years.

Caleb: That is so cool. It's funny, in an entrepreneurial chat I'm in, one of the questions that came up was, what's paradoxical about entrepreneurship that people don't realise. After thinking about it, my answer was that entrepreneurs are some of the best at problem solving, and yet some of the most important problems in the world are thought to be best solved by nonprofits.

It's not that I don't think nonprofits are capable of it, but in my limited experience, nonprofits often have a mentality of receiving donations and then stewarding that to the point where it's now all gone and we need more. Whereas an entrepreneur building something sustainably has these things regenerate, adding more value than they extract. So it's an interesting relationship. It's not that one is needed without the other. But it's special to see where you found the intersection of both, giving people the opportunity to take an idea, expand on it, coaching them to the point where they're presenting that idea, and that signal goes out and is met on the other side by resources and opportunity. A very special point in that Venn diagram, between those with the idea and the desire to solve the problem, yourself in the middle facilitating and encouraging, and then those on the other side with financial resources or relationships or the ability to open doors.

Sam: I really appreciate that sentiment. I don't want to go down too deep a rabbit hole, but I still wrestle with a thought I had while working on that nonprofit. I think it might be fair to say that scale can be the antithesis of impact.

Which sounds really unsettling to a lot of people, especially in a society where if something good is happening you need to multiply it. The more you do, the more significant the impact you make. But each step of scale takes you further away from the core of what you do, or at least it pulls you. You have to work hard to stay grounded and stay connected.

Seeing it on both sides, the nonprofit side of impact and the for-profit side, we heard it from foundations when we had the nonprofit. How do you get to 10x more students? How do you 10x your impact? And I don't know if that's the right question. It speaks to the point you're making about the goal of a nonprofit versus the goal of a for-profit entity, because often we would say our goal is to work ourselves out of a job. We want to work ourselves to the point where this isn't a problem anymore. And the tricky thing is, we sort of feel the same way at the for-profit venture capital firm we invest out of today. Wouldn't it be great if we didn't have to worry about climate change anymore, because we're investing in technologies that address it.

So that's a thread you could pull on and go really deep, because it feels uncomfortable to a lot of people. But the more you scale, sometimes the harder it gets to stay connected to the reason you do the work in the first place.

Caleb: It's interesting to think about business, or initiatives, or projects, whatever labels we put on it, almost like an ecosystem. If we were to grade an oak tree by the same KPIs, quarter over quarter, as a sunflower that just bolts. The sunflowers in our yard, some of the stalks are huge by the end of the year, they can be ten or twelve feet in the air. Compare that growth to an oak tree, and yet over time the presence and power and raw potential of the oak, you cannot build a house out of the sunflower.

So whether it's a boardroom or leadership, to look at things and ask, is this a sunflower, is this an oak tree, is this clover, is this moss, what aspect of the ecosystem is this. And to have the self-awareness to understand how it fits, because failure to do that, even if we look at health in the body, an autoimmune disorder is literally cells behaving in a way they're not supposed to, or a tumour is unchecked growth. So growth is a metric. Tumours are winning, they're exceeding their numbers, but you realise it can be harmful in relation to the whole when it's out of context.

Sam: Yes. And you talked about paradoxes in entrepreneurship. It's such a powerful view that we hold in high regard at our firm: what paradoxes need to exist in an entrepreneur to find success in the work we do.

I've talked often about the Stockdale Paradox, which Jim Collins wrote about. In a sentence, it's that the highest performing business leaders are able to simultaneously never lose faith in the positive end outcome while acknowledging the harsh realities of their situation every single day.

To your point on tumour growth, so often we completely lose sight of the harsh realities, because many of us are optimistic by nature, especially in entrepreneurship. You absolutely have to have some form of belief in the end. But we can totally ignore unintended consequences on the impact side. And we can also ignore really legitimate hurdles. We need to be able to say, yes, I could try to scale this nonprofit 10x in terms of the number of students we serve, but there are going to be consequences and we need to be aware of what they mean. That might mean more mentors who aren't representative of the students we serve, which creates a real disconnect. Or it might mean lower program quality. If you've got one mentor for every three students and all of a sudden it's one for seven or eight, how you retain quality is a tricky thing a lot of people gloss over.

Caleb: With what you've seen with AI, the acceleration of things, having instant access to knowledge and processing if you set up the framework or the prompts properly, what are you seeing, and maybe excited about, as it relates to applying that resource to more of the small or mid-sized opportunities that previously wouldn't have been able to get to that first step?

Sam: It's incredibly exciting what's possible with exponentially increasing access to, maybe not just information, but the synthesis, the so-what of information, the outcomes of it.

Some of the areas most exciting from a personal perspective are things like new materials discovery, and new seed genomes that can be discovered exponentially more efficiently and at way lower cost than ten years ago, to make more resilient crops and allow us to feed more people with fewer input resources like water. Those things are really exciting, and I could talk about a dozen different startups we've spoken to or looked closely at doing really cool things on that front.

You mentioned energy, and energy is tricky, because AI is a power hungry beast. There are lots of people rightly talking about the efficiencies being created as a result of AI, and that's awesome. But we're still working hard to square the circle on how you get to net positive energy outcomes on AI, the way you would ask about nuclear fusion. It's one thing to say AI can do all this great stuff, but particularly on the energy side, how do we ensure that the outputs on the back end create more efficiency than it's consuming on the front end.

Caleb: Do you feel like there's a certain kind of opportunity right now, summer 2026? What has your attention, or do you have different tiers of opportunity that you sort things into?

Sam: I'm excited to talk about this, but I want to say first that it all comes back to people.

I had a conversation yesterday with a large institutional investor who invests in funds, and we were talking about capital heavy versus capital light businesses. It's fair to say climate technologies generally lean more capital intensive than capital light. When we're talking about alternative cement, that's capital intensive. Nuclear fusion, very capital intensive. Things that are paradigm shifters in terms of net emissions reductions usually require a lot of capital.

There's a misnomer that capital intensity is bad for early shareholders because you're going to get diluted over time. It's not that that's untrue, it's that it isn't inherently dilutive. You just need an operator who understands how to manage the cost of capital over time and become a bankable business, where you can get four, five, six percent debt as opposed to funding everything with equity.

So the long-winded way of saying it is that what matters to us most is the person. It sounds so obvious in venture, but there are people who are so well suited to run a capital intensive business and so poorly suited to run an AI software company that creates efficiencies. That doesn't mean we won't invest in either one. It just means you have to match the operator you're backing with what they are building. And all of those operators have to hold some of the paradoxes we've already discussed, because many of the best entrepreneurs have to hold two complex, seemingly mutually exclusive skills together. That's what we spend most of our time looking at. How do we find those people and how do we support them, as opposed to saying, okay, data centre efficiency is the future so I have to lock in on the most efficient way to cool a data centre, or crop genomics is the future so I have to find the best new seed genome out there.

With that said, there are areas we're still interested in. One of the companies we backed recently just signed a large agreement they were public about. It's called Rodatherm. They're the first waterless geothermal system.

The reason that matters is that some of the water patterns we're seeing are wild. If you dig into how aquifers are depleting in certain regions, how water availability is changing, and the number of cities that have zero water days on the horizon, the world is shifting. And this isn't a doomsday statement. I'm not saying we're going to run out of water. It's that where water is, is changing. In many situations we've gone from equilibrium to a bunch of places having too little water and a bunch of places having too much at a given time, as opposed to something 50 years ago that was a little more balanced. So systems that can support continued commercial growth while limiting your reliance on an increasingly variable resource like water are really exciting to us. And Rodatherm has created the first geothermal system in the world that requires no water.

Caleb: How do you come across some of these founders? And the other part of it, are you often piecing together teams? You might have a founder with the idea but you're looking for an operator. I'm curious, almost from a lead generation perspective, do you have a radar out there for, this person would be a great operator for a capital intensive business? I'm thinking of oil and gas, someone who's been rigging for 30 years, an ideal person who might be looking to pair with someone on the forefront of carbon markets.

Sam: It's so funny that you give that specific example. The CEO of this particular business has built and sold two fracking companies before building this geothermal business, and that's relevant for two reasons.

One, horizontal drilling is really hard. A lot goes wrong when you're drilling underground, so that experience has value if you're doing it the third time. But additionally, this goes back to the point about capital intensive versus non capital intensive. There are very few people we would have felt comfortable backing to run a business like this, because it's a first-of-a-kind system, and it's very hard to get a first-of-a-kind system bankable. You have a lot of de-risking that needs to happen.

The CEO of this business is a guy named Curtis Cook. Curtis is the kind of guy who wakes up in the middle of the night sweating, thinking about a cell in an Excel spreadsheet. The reason I give that example is that's someone who can truly think like a banker, and say, these are the risks, this is how I de-risk, not in a theoretical way but so far beyond a reasonable doubt that it satisfies very conservative institutions being asked to fork over 500 million or a billion dollars without significant proof of success and repeatability.

So it's really a mindset thing. We actually spend a lot of time internally talking about whether that mindset, for a business that requires a lot of capital, is something you can hire out, or whether it has to be true of the founder and CEO from the beginning. There are some traits in a business that just have to be true from the top from day one. There are others you can hire out. This specific trait, for businesses that are very capital intensive, I'm increasingly believing just needs to be true from the top from day one. Because we have other capital intensive businesses as well, and the highest performing ones have CEOs who are exactly the same way. They obsess over the cells in a spreadsheet and all the sensitivity analyses, as opposed to the average operator building something innovative, who is obsessing about the next tinker on the product, where to put the next widget to eke out two percent more efficiency. But that's not how you scale something, and as a venture firm we need exceptional scale to be successful.

Caleb: Where do you see your firm five years out? I know it's almost impossible to guess, but even just on the horizon. Is it the Canadian market specifically? Are you optimistic about a certain area? Is it industry related specifically to climate, across the board, globally?

Sam: Right now we've invested across several geographies. About 45 percent of our investments are in Canada, about 45 percent in the US, and a little less than 10 percent in Africa.

We're at a really interesting moment geopolitically. Even going back to when I was in Poland ten years ago, isolationism was rising. That was right when Trump's first term started. But you can see it across the world. There were lots of places increasing in their intent around sovereignty. And I think Canada is very well positioned in the world we are moving into. Mark Carney's middle power speech did a good job of articulating that.

Canada has exceptional access to affordable education. The quality of life here is very high. There's a strong economic base, and it has its problems, we could talk about the problems in the ecosystem up here, but broadly speaking it's a great place to start a business and a great place to access talent. Other middle powers around the world are interested in accessing Canada, both because of its relationship across North America and its immediate access to the US market, and because of the systems of support that exist to commercialize industries that are really important for the next hundred years. Metals extraction, for instance. We need an outrageous amount of copper to electrify all that we need to electrify, and there's a lot of strong mining expertise in Canada. Vancouver is home to the headquarters of more mining companies than anywhere in the world. So there's a confluence of factors that make us really bullish on building complex businesses in Canada.

Caleb: Recently in conversations with friends, one friend is a builder, and we were chatting about GDP right down to the household level. Driving through a small community, what is it that this community is doing that is generating value, so that trade exists outside of it? Because even to have the local hardware store in that small town, or the dollar store, materials that can still be really good quality for things that are needed, tarps and zip ties, these things that seem like staples, it would be odd to go into a small community and not have them. Yet what is being traded at the global level, when the domino hits or the butterfly effect of what you're doing is actually creating a value exchange? How is that traced all the way back? If you look at industry it's interesting to think about where the value is actually being created as opposed to just activity.

Sam: So you say that, and when I gave my intro I was talking about rural communities versus urban communities, and bringing the nonprofit we built in an urban area into rural areas.

Really practically speaking, think about how globalization has negatively impacted smaller areas. If you go to a small town four hours outside Toronto, or where I was living three hours outside of Memphis, forty years ago when you went and bought groceries you pretty much had to do that in your local community. Now you can buy groceries on Amazon. There's all this infrastructure we've built that allows dollars to flow out of these communities faster than they ever have, without the reciprocal flow getting back into the community. I think that has created a pretty deep structural challenge that a lot of places are wrestling with.

Interestingly, COVID threw a bit of a monkey wrench into that, because a bunch of people moved out of dense urban areas, at least temporarily, into areas that were a little more rural. But I'm going to be really curious to see, over the last couple of years as the world has normalized, how the flow of dollars continues to move, and what that means for opportunity differences between rural and urban, and for things like GDP growth in these areas outside of just monster cities that are overpriced and hard to live in.

Caleb: With things like real estate and land, I think of eggs as an interesting example. Very universal. Chickens are a universal thing and so is an egg. But an egg can only travel so far on its own. If you crack it open and whisk it and put it on a freeze dryer tray, and then powder it and put it in a sealed mylar bag with an oxygen absorber, it'll last 25 years and retain its nutrient value.

So in some respect I've wondered about decentralizing some aspect of food production at a smaller scale, which would create more of the fascia, the ligaments, the tendons that are needed. Quite often you see someone at the gym and all they're working is their bench press and their squat, and it's inevitable that if they're not doing more diverse activity there could be an injury coming, if it's only the major muscles. That cross training, that nuance.

I've really wondered, from an economic standpoint and with the readjusting of technology and socioeconomic, geopolitical and cultural shifts, whether there may be a renaissance of cottage industry. Where you see, whether it's boomers or the generation coming up after them, backyard activities, food cultivation, interacting with children, raising and educating and tutoring, whether there's more of a communal aspect of GDP, real value creation at the neighbourhood level.

In a way, if we think of an oscillating wave, we've oscillated in the industrial era to such a point that we've gone so far from intergenerational culture, the great grandparents, the grandparents, moving so far away, to being siloed out and very individualistic. If we're coming back to a point of finding some ground where, no, when Grandma shows up, or mom shows up, or the next door neighbour is over, it's not a handout of dropping something on the porch. It's that the elderly woman comes and sits with our daughters and does tea and teaches them, she's helping with the reading, she's helping with the handwriting, she's attending to the walks in the garden. That sort of thing is a very beautiful opportunity in the granular detail, and I think may be part of a positive aspect of the picture to come.

Sam: Yes, and even if it's not productive. Even if it's not increasing productivity or GDP, even if it's not helping someone's reading level. We are built for that type of connection.

I recently have a six month old daughter at home, and my wife and I just implemented a rule where at 6:30 we put our phones in a drawer. It's nothing innovative. And I'm shocked at how much more relaxed I've been in the last few weeks just from that. I feel so much more full and connected than I did two weeks ago. There are so many things pulling us toward maximal efficiency, maximal screen time, maximal dopamine. So I really think your point is strong and I'm curious to see how it shakes out in the years to come.

Caleb: One quick note. When you mentioned that, the thought that came to mind is mental health. If you look at depression, loneliness, the lack of connection, that tracks. If we're looking at GDP or productivity, where's the price for it? Because service in those areas, medical care, would constitute GDP in some respect. So the problem itself is somehow creating a demand, and in a way it moves the needle. But absent of that, if there's something else that actually helps, it's almost like a health food, almost like a missing nutrient in a metaphysical way.

I really appreciate the chat. It's amazing to see people who are part of the catalyst of making things happen. And Sam, I think it's beautiful to hear that early Fulbright background, then the nonprofit aspect, and now into the for-profit space. I feel like there's a beautiful symmetry to it. Thank you so much.

Sam: Thanks for saying that. I love the work you do, and I really appreciated this conversation. I enjoyed it a lot.