Posts Tagged ‘impact investing’

Report: Sharing is the New Buying, Winning in the Collaborative Economy

March 4th, 2014

Impact Investing 3.0: Climbing the Slope of Enlightenment

December 11th, 2013

Impact IQ — Emerging technologies follow a path to market adoption so well worn that it is known simply as “the hype cycle.” A hot new product category reaches the “peak of inflated expectations” only to inevitably crash in the “trough of disillusionment.” After a reset, the survivors climb the “slope of enlightenment” to the “plateau of productivity.”

“Impact investing” is an emerging set of financial practices more than a new technology, but it has also suffered a backlash of disillusionment after exciting sky-high expectations. Where are the deals? There’s no track record of exits or returns. Social impact is too tough to measure. Impact investing is just dressed-up philanthropy. And so on.

But just as some early champions of impact investing have begun to feel fatigued by the challenge of adequately explaining its potential, new institutions and individual investors are stepping forward to adopt a range of impactful approaches.

At the risk of again inflating expectations, impact investing’s climb up the slope of enlightenment stands to catalyze hundreds of billions of dollars over the next decade for investments in smallholder agriculture and food security; access to basic services such as water, electricity and sanitation; small business and economic development in both developing countries and U.S. inner cities; businesses led by and serving women and girls; sustainable real assets such as timber, energy efficiency and wastewater treatment; and many other sectors.

As global population approaches nine billion, the emerging global middle class is creating unstoppable demand for food, water, energy, education, healthcare, financial services, housing and sanitation. Resource constraints and climate change demand disruptive innovation and radical efficiency.

That makes impact a signal for long-term outperformance. And makes impact investors pioneers in a new global economy.

Call it impact investing 3.0…

The growth of dedicated impact venture-capital or private equity funds won’t be enough. To really climb that slope of enlightenment, impact investing will have to attract the mass market of smaller “retail” investors and the “real money” of major pension funds, insurance companies and sovereign wealth funds. That shift has barely begun ­— but it has begun.

The frontier for impact investing, then, is to match different kinds of investors with the deals that give them the kind of returns they are looking for, in terms of upside opportunities, downside risks and social and environmental benefits. David Chen of Equilibrium Capital Partners suggests that represents an opportunity for the financial industry to rebuild its reputation through financial innovation aligned with environmental sustainability and economic inclusion.

Just as financiers in recent decades have learned to dissect and repackage risky assets — say, turning subprime mortgages into investment-grade instruments — so too can they dissect and repackage benefits, so that positive social and environmental impacts can be valued and priced and sold to investors with those expectations for their portfolios.

“When the economics are aligned, when the incentives are aligned, when the language is aligned,” Chen says, “the capital markets can react at a blindingly fast speed.”

Read the full story in Freshwater, the magazine of the Freshwater Trust.

Author’s note:

Impact industry insiders will notice that putting “3.0″ in the headline represents a rapid acceleration of the field, given that the impact investing industry’s leading trio of researchers last month released another excellent report ushering in the new era of impact investing, 2.0.

I’m not trying to incite an arms race, nor a debate on fine points of nomenclature. I have already saluted Cathy Clark, Ben Thornley and Jed Emerson for crisply laying out the successes and challenges of a dozen impact funds that are plowing the hard ground of actual practice in these early years. (See “Impact Investment Performance: Tiptoeing Toward Transparency.”)

There’s no disagreement: a new stage is coming — must come — when capital at scale flows to compelling investments in the sustainable and inclusive future. At that tipping point, nobody will care about the version number.

We all do care about the flow of capital. Impact IQ, and our sister site ImpactSpace.org is tracking that flow through the companies, the investors and the deals that are creating value in this emerging era. So I accepted eagerly when Joe Whitworth, Adrian McCarthy and their team at Freshwater Trust invited me to do a kind of year-end look-ahead for Freshwater, their fresh and appealing magazine.

The evolution of Freshwater Trust itself is a microcosm of the industry’s. Freshwater’s innovative water quality trading mechanism finances water-cooling stream restoration projects through “credits” bought by industrial users. (Full disclosure, Impact IQ and Freshwater share a board member, David Chen, co-founder and principal of Equilibrium Capital Partners in Portland, where Freshwater is also based.) In the coming year, Impact IQ will be tracking that kind of shift from philanthropic or government funding to commercial financing for conservation projects, a major Impact 3.0 trend.

The full issue of Freshwater is well worth reading, with an excellent feature by Julia Bond on high-tech solutions in water, deforestation and energy efficiency, and Brad Kahn’s good description of the Bullitt Foundation’s new “net zero” headquarters building in Seattle, which itself pioneered an innovative new kind of project financing (see “MEETS: Generating ‘Non-Energy’ to Drive Revenues from Efficiency.”)

Impact IQ provides original reporting and analysis for investors and entrepreneurs pursing social, environmental and financial returns. 

 

Stocking the Investment Pipeline in Sustainable Seafood

November 21st, 2013

Impact IQ – There’s now a good answer for impact investors who wonder where to look for deals in sustainable seafood and ocean preservation: Fish 2.0.

Last week’s two-day event to cap the year-long business competition showcased 20 finalists and semi-finalists with a wide range of seafood businesses from distribution and marketing systems to tracking and data technologies to aquaculture production schemes. The ventures varied in both social and environment impact and investment-readiness, but the many investors in attendance seemed to find at least some deals of interest.

“Awareness about sustainable seafood has increased and continues to rise,” said Mitchell Lench of Treetops Capital, a New York fund that invests in microfinance, green housing and small business development. “It was useful to see so many different types of sustainable seafood companies all in one place.”

The three winning ventures, which split $75,000 in prize money, typified the breadth of the entries. The winning company, Blue Sea Labs in San Francisco, operates a direct-to-consumer seafood e-commerce site and logistics service that helps fishermen gain higher profits by eliminating middlemen from the distribution chain. “It’s an area ripe for disruption and new technology,” said Martin Reed, Blue Sea’s CEO, who says the company’s logistics system saves 25 percent on shipping but, more importantly, reduces late delivery by 65 percent.

The runner-up was Cryoocyte, a Cambridge, Mass., startup that is developing a way to freeze fisheggs, a longstanding challenge. By freezing eggs when they are abundant, fish farms could produce at full capacity year-round, improving their own profits and productivity. The technology, if proven, would have a host of other applications as well, such as the creation of a genetic egg bank to preserve endangered species, helping fish farms to recover more quickly from floods and disease outbreaks, and enabling hatcheries to ship eggs further than they can currently send fingerlings.

In addition to the prize money, Cryoocyte found potential customers at Fish 2.0. “We met people here telling us they want to use our services because we can make their businesses better,” said Dmitry Kozachenok, the company’s CEO and recent graduate from Harvard Business School.

The third-place finisher, Ho’olulu Pacific, based in Oahu, Hawaii, is a local operation, with a network of 70 backyard aquaponic systems that provide fish and vegetables to native Hawaiians to improve their diets and boost their incomes. The $1,500 kits include everything needed for the systems, as well as a contract for the company’s representatives to collect the surplus for sale to grocery stores and restaurants.

The semi-finalists attracted attention as well. Each of the 10 contestants in the 90-second “fast pitch” competition received multiple votes from the audience. The result was a tie, between Smartfish, previously featured on Impact IQ, and Inland Shrimp Co.

“What was most inspiring for me was to see over 150 impact investors, technical experts, grant-makers, experienced business leaders, and emerging entrepreneurs share ideas for the future of seafood,” Monica Jain, the longtime sustainable seafood advocate who masterminded every aspect of Fish 2.0, wrote on National Geographic’s Ocean Views blog. “I expect that connections made last week will contribute to multiple new investments and business relationships in the sustainable seafood sector.”

Impact IQ provides original reporting and analysis for investors and entrepreneurs pursing social, environmental and financial returns. This article is part of Impact IQ’s series on Oceans and Sustainable Fisheries, in association with SOCAP, the annual Social Capital Markets conference in San Francisco.

Impact Fund Invests in Aquaculture to Preserve Oceans

November 15th, 2013

Within a few years, most of the fish we eat will be farmed, not caught.

That could be a boon for already over-stressed oceans. But the worldwide explosion of aquaculture since 1970 has left its own trail of environmental destruction, from toxic concentrations of waste, to outbreaks of disease, to the continued over-harvesting of smaller ocean fish for feeding their penned brethren.

A wave of aquaculture startups are trying to tackle those challenges with better technology and management. Aquaponic, or closed-loop, systems use fish waste to fertilize vegetables. Alternative sources of proteins, from insects to microbes, can substitute for fish meal. Farms are beginning to grow fish safely with fewer chemicals and antibiotics.

Aqua-Spark, a new fund launching this week, is likewise taking a different approach to financing such aquaculture ventures, with the aim of reducing environmental risks and boosting output to feed a protein-hungry world. Aquaculture now produces about 60 million tons of seafood, or 41 percent of global supply. The UN’s Food and Agriculture Organization estimates that at current rates of consumption, an additional 23 million tons of seafood will be needed by 2030.

“The only way to go up is farming,” says Mike Velings, the Dutch founder and managing director of Aqua-Spark. “If we don’t do it in a good way, the pressure on the oceans will only get bigger and bigger.”

Aqua-Spark, based in Utrecht, Netherlands, grew out of A-Spark Good Ventures, a broader investment company Velings founded after after building a successful human resources outsourcing firm. Also managing the new fund is his wife, Amy Novogratz, former director of the TED Prize, which is awarded at the well-known innovation conference. Socially responsible investing runs in Novogratz’s family; her sister is Jacqueline Novogratz, the head of Acumen, an early impact investment fund.

They are seeking to build a network of small- and medium-sized companies that meet sustainability criteria and can share technology, feed and distribution. Aqua-Spark is looking to make up to 10 investments per year of between 250,000 and 5 million euros ($336,000 to $6.7 million), in both developed and developing countries.

“The big issue is coordinating the efforts of all the organizations to orchestrate this rapid growth,” Novogratz says. “Right now, that’s not happening.”

Velings and Novogratz met in 2010 aboard the Mission Blue, a 10-day voyage to the Galapagos Islands organized by ocean advocate Sylvia Earle, a National Geographic explorer-in-residence and TED Prize winner, to build support for protecting sensitive marine areas. At the time, many conservationists were hostile to aquaculture because of well-documented problems with farmed salmon and other species.

“Everybody was very negative,” Novogratz recalls. “There’s been a huge switch in the past three years.”

To find its deals, Aqua-Spark has partnered with WorldFish, a Malaysia-based spinoff of the “green revolution” pioneer CGIAR (Consultative Group on International Agricultural Research), which gives commercial support to promising ventures. It also scouted for ventures at this week’s Fish 2.0 business plan competition at Stanford University, where Velings was a judge.

Aqua-Spark is structured specifically for the aquaculture industry, in which companies often require intensive capital investment to develop production and distribution capabilities. Typical venture funds aim to return capital to partners within seven to 10 years, via acquisitions, public offerings or follow-on financing of their portfolio companies. Aqua-Spark will be an evergreen, or open, fund that intends to stay involved with companies for the long term. Valuations will be determined every six months, letting new investors get in and old ones recoup their capital, after an initial lock-up period. Aqua-Spark expects to pay dividends after an initial investment period of five to seven years. The couple has committed 2.5 million euros ($3.36 million) of their own to cover management costs and will charge investors a management fee of 1 percent, lower than typical venture funds.

“It takes a long time to build. It’s risky,” Velings says. “But once you have built an aquaculture business, there are steady, quite high returns.”

Private investors are increasingly interested in other segments of the $390 billion global seafood market, and other investors have done individual aquaculture deals. Aquacopia, a $16 million venture capital fund, made five seed and Series A aquaculture investments through 2009 and is now looking for exits, says co-founder David Tze, now managing director at Oceanis Partners, which advises investors and entrepreneurs on aquaculture deals.

But Aqua-Spark is unique in seeking to build a network of companies and shape aquaculture’s future. Aqua-Spark’s first hurdle is lining up its own investors. To launch successfully, the fund is seeking a first closing of 15 million euros ($20.3 million) from high-net-worth individuals, family offices and foundations drawn to the funds social and environmental benefits. Over the next decade, Velings and Novogratz hope to place as much as 200 million euros ($270 million),  which will require the participation of more mainstream investors.

“Everybody realizes you have to do it in a sustainable way or the seafood business will end,” Velings says. “There’s still a big battle to be fought.”

(Notes: Impact IQ provides original reporting and analysis for investors and entrepreneurs pursing social, environmental and financial returns. A version of this story first appeared on Bloomberg.com under the headline, “New Fund Lets Investors Fish for Returns in Farmed Seafood.”

This article is part of Impact IQ’s series on Oceans and Sustainable Fisheries, in association with SOCAP, the annual Social Capital Markets conference in San Francisco.

Photo: Fish farmers at a hatchery in Gazipur, Bangladesh. Photo by Finn Thilsted, 2012, via WorldFish.)

Penelope Douglas’ Interview with BSR

November 1st, 2013

 

Penelope Douglas, the board chair of SOCAP (and Impact Hub Bay Area) is speaking at this year’s BSR Conference in the session “Maximizing Investments for Social Impact: Lessons from Leaders,” Penelope spoke with BSR about about how companies can harness their networks to achieve both social and business impact.

Read the interview.

Learn more about the BSR Conference.