https://innovateuk.blog.gov.uk/2015/12/07/what-a-green-venture-capitalist-looks-for-in-its-investments/

What a green Venture Capitalist looks for in its investments

The Environmental Technologies Fund is UK-based, privately owned venture capital fund. Independent - and focussed on investing in the UK and across mainland Europe, our money mostly comes from large financial institutions, but also from some wealthy families. A small proportion comes from some leading global corporations who are interested in industrial innovation. This gives us a great (and importantly broad) base.

Three is the magic number

Fundamentally, we are focussed on three things. Firstly on finding great companies and in helping them to grow. Secondly to deliver the best possible financial returns to our investors and thirdly to deliver positive environmental impact. All three things are important. We don’t see a compromise between them. We make money from backing the right companies which make an impact without compromising profit.

Europe USA

From Europe to Silicon Valley

I have been working in venture capital since 1985, when I joined 3i.  During my time there I helped to establish the venture capital practice, initially across Europe and then into Silicon Valley in the late 90s during the dotcom boom. In 2006, I returned from Silicon Valley to London determined to apply the good practices I had learnt in a large professional firm in my own business. I also wanted to focus on a theme where Europe had a real advantage. With Europe clearly ahead of the game as far as the environmental agenda was concerned, the choice was easy.

Environmental Technologies Fund

When we started the Environmental Technologies Fund in 2006/2007, it was the right time and Europe was already the right place. Partnering with my colleague Peter Horsburgh (a long time environmentalist with a significant career in investment banking) meant we were able to bring a broader perspective and a lot of experience into this new emerging investment theme. We were successful in raising our initial fund from large financial institutions on the simple premise that this was an emergent sector where Europe has a durable lead.  We (and the institutions funding us) recognised that there were nuances and differences compared with traditional venture capital and our long experience across multiple technology sectors was a distinct advantage.

Growth

Our ‘ideal companies’

In terms of the types of companies we are looking to invest in, we’ve moved on from the generic ‘Resource Efficiency’ label we used in our early days. Today we break this down into three broad areas. One of these is green IT, these are IT companies that can deliver environmental benefits. The second area is materials – particularly those developing renewable or less resource intensive materials and the third area is Industrial Innovation – a broad church that includes themes such as additive manufacturing – or 3D printing as it’s commonly known.  In all cases, we’re focussed on supporting business-related innovations as opposed to consumer-related innovations.

Looking for those businesses looking to expand

While Innovate UK’s support runs from the extremely risky waters of pre-start-ups right through to established, Tier 1 multinationals, our new fund is only focussed on companies that have already achieved some commercial revenue and are looking to expand. We don’t impose a minimum revenue limit (we take a broader view, looking at market size, maturity and how well placed the company is to exploit that market) but we do like to see customers to be paying for commercial products, rather than trials for instance. In practice, this means that the companies we speak to have revenues in the range of £1m to £20m.

£2m to £10m

In terms of our investment, we are happy to invest from £2m up to £10m over the life of our involvement in a company and we would invariably own a minority of the company. We are always actively involved on the boards, where we feel our experience can help create value. It is worth mentioning that we often pull in other investors alongside us when growth capital is required, but clearly the most attractive companies are those that use capital very effectively. Like all investors, we are very focussed on companies that we believe can grow very rapidly whilst remaining well managed and achieving good returns.

Introduction

Adding value through our involvement

What Innovate UK understands very well, but too many people often forget, is that the any capital brought to the table is just one part of the suite of resources needed to help companies to grow. The people we support typically tell us that at least as important is our experience, advice and mentoring, which really adds value. We have been in our business for a long time so we understand the challenges of growth - which are similar across a wide range of differing companies. In other words, we’ve usually ’seen the movie before’ and can be very constructive in helping people deal with their business challenges.

We can also bring in a lot of help from the network of people we know to help at different stages of a company’s growth cycle.  I’m not talking about lawyers, accountants and recruitment specialists, but helping with introductions to larger companies and customers. Almost every business we have invested in we have made introductions to potential customers. One of the secrets of our business is to be at the centre of an effective network. This is through our own contacts and those of the corporates we know pretty well.

In my next blog, I’ll be delving into the detail of the way we invest in companies.

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