And it's not just private funds like Greenlite Labs and Aravaipa Ventures that have issues with enticing potential investors. Public impact funds appear to face the same headwinds when it comes to attracting capital.
Garvin Jabusch, who serves as chief investment officer at Green Alpha Advisors, managers of the Green Alpha Next Economy Index fund (GANEX), told the audience that investors in his fund's "innovative solutions" companies want to know: "Is this is a legitimate investment strategy or merely tree-huggery?"
Jabusch said his firm seeks out green and cleantech companies in every sector and every industry that offer the most cutting-edge solutions to society's biggest problems, such as global warming, population growth and resource constraints. "Innovation is where wealth and value are always created in this world and always have been, ever since we went from the water wheel to the steam engine," he said.
Problem Solving and Partnerships
Despite the misperceptions that impact funds have to battle, there are opportunities. Potential investors at the showcase heard about some cutting edge funds that are trying to address a number of local and global issues.
Jim Ott, formerly an executive in corporate agriculture, is now at the forefront of coordinating farmers, processors, distributors and retailers to promote local agricultural enterprises to keep healthy food affordable and available for consumers. Ott manages the Localization Partners Enterprise Fund, which is trying to shift the amount of local food that is produced and consumed in Colorado from 2% to 25% by 2020 through raising capital for infrastructure, operations and education to support local food and farming businesses. The goal is to raise $5 million by issuing two-year secured notes that will return 3% interest. The investment minimum is $25,000.
Growing world populations, escalating oil prices, increasingly industrialized food systems and declining numbers of farmers all pose significant risks to local food security. Building local food systems can address these problems while increasing prosperity for the surrounding community. "The economic impact of localization can be a significant tax contributor," Ott said.
According to Ott, the primary difficulty in raising capital is that the fund relies mostly on "word-of-mouth effort," which limits the number of people the fund can contact. Once potential investors hear about the fund, though, many do choose to participate. "The social impact of food security, health and sustainability resonates with most people who are aware of the opportunity," he said.
The top concern for investors in the CHINA-US Cleantech Fund is protection of the intellectual property held by the portfolio companies. The fund is addressing this issue by partnering with the Chinese government. As an investor in the fund, the government will have an incentive to help guard the intellectual property against theft or infringement.
The fund will try to identify the best of U.S. innovation to tap into the trillion-dollar Chinese energy and environment market. The synergies are quite compelling. While the U.S. is still the global leader in innovation, China has the largest demand for cleantech.
The goal is not to get U.S. companies to outsource their manufacturing to China, but to bring U.S. innovation and expertise to Chinese cleantech companies through strategic partnerships. The fund is seeking to raise $50 million, up to half of which will come from China-government sources. The fund is targeting 15% returns. The minimum investment is $500,000.