It started about 15 months back by having an initial seed capital investment of $1 million from the Virgin Unite Canada Foundation and Vancouver’s Mindset Social Innovation Foundation.
Now the MaRS Catalyst Fund, which defines itself as a national impact venture fund, has achieved its first close with $3 million within the kitty. Indeed until that hurdle have been cleared – a target set by Virgin Unite that also helped fund the first operating costs – there’d happen to be no closing. The immediate goal would be to have a final close of $5 million.
Those proceeds – from a mixture of foundations and high-net-worth individuals – is going to be invested in early-stage Canadian firms that are motivated by a desire to tackle a social or environmental issue and also have the potential to generate strong profits. Quite simply, a “double bottom” line.
Early stage investing is either the seed capital round or even the Series A round. In the two cases the organization has some revenue meaning that it’s greater than a concept.
Selecting those investments would be the responsibility of Kathryn Wortsman, the fund’s investment director, who, pending an initial close, continues to be seeking out potential investment opportunities either in clean technology, or health or workplace educational employment.
“We are close on two,” said Wortsman, who noted this fund differs from others within the emphasis that it places on impact – the social good that’s expected to come from the investment that is over and above the financial return.
“We take our fund just a little further [on the impact side],” said Wortsman, who has spent about 2 decades within the investment capital and equity world, adding that the job includes two areas (impact and financial) that have been her separate interests and pursuits for several years.
“The opportunities [we are searching at] need to have a clear impact thesis in addition to a financial thesis,” said Wortsman, who works with two other people around the fund. “There has to be both. We screen for impact first and if the outcome isn’t there, we’re not thinking about the financial opportunity.”
But how about the missed financial opportunities? Wortsman replied the fund has a larger mandate. “This fund is supposed to show investors may use their money to create market returns making an impact. We’re focusing on scarce resources, health inefficiencies and high unemployment. We need all efforts, as governments alone can’t solve our social and climate problems,” she said. “We need for-profit businesses to resolve these problems.”
The other difference is that the impact investment which has been area of the public market investing – through SRI (social responsibility investing) and ESG (environmental, social and governance) investing – isn’t that well developed in the realm of private equity finance.
There are in least a few examples: Toronto-based InvesEco whose main focus is investing in expansion-stage companies in North America “that promote health insurance and sustainability within the food and agricultural sector;” and Vancouver-based Renewal Funds, which strives “to be a force toward positive social and environmental change, while delivering above market returns for the partners.”
The MaRS Impact Fund has a similar structure with other private equity finance funds: It features a 10-year term but contrary to the 2/20 norm charges a 2.5 per cent annual management fee along with a 20 percent carried interest.
bcritchley@nationalpost.com
