October 17, 2007

Green Angels: Venture and Private Equity Capitalists Help Sprout a New Generation of Environmentally Friendly Companies
    by Anne Moore Odell

Private investors and high-net worth individuals are making a different--in hopes of making a profit--by actively recruiting start-up and middle-sized companies dedicated to the environment and society.

SocialFunds.com -- Venture capitalists come in all shapes and sizes, pumping private capital into start-up companies with the hope that the companies will make it big. However, there is a new and growing group of venture capitalists who also hope that the new and middle-sized companies in which they invest will be not just profitable, but also sustainable. "Green angels," these socially and environmentally forward-thinking investors are sometimes christened.

These investors see real room for growth in the green and sustainable businesses arena due to, in part, a growing population, higher energy costs, climate change and an aging infrastructure. Meanwhile, technological improvements are narrowing the gap between traditional and green solutions with regard to price and quality. Rising public awareness is also accelerating interest in alternative energy and sustainable business practices.

Investors' Circle, with offices in Brookline, MA, and San Francisco, CA, was founded in 1992 to help individual investors, foundations and venture capitalists to pool their money and invest in sustainable businesses. Over $115 million in 183 plus companies has been invested to date, with more investments pending by Investors' Circle's members.

"We started as a likeminded group of high-net worth individuals looking to invest in the next Ben and Jerry's and the Body Shop," said Woody Tasch, Investors' Circle's chairman. "Fifteen years ago, the terms 'double and triple bottom lines' were not being used, but we were earlier adopters, looking to be part of the social investment movement."

Investors' Circle was one of the early supporters of TerraCycle, a Trenton, NJ-based company started in 2001 that packages worm droppings in soda bottles as plant food. TerraCycle has a 2007 sale's goal of over $5 million.

"I owe endless gratitude to Investor's Circle," said Tom Szaky, CEO of TerraCycle. "Without their programs and investors my young company may not have survived. They are probably the only investor group that focuses entirely on environmental and socially beneficial companies. They realize that there is much more to a company then a bottom line and a profit margin."

Although the most recent return data from Investors' Circle is from 2002, the numbers are encouraging. As of five years ago, the group had over $72 million in 110 deals with a return rate of between 5-14%. Besides, TerraCycle, Investors' Circle points to the successful companies "Organic to Go" and "Virgin Money" that were financed, in part, by early investments by Investors' Circle members.

Investors' Circle members invest between $10,000 and $5 million in early stage for profit businesses. Investors' Circle is open to new members and also accepts applications from new green businesses. Members can view dozens of new companies a month that have passed an initial screening process.

Companies working toward a sustainable future that have passed a much more through screening are invited to present at the Investors' Circle Conference and Venture Fair. This twice yearly event, one fall conference on the East Coast and a spring conference on the West Coast, attracts over 210 of Investors' Circle members interested in the environment and social issues. One day of the Conference is dedicated to education with panels on organics, alternative energy, and other subjects of interest to socially responsible investors. On the second day, businesses present themselves to potential investors.

Green companies that have moved beyond the start-up stage also have drawn the interest of private capital. Environmental Capital Partners (ECP) and the New York Private Bank & Trust announced at the end of September they have $100 million to invest in middle-market green companies.

"There are many funds devoted to venture investing within the green industry," Christopher Staudt, Principal at ECP. "We saw a void in the middle-market with few, if any, firms devoted exclusively to investing in established environmental companies. Generalist funds are a source of competition, but our industry experience and contacts give us an advantage in sourcing, evaluating, and adding-value to portfolio companies."

ECP's diverse team brings with it a range of first-hand academic, non-profit and commercial experience with regards to environmental issues including: Dr. Stephen Kellert, Partner, a senior professor at Yale University's School of Forestry and Environmental Studies; William Staudt, Managing Partner, board member of a leading middle market engineering and consulting/remediation firm; and Michael Richter, Partner, board member of Riverkeeper.

Although ECP is an environmental firm committed to the values of sustainability, Staudt told SocialFunds.com, "we are first and foremost a for profit entity and our investment decisions all rigorously tested against traditional private equity financial standards." ECP looks for growth equity in companies or buy out transactions with target equity check per transaction of $10-$25 million, with capacity to lead larger deals.

All venture capitalists are, by definition, forward looking people. However, green venture investors are forward thinking with a vision of a sustainable future as an achievable goal.

As Investors' Circle Chairman Tasch told SocialFunds.com: "What we are really talking about is the evolution of capitalism, a more mature capitalism that takes into account biodiversity and place. One of the most important things our species has done is invent capital, and now the question is, can we invent what comes next? It has to be businesses helping drive these changes. Governments alone are not enough to solve the issues."