Pass the organic quinoa, but hold the unsavoury investments.
A private equity firm committed to a socially responsible investment strategy is preparing to place new bets on organic food, green consumer products and environmental innovation.
Vancouver-based Renewal Funds Management Co. has raised $63-million for Renewal3, well ahead of its target of $50-million. The team at Renewal Funds is again on the lookout for early-stage growth companies. Renewal3 is the third fund launched by the private equity firm, which previously raised $35-million for Renewal2.
“We focus on areas in the investing world that are overlooked by traditional investors,” Renewal Funds chief executive officer Paul Richardson said in an interview. “There is an appetite for companies making a positive difference.”
Renewal Funds believes in ethical decision-making with sustainability in mind, embracing the triple bottom line of social, environmental and financial considerations. That means its portfolio doesn’t contain what the fund deems to be unsavoury investments. Firms that sell tobacco or manufacture weapons are shunned, for instance.
Socially responsible investing mutual funds tend to emphasize their negative screening when using ethical criteria to steer clear of certain areas, Mr. Richardson said. But he prefers to cast his fund’s role as positive screening – searching for private firms that contribute to a sustainable economy, as long as they have annual revenue of at least $1-million.
“More and more young people are really interested in doing things that are positive for the planet, as well as positive for themselves,” Mr. Richardson said.
Renewal2 has eight investments in its portfolio. Among them are stakes in San Francisco-based Alter Eco Americas PBC, an importer of fair trade products such as organic quinoa and chocolate; Seventh Generation Inc. of Vermont, which markets non-toxic cleaning supplies and household goods; and Vancouver-based Aquatic Informatics Inc., which develops water-management software and assesses environmental data.
Renewal3’s first investment is in Sweet Earth Natural Foods, a California-based vegetarian food manufacturer and wholesaler.
The co-founders of Renewal Funds are entrepreneur Joel Solomon and Rubbermaid heiress Carol Newell, a philanthropist determined to create a new investment vehicle with a social conscience. Backed mostly by Ms. Newell’s money starting in 1994, the inaugural $14-million venture capital fund had its share of hits and misses. But over all, the winners far outnumbered losers, and the experience has proven to be financially rewarding.
The initial pool formerly had a stake in Horizon Distributors. Horizon, Western Canada’s largest distributor of organic and natural food products, supplies stores in the West, such as Whole Foods Market and Planet Organic outlets. Renewal Funds invested in Horizon in 1998 and, through Renewal2, sold its remaining interest in 2011 at a substantial profit.
Mr. Solomon appeared on a panel during the recent Globe 2014 environmental business conference in Vancouver, where he described Renewal Funds as a boutique firm of entrepreneurs investing in entrepreneurs. “Investors are not just looking for high financial yields, but also superior environmental, social and governance-related performance and risk-adjusted returns,” according to the Globe 2014 program.
Royal Bank of Canada’s RBC Generator Fund has invested $1-million in Renewal3. Other investors include an array of foundations. Roughly half of Renewal3’s backers participated in the prior round of Renewal2’s financing in 2009-10.
Renewal Funds’ goal is to deploy “patient money” and reap in the neighbourhood of 15-per-cent average annual returns in the long run – investing in promising companies and then exiting years later at a profit. “We’ll make mistakes like everybody else. And with small companies, things go bump in the night,” Mr. Richardson said. “But we hope to supply capital, networking and support.”