VertueLab Climate Impact Fund
Frequently Asked Questions
What kind of fund is it?
The VertueLab Climate Impact Fund is an impact investing fund. Impact investing spans a spectrum of investment activities that seek impact alongside financial returns. “Finance-first” investments seek market-rate financial returns that also result in impact, while “Impact-first” investments seek impact that might also result in financial returns. Between those ends of the impact investing spectrum are investments that are expected to deliver concessionary returns that are below market rate.
The VertueLab Climate Impact Fund is an “impact-first” fund that seeks climate impact as its primary goal with financial return as a secondary consideration. Investment capital for the Fund is sourced from philanthropic sources. VertueLab makes impact investments in startups for impact alongside financial return. Any financial returns from the fund are intended to support further charitable activity.
The fund invests in early-stage ventures and provides support programs to help them make the progress needed to gain investment from “finance-first” or “finance-only” investors at later stages of development. The Fund seeks investments that have the characteristics needed to attract the follow-on capital that will bring new innovations to the market.
What kind of investments does the Fund make?
All investments by the fund must meet our charitable program-related investing guidelines, and all company prospects are evaluated based on these criteria for the innovations:
strong potential to stop and reverse climate disruption
good likelihood of attracting follow-on funding from others
strong potential to achieve commercial success
products have potential for widespread adoption resulting in scalable climate impact
The Fund fills capital gaps that can occur at different points in the early-stage development of new cleantech ventures. Our investments typically fall into one of the following categories:
an investment to spin out a new company from a research institution or university
an investment that leverages federal grant funding (e.g. providing match funding)
an investment in validation to eliminate the technology risk associated with a new innovation
a seed-stage investment as the first investor after friends, family and founders
an investment designed to catalyze investments by other investors
a bridge loan designed to provide funding in anticipation of a future investment round
What type of technology does the Fund focus on?
The Fund focuses on technologies that can do one or more of the following:
reduce greenhouse gas emissions
reduce utilization of fossil fuels
displace carbon-intensive products or processes
capture and sequester atmospheric carbon
convert carbon into useful products or sustainable materials
enable adaptation to climate change effects on our communities
Does the Fund focus on particular industries?
We focus on the key drivers of climate disruption. Those drivers exist in many industries but are primarily concentrated in these industry sectors:
energy and transportation
construction and agriculture
heavy industries and industrial processes
Where does VertueLab find the new innovations?
VertueLab sources innovation through a variety of channels. We have a well-established network of relationships with regional and national innovation and entrepreneurship organizations. These organizations are a source of investment prospects for the Fund. These pipeline sources in the Northwest Region include:
business incubators, accelerators and entrepreneur support organizations
Another source of investment prospects for the Fund emanate from VertueLab’s Expert Support Services Program. One element of that program is the Cascadia CleanTech Accelerator which is operated by VertueLab in collaboration with the CleanTech Alliance. It offers business planning assistance and prize funding to new ventures focused on cleantech innovations. It draws a cohort of new ventures into the Fund pipeline annually. VertueLab also delivers a program element with support from the US Small Business Administration designed to assist small businesses in writing research & development grant proposals to seek funding from the federal grant programs. The outreach conducted by VertueLab related to the Expert Support Services Program attracts early-stage ventures that may be prospects for the Fund.
Moreover, because of VertueLab’s continual outreach, long history of operation, and our annual event, the VertueLab Impact Summit, we maintain a substantial media presence. Articles featuring VertueLab or our portfolio companies have appeared in national publications including Forbes, Bloomberg, The Wall Street Journal, Popular Mechanics, Business Week, Xconomy, Photonics Magazine, The American Society of Mechanical Engineering, Green Building Advisor, and Cleantechnica as well as regional publications including The Oregonian, Seattle Times, Portland Business Journal, and Seattle Business Journal.
What is VertueLab’s investment process?
VertueLab uses an investment selection process that builds on our learning from many years of funding and supporting early-stage cleantech innovators.
How is the Fund governed?
The governance of the Fund includes multiple elements to ensure compliance with all relevant legal requirements, ensure operation of the Fund in alignment with VertueLab’s charitable mission, and ensure that prudent investments that further the mission of VertueLab are made by the Fund.
An investment policy that governs the Fund is established by the VertueLab board of directors. Investment decisions are made by an investment committee that is appointed and chaired by the President and Executive Director of VertueLab. The investment committee will determine limits on investment size and reserves for follow-on investing. The VertueLab Director of Impact Investments is responsible for performing due diligence on investment prospects, making investment recommendations to the investment committee, preparing transaction documentation for execution by the VertueLab President and Executive Director, and appointing investee board members or board observers where appropriate.
How does the Fund structure its impact investments?
VertueLab invests to fill critical capital gaps for early-stage ventures developing climate solutions. All investments must meet a program-related investment eligibility test as prescribed by VertueLab’s impact investment policy. We use straightforward standardized investment vehicles designed to minimize legal costs associated with individual transactions and to encourage investment from follow-on investors. Investment transactions are primarily equity or equity-like transactions such as convertible notes.
How are the impact investments managed?
VertueLab exercises expenditure responsibility to ensure that invested funds are used for appropriate purposes to advance the investee’s business plan and in accordance with any contingencies established in the investment documents. VertueLab typically obtains rights associated with its investment to appoint a member of the board of directors or a board observer. We require annual reporting from investees on key metrics.
How is the impact of the investments measured?
As part of the investment transaction process, VertueLab establishes a set of impact metrics that will be measured for a period of ten years after the date of the transaction. Investees are expected to report on these metrics annually. For each investee, metrics are established for impact measurement. These metrics are designed to enable VertueLab to translate business metrics such as product units sold into impact measures such as tons of greenhouse gas reductions, waste reduction, and water conservation. In addition, standard metrics for all ventures include measures of progress (follow-on funding, jobs created, and revenue) and social impact (gender and racial diversity).
Isn’t investing in early stage technology risky?
Undoubtedly, yes. Investing in any early-stage technology company is risky. Given the fact that cleantech products are typically based on scientific and hardware (vs. software) innovations, they have an added measure of risk. Worse still, many of the ventures that VertueLab supports have technical, scientific, or inexperienced management teams without the extensive business experience that mitigates risk. The risk associated with these innovations is a key reason why private investors shy away from some cleantech ventures and why there is a need for philanthropic capital to fill the gap. VertueLab utilizes rigorous processes to select its investments to offset this risk. We also deliver wrap-around support services through our Expert Support Services Program to assist management teams. Our active management of investments is also intended to mitigate investment risk.
Despite attempts to offset and manage risk, many early-stage ventures will fail. Based on VertueLab’s experience and the typical results of early stage venture funds, there is an expectation that some ventures will fail, and others will under-perform expectations. Most of the commercial success and impact on climate change from the Fund is likely to be concentrated in the proportion of ventures that receive follow-on investments from others and ultimately achieve widespread adoption of their products. While venture failures are disappointing, they result in building the experience of the entrepreneurs involved and help position them for success in subsequent ventures. This builds the entrepreneurial capacity of the overall ecosystem.
What happens to the financial returns from investments?
Financial returns to VertueLab, if any, from the Fund resulting from funds donated or granted to VertueLab will be reinvested in the organization to allow VertueLab to broaden its impact in the future. Foundations also have an option to receive returns alongside VertueLab through their own program-related investing in the Fund. Contact VertueLab to learn more about that option.
What are the qualifications of VertueLab in managing the Fund?
VertueLab began operations in 2008 with a mission to address environmental challenges through technology innovation. We operated a research grant program that provided grant funding to 46 university researchers focused on cleantech innovation in an aggregate amount of $5.4M. We added a technology commercialization program in 2011 focused on the startup companies that are working to bring new cleantech innovations to market. As part of that program, VertueLab provided funding to 51 companies in an aggregate amount of $6.9M through 2018. Of that total, $3.6M was disbursed in the form of program-related investments while the remainder was disbursed in the form of grants.
For more information, contact Ken Vaughn, Director of Impact Investments at VertueLab.