Can impact investing really make a difference while turning a profit?
In a Geektime exclusive, Jerusalem-based impact investing VC Terra Ventures Partners has announced that at least four of the startups from their Yokne’am incubator in the north of Israel have succeeded in raising $10 million in follow-on funding.
The companies named as having raised new capital are the pesticide management experts FieldIn; darknet researchers SixGill; wearables for the aging Kytera; and n-Join with their production intelligence solutions for industry. The exact amount and details of the funding have not been released yet but are expected to be rolled out in the near future.
Located outside of the Tel Aviv bubble, the Terra Lab incubator is home to 12 companies from Terra Ventures’ 19-member portfolio, with two more scheduled to join soon. While they could be described as early stage insofar as their age, six have already finished their incubation stage and received additional investments.
Terra Ventures was founded by partners Astorre Modena and Harold Wiener, two PhDs with a passion for technology who have taken a different route in their investment strategy, deciding to focus on companies that they see as serving a higher purpose.
Starting in 2007 when they raised their first fund with $25 million, the pair chose to direct their efforts to the field of impact investing, where they hoped to have a positive influence on the future of humanity as well as generate impressive profits for their investors.
Their investors are mostly family offices, small institutions, strategic corporate investors in cleantech and medical technology looking for innovations and high worth individuals, spread out across the world in the U.S., Europe, Latin America, and China.
Modena tells Geektime that they have been turning to Asia not only for investors but also for potential markets for their companies to find customers.
Saving money through negawatts
In the beginning, they focused their energy on cleantech hardware before branching out to other sectors with an impact factor, incorporating technologies for IoT, software, and Big Data among others. In their second fund in 2013 with $31 million, they began working with companies in the medical device field as well.
Wiener and Modena seem to care less about the kind of technologies that they invest in, being almost agnostic, and are far more concerned on how effective they can be at solving what they see as the most significant issues facing the world today.
“What we care is not about what kind of technology you are using but what is the bottom line for the people,” says Wiener.
Saving energy and cutting the pollution that is created to produce it has been one of their primary priorities, investing in companies like SolAround that is doing bifacial solar panels that can catch energy from both sides using reflection. They also have Linum Systems, which makes air conditioning out of hot water by converting thermal energy directly to mechanical energy.
One of their energy saving companies, Phoebus Energy, has already locked down significant sales with major global hotel chains like the Spanish NH Hotel Group. Its Hydra Balance technology cuts water heating needs in large commercial facilities like hotels and hospitals
Wiener tells Geektime that the most profitable way to save energy is through negawatts. This concept, which was developed by environmentalist and scientist Amory Lovins in 1985, describes the measurement of wattage saved through conservation or the smarter usage of energy, often through technological advances.
Modena notes that another direction they have taken for saving energy and resources has been investing in Big Data and IoT solutions for industrial clients. “I think there’s a big trend to really use Big Data and IoT to improve industrial, home, and commercial processes to significantly reduce the use of energy and materials,” he says. “There’s a lot of machine learning and AI coming into this processes,” such as in food production, pesticide management, and manufacturing. He adds, “Remember that these are not the most sophisticated industries in the world.”
Looking at industry, Modena says that they have missed out on much of the innovation from the past 20 years, indicating that they are due for a reboot to become more efficient. He believes that AI and machine learning, while already having made an entrance into computers, are yet to make their way into more conservative sectors.
“It’s not going to happen overnight,” he says, “But all the elements that are obvious in telecom and software will migrate to the less sophisticated arenas of industry.”
Modena says that their strong scientific backgrounds give them the ability to speak the same language both on business and technical matters to understand the issues, which helps in their connection with the entrepreneurs.
“Part of this is knowing how to differentiate between what should remain in academia versus what can be brought to a product,” he adds, noting how it allows them to be self reliant in parsing through for themselves what is solid technology, and avoid what is not.
“The heart of the work is to have a thousand different ideas and crazy Israeli guys every year and pick out the best three or four to invest in,” says Wiener, adding that, “Knowing how to say no ten times a day, every day, is an art.”
Frustrations of investing with a purpose
There is no question in their view that an investment that is good for the environment will also pay out well for their clients, believing that they have what Wiener says is a real “win-win” situation.
Finding these cross sections of where business sense meets good sense seems to be the driving force behind impact investing. It appears to bring serious people to the table who are motivated both to build monetarily successful companies and take on some of the most pressing challenges of the age.
Wiener is passionate about technology as a resource in that it can essentially be created from nothing, producing no pollution. He adds that even the energy needed to power computers and devices can be taken from the sun. It can change how you decide to do things dramatically, and you can see an ROI for this method of thinking in another way.
“There is a very frustrating side of our business in that we believe that we are doing the right thing by using technology to improve the quality of life for people in many different sectors,” he explains, expressing his deep felt feelings on the direction of the investment market as he sees it determining which kinds of projects it is putting its money behind. “On the other hand, you can see what is going on with investments in this world, [from the investors who invest in funds] and the money is going more towards nice-to-have things than to the projects that we work with. It is very frustrating that we see money going to the sectors that are more sexy and easy but much less important.”
He believes that investors should take a more thoughtful approach to the types of projects they support, and ask themselves hard questions like, do I want to invest in companies only to make money or can I take my money and do two things at the same time?
“Let’s use technology to improve the quality of life for many people so that the business will become very big and you will make a profit, but at the same time let us see what’s the impact,” he implores, telling Geektime that, “We want to tell people that it’s time to work in a more holistic way. In the end we all reach the same destination, three meters below the ground.”
“We want to make money like every other VC,” he reiterates, “But we wanted to do it in very specific fields. If we are successful, you will automatically influence the quality of life for billions of people, and the business will be very huge, so you’ll have an impact on both people and profit. We will never invest in something that only solves a problem for a small group of people.”
There’s no way around it: Impact investing is exciting and it just feels great to cover. Technology touches our lives in so many different ways, letting us be more efficient in work and play, reaching out to communicate across great distances or even to find parking faster.
Apps are fun and there are some truly useful and entertaining ones out there that enjoy their time in the sun, but I’m looking for the innovations that will have a real impact on the way that we live, helping us change course from inefficiencies and improve our quality of life.
Investments in these kinds of technologies might not be as sexy as say a $10,000 or more cell phone that can draw a $72 million Series A, or another kind of video app that lets you add filters, but they are fundamentally important for the future of humanity. Hopefully technology can pick up where our bad behavior has left us in our current predicament.
This is not to say that all investments should now be diverted towards cleantech. Fintech, cyber security, and even adtech among many others all play important roles and are deserving of our love.
What is required, however, is a shift away from the belief that impact investing is a form of charity. From the looks of Terra’s portfolio startups, they have a strong team that very well could turn out to be very profitable as well.
This is Modena and Wiener’s thesis. Now let them prove it.