Anil Narasimha, the CEO of our portfolio company Mekonos, has done an interview with Dan Gonzales and Earl Valencia on the Startup Mindsets podcast, discussing entrepreneurship in the biology space – click here to listen: https://anchor.fm/startupmindsets/episodes/Biology-and-Entrepreneurship-with-Anil–CEO-of-Mekonos-enmh1c
Our portfolio company Mekonos has formally closed its US$4.6mil capital raise, led by Novartis with participation from a number of US institutional VC Funds as well as Matū Fund. The capital will allow Mekonos to accelerate the development of System-on-Chip ex vivo gene engineering, with a clear path to market.
Read more here: https://www.prnewswire.com/news-releases/mekonos-raises-4-6m-for-its-gene-engineering-platform-301179095.html
This article is written by Iraoho-Intern Kiri Lenagh-Glue.
A $1 trillion industry is nothing to dismiss out of hand. Growing from an estimated $114 billion in 2018 to $502 billion valuation in 2019, the global impact investing sector is projected to reach the trillion-dollar value in 2020.1 Within New Zealand itself, impact investing grew from $358 million in 2018 to $4.7 billion in 2019, around 1.6% of New Zealand’s assets under management.2 This comes as little surprise, as there has been a surge in the global adoption of environmental, social and governance (ESG) criteria across sectors with regards to strategies, products, and funds. However, as the popularity of these funds grow, concerns have been raised about the efficacy and overall tangible impact of impact investing, as opposed to other methods to drive social and environmental change.
Fundamentally, impact investing rests on a set of assumptions that need to be satisfied in order for it to be deemed effective, as outlined in an extensive report by Hillebrant and Halstead on merits and challenges around impact investing.3
Firstly, an investor must identify a company with enterprise impact. While you would be hard pressed to find a company with an apparent ESG impact focus which shies away from marketing their importance, genuine enterprise impact translates to a company that will improve the world through its success. Not only must an investor consider the company’s offerings, but the counterfactual as well. Suppose an investor identifies a company that produces wind turbines to generate energy in a manner that reduces carbon emissions. However, if by investing in this company it displaces a more effective wind turbine company with a subpar product, a net benefit has not been achieved by that investor, or the success of that particular company.
Secondly, an investor must have “additionality”, where an individual’s investment in a company will make notable difference in that company’s performance, through the availability of additional capital, or expansion of networking capabilities, knowledge base, and other forms of non-monetary support. The scope for an investor’s “additionality” is far greater in VC and angel investing, but such investors must accept that there will likely be “a trade-off between financial returns and social impact.”4 The greatest impact an impact investor can have with regards to “additionality” is at a stage when an investment is not at its most profitable, and they cannot expect market-rate returns. Returning to the fictional wind turbine company, it is easiest to understand “additionality” as the success brought to the company because of that investor. For instance, because of an impact investor’s capital the company was able to keep the lights on and continue product development, or the company was able to take advantage of an investor’s personal networks and industry connections.
While it is valuable to have a framework in place as to what criteria an impact investor should consider when approaching an impact investment, there is still a question about how to measure ESG impact. One such methodology developed by The Rise Fund and The Bridgespan Group is the impact multiple of money (IMM).5 IMM aims to evaluate the projected financial value of the ESG return on an investment, through a set of six steps:6
- Assessing the Relevance and Scale
- Identifying Target ESG Outcomes
- Estimating the Economic Value of Those Outcomes to Society
- Adjusting for Risks
- Estimating Terminal Value
- Calculating Social Return on Every Dollar Spent
The resulting calculation determines a dollar valuation of ESG return for every dollar invested, which can be understood as the “directional estimate of the potential magnitude of a company’s [ESG] change.”7 Therefore, businesses and individuals can directly compare IMM values between various investment opportunities, while establishing a minimum threshold for an acceptable ESG return. For instance, The Rise Fund, will reject any company where their minimum social return is less than $2.50 for every $1 invested, or has an IMM of 2.5X. It is important, however, to acknowledge that while IMM can give a significant directional estimate for a particular company, the reliability of various criteria will fluctuate depending on the stage of a particular venture.
Although there have been uncertainties between economists surrounding the overall performance of ESG-oriented assets,8 a 2019 report by the Center for Economic and International Studies (CEIS) found that, between firms which had low ESG indicators and those with high ESG indicators, those with lower indicators routinely expected higher returns.9 Considering the secondary criteria for impact investors outlined by Hillebrant and Halstead, this is not entirely surprising; an impact investor’s greatest value lies in investing in companies which cannot expect market-rate return. The report by CEIS noted that many impact investors and Socially Responsible Investment (SRI) funds are driven by investor preference, rather than the promise of high return on investment. Indeed, in a 2020 report, KPMG indicated that in the past 12 months, interest in ESG-oriented strategies, products, and funds has grown across the hedge fund industry. Overwhelmingly, this interest has been driven by the demand of institutional investors, with 85% of hedge fund managers reporting that institutional investors and their consultants are looking to use their capital in generating positive ESG outcomes.10
Impact investing, however, is not the only method for an investor to be engaged with ESG aligned investing, and certainly is not the most effective method of investing. Some ESG aligned funds such as SRIs, use various internal metrics and policies to guide their investment mandate, while still offering a for-profit investment portfolio to investors. At Matū, we have a strong ethical investment policy which guides our investment decisions and our investors’ expectations.11 Simply avoiding “sin” industries, such as weapons, tobacco, and illicit drugs, alongside more modern iterations of negative impact companies, such as ones who will generate environmental harm or use data exploitatively, is not good enough. A foundational principle to Matū’s investment policy is kaitiakitanga, guardianship and protection. We seek to help limit the harm companies might be creating in the world, as well as ensuring positive benefit from their actions. Matū has a long-term focus and intergenerational ambitions, which can make it difficult to quantify the immediate impact of our investments, however it allows us to be confident in the ultimate net positive impact we generate for New Zealand and the world.
Beyond investing in SRI or impact funds, there are other methods of financially engaging to generate ESG-oriented outcomes. As highlighted by Hillebrant and Halstead, comparing the return on investment by a socially neutral investor whose primary driver is the expected financial return, versus an impact investor who is solely investing with the primary aim of generating social benefit, will likely result in the socially neutral investor being more successful. An individual donating to high-impact charities, or investing as a socially neutral investor for profit and then donating return proceeds at a later date,12 will likely be more effective in generating positive impact, rather than attempting to optimise the trade-off between ESG impact and financial performance.13
There is no denying that the primary drive towards ESG-oriented investment has been championed by industry investors in a bottom-up movement to consciously shift away from “sin” industries, and demanding that their capital is utilised in efforts to better the world.14 Impact investing, while not the most successful at generating ESG return as opposed to other charitable or activist actions, is certainly a part of this increasing global trend, and is absolutely far better than not doing anything at all.
1. KPMG. Responsible Investment. https://assets.kpmg/content/dam/kpmg/ie/pdf/2019/10/ie-numbers-that-are-changing-the-world.pdf
2. RIAA. Responsible Investment Benchmark Report 2020 New Zealand. https://investmentnews.co.nz/wp-content/uploads/RINZ20.pdf
3. Hillebrandt, H. & Halstead, J. Donating effectively is usually better than Impact Investing. https://lets-fund.org/impact-investing/
4. Hillebrandt, H. & Halstead, J. Donating effectively is usually better than Impact Investing. https://lets-fund.org/impact-investing/
5. Harvard Business Review. Calculating the Value of Impact Investing. https://hbr.org/2019/01/calculating-the-value-of-impact-investing
6. The Rise Fund. Measurement. https://therisefund.com/measurement
7. The Bridgespan Group. Calculating the Value of Impact Investing. https://www.bridgespan.org/insights/library/impact-investing/calculating-the-value-of-impact-investing
8. USSIF. Financial Performance With Sustainable Investing. https://www.ussif.org/performance
9. Ciciretti, R., Dalò, A., & Dam, L. The Contributions of Betas versus Characteristics to the ESG Premium. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3010234
10. KPMG. Sustainable investing: fast-forwarding its evolution. https://assets.kpmg/content/dam/kpmg/xx/pdf/2020/02/sustainable-investing.pdf
11. Matū Fund. Ethical Investment Policy. https://matu.co.nz/wp-content/uploads/2019/09/Matū-Ethical-Investment-Policy.pdf
12. EA Concepts. Timing of philanthropy. https://concepts.effectivealtruism.org/concepts/timing-of-philanthropy/
13. Hillebrandt, H. & Halstead, J. Donating effectively is usually better than Impact Investing. https://lets-fund.org/impact-investing/
14. KPMG. Sustainable investing: fast-forwarding its evolution. https://assets.kpmg/content/dam/kpmg/xx/pdf/2020/02/sustainable-investing.pdf
The Matū team is proud to welcome Hanie Yee into a newly created position as an Iramoe-Executive in Residence. Our Whakatipu Tāngata Policy is about developing capability in the early-stage investment space, especially in human capital, giving more people the opportunity to experience and develop skills about how venture capital and start-ups work. Hanie was previously an Iramoe-Observer, attending our team meetings and getting an insight into how we run the Matū Fund. She now steps into this newly created role, which will involve more hands-on training through due diligence and project sourcing processes, as well as opportunities to work with our target and portfolio companies in governance and operational support.
Hanie has 20 years international experience working in the biotech, pharmaceutical and medical device industries, including almost a decade at Fisher and Paykel Healthcare. With a background in biology and medical science, she recently completed her Post Graduate Diploma in Business Management and Leadership from Darden Business School, University of Virginia.
She has a passion for helping nurture and grow start-ups and founders, especially in healthcare and medtech, and has recently been advising a number of early-stage medical device companies, including OPUM and Alimetry. Hanie is an independent member of the Return on Science Medtech and Surgical, and Auckland Momentum Investment Committees, and is an associate member of the Institute of Directors.
Hanie says: “The space that Matū operates in – the intersection of deep tech and science – this really excites me. I have a passion for, and expertise, in this space, and working with Matū provides me an opportunity to develop investment skills while also applying what I have learnt in the past. I also like Matū’s philosophy and approach – at this point in my career, I only want to join organisations that align with my values. Matū values people, and is an active collaborator with the businesses that they want to invest in, rather than just growing money passively. It’s about the journey, not just the destination, and Matū goes on that journey with the companies.”
We are creating this new role to help candidates with existing professional experience in adjacent areas get a kickstart into the world of early-stage investment. Through mentoring and training with the rest of the wider Matū team, we are helping Iramoe-Executives gain experience relevant to angel and venture capital investing, both in the extensive investment process, but also the support for our portfolio companies (post-investment). Our goal is to offer a deep experience across all parts of our operations, with the aim of building a career in this space.
We are excited to announce that we have placed investment into Ligar Polymers, a filtering and extraction company based in Hamilton.
Ligar is commercialising Molecularly Imprinted Polymers (MIPs) based on technology developed at Waikato Institute of Technology (WinTec) and the University of Waikato. The MIPs enable very high-selectivity extraction of molecules from fluids, which can then be eluted and/or discarded. There are a broad range of applications, including removing heavy metals contaminants from drinking water, extracting high-value bioactives from horticultural waste streams, and removing smoke taints from wine.
This announcement has been almost a year in the making, as we have worked closely with the company to develop their thinking and strategy, as well as assisting with governance and partnerships. The company has been operating for a number of years, but we think that now is a good time to back Ligar as they make progress with a number of international customers and partners. We have also been working closely with Ligar and Te Whāi Ao Limited on a joint venture called The Refinery, a local initiative to extract bioactives from avocado, kiwifruit, hops, and hemp.
Congratulations to the team at PowerON for establishing the MEiTNER (Mulitfunctional Dielectric Electronics for Next Generation Soft Robotics) research group at TU Dresden as part of a 2 million Euro research grant over six years.
“Flexible robot systems will open up completely new applications that seem unimaginable to engineers today. We draw inspiration from the natural world around us – the end result of millions of years of evolution.” says Dr. Markus Henke, MEiTNER group leader at TU Dresden and PowerON’s CEO.
Read more here: https://www.poweron.one/new-robots-step-forward-meitner-begins/
Andy Shenk from UniServices has written a piece celebrating the launch of the fifth Momentum Investment Committee in the Manawatū.
The team at Matū are proud to support Momentum, both through our sponsorship of the Momentum Student Entrepreneur of the Year award, and through our participation on most of the Momentum committees. Through our engagement with Momentum, we can share our experience and expertise with both student entrepreneurs and student investment committee members, and help build capability within the next generation of the investment ecosystem.
Our portfolio company Ligar Polymers, in conjunction with our partners at Te Whāi Ao Limited, have today announced the launch of The Refinery, a joint venture that will use Ligar’s MIP technology to extract high-value bioactive compounds from Aotearoa plant-based foods and horticulture. The team at Matū are pleased to be involved and providing advice to both Ligar and Te Whāi Ao, and are excited to see the potential for The Refinery grow.
What a difference a week or two makes, to NZ and to the world around us! As we are writing this, the Matū team are in lockdown working from home, but we remain in close contact, supporting each other and our portfolio companies via the use of various online tools and the internet. Business is continuing as normal; this week we have completed a Lean Canvas workshop on a microfluidics project at Massey University, the Return on Science and Momentum Investment Committees are meeting, and we continue with due diligence on a couple of early-stage opportunities.
We are also participating in several industry groups that are advising the government on potential programs and projects to try and keep the research and innovation sector moving in these trying times. The COVID-19 Innovation Acceleration Fund from MBIE has already been announced in the last week to research organisations. We are also in the final steps of completing an investment into portfolio company #5, Ligar Polymers.
While we are now in little doubt that we are in for some pretty challenging times in the coming months and perhaps years ahead, we are confident that the underlying broad strength of the New Zealand economy will see us through. This will definitely create new and disruptive investment opportunities for Matū as NZ and the world has to learn to innovate and use technology on a completely different level. In January, we completed some strategy planning looking at the next couple of years, but we will clearly need to iterate this over the next couple of quarters once things settle somewhat.
In the last two weeks, we have conducted reviews with each of our portfolio companies, with a particular focus on impacts and contingency planning related to COVID-19. Naturally, they are all very busy looking at burn rates, identifying cost reductions where possible, and modelling cashflow scenarios in consultation with financial advisors. Spreadsheets are definitely working overtime! Not unexpectedly, with portfolio staff there are a wide range of emotions and genuine concerns about what the future might hold for them and their families. We are encouraging each team to focus on the things they can control, and continue to move the business forward whilst being very careful to protect cash.
Going forward, we are remaining positive. We remember that we have been through many tough challenges as a country in recent times, including the Christchurch earthquakes and the Mosque shootings.
After the Global Financial Crisis, recovery was in part led by disruption and innovation: Uber, AirBnB, Lyft, and Amazon’s pivot are just some examples of start-ups emerging from the ashes of the chaos. This time won’t be any different. Technology will play a major part in getting business back on its feet, in new ways.
We know that when the pandemic is over, things won’t be the same again. However, when the grief and shock makes way for a positive can do attitude, human insight will come to the fore. We recognise that we will have to approach the same things different to move forward in the “new world”.
Matū is ready and we will play our part in this new wave. Our pipeline is solid and continues to expand. We are well positioned to ride out this economic “correction” and we continue to interact on a daily basis with innovators and entrepreneurs in this new era.
We will clearly need new capital to execute the opportunities, and we continue to engage positively with potential investors. We are also expecting market corrections to take shape in a softening of valuations and general investment terms.
Sectors rife for disruption could include fintech, digital health, wellness and medical devices, industrial processing, digital security, remote collaboration tools, and AI. We could see a mad scramble of a lot of venture money globally into these sectors, and we will continue our careful and scientific approach to early-stage investing.
We hope that you and your families are safe and well during the lockdown, and please do reach out if we can lend an ear or help in any way.
This article is written by Iraoho-Intern Odette Lees.
Sustainability and ethical practices have become a hot topic over the past few years. With many people jumping on the sustainability bandwagon, the pressure has been on for companies and industries to incorporate better practices into their business.
The early-stage industry is no different; sustainable investments have increased by 40% in New Zealand in the last year alone1. This movement has seen the rise of impact funds, which invest into companies with the intention of providing measurable, positive social or environmental impact as well as financial returns2. This is not a niche market; as of 2018 there were US$502 billion of impact investing assets under management globally3.
Outside of specific impact investing funds, others have been updating their policies to incorporate more sustainable investments as well. People may be familiar with ethical investment policies which exclude things like tobacco, drugs and illegal activities, but more recently these policies have evolved to encompass the environmental effects and long-term sustainability of the companies they invest in.
It’s important to note that not all funds that have taken on board more ethical practices are the same. There are impact funds whose sole focus is to support and invest in projects which will positively benefit the environment, and there are funds that have some form of ethical investment policies which guide their investment decisions. There is also a third category of funds who have no official ethical guidelines in their investment mandate. Whether you’re looking to place your money in a fund that supports ethical and sustainable projects or you’re looking to raise money from such a fund, it’s important to know the differences in order to select what is best for you.
An impact fund is likely to advertise itself as such and there are organisations, such as B Lab, who have created certifications that require an investment fund to ensure that responsible investing is upheld4 all the way down to their legal structure5. These funds often have Ethical, Social, and Governance (ESG) reporting requirements and portfolio selection criteria which they integrate into the management of the fund6.
If a fund is not specifically an impact investment fund, it doesn’t necessarily mean that no attention is paid to the ethical and sustainable practices of the fund and their portfolio companies. Funds can sit along a spectrum of ethical investment activities from no ethical consideration to impact investing. Some of these activities may include screening out companies which have a direct negative impact on the environment, or screening specifically for companies which have more social or environmental benefit than others7. Matū and Punakaiki Fund are two examples of funds which have their ethical investment policies publicly available on the website8,9 and the Impact Enterprise Fund (https://impactenterprisefund.co.nz/) is an example of an impact fund in NZ.
It is important to determine what core values you would like both the fund and the companies they invest in to have, and what you would feel comfortable having your money supporting before deciding on what fund is right for you. For example, if you wouldn’t want to support a company that doesn’t ensure fair wages for all the workers along their supply chain, then you need to make sure you don’t invest in a fund that would support that.
Every fund will have their own individual criteria so make sure you do your research to ensure they are the right fit for you. The presence of an ethical investment policy alone does not guarantee that it will match your preferences either; the content of that policy is just as important. For example, a fund may invest in companies that have a social underpinning, which you might align with, but one of those companies sells cannabis products, which you might not align with. It can be tricky to navigate the details of each fund’s ethical priorities, but asking questions or having a thorough read of their investment mandate should help to determine if a fund’s investment decisions align with your values. Also, just because a fund has “impact” or “responsible” in the name, doesn’t mean that they necessarily actually follow through on that, so asking questions and doing your due diligence is the best way to cut through and get the truth.
There is a variety of information on the returns of funds
which incorporate ESG practices into their businesses. However, the general
consensus seems to be that they return similar returns to the funds which don’t10,11.
If it’s not something you’ve considered before, I would encourage you to do so
and help create a market push so that more funds incorporate varying degrees of
ESG practices. The world is already burning, so do we really want to be funding
new businesses that fuel the fire?
1 NZ Herald, “Ethical Investing Hits New Highs“
2 Responsible Investment Association Australia, “Impact Investor Insights 2019 Aotearoa New Zealand”
3 Global Impact Investing Network, “What You Need to Know about Impact Investing”
4 Greene, “A Short Guide to Impact Investing.”
5 Certified B Corporation, “Certification.”
6 Responsible Investment Association Australia, “Impact Investor Insights 2019 Aotearoa New Zealand”
7 Noted, “Investing Ethically Is Good for Your Wealth”
8 Punakaiki Fund, “Key Documents”
9 Matū Fund, “About the Fund”
10 Global Impact Investing Network, “What You Need to Know about Impact Investing”
11 Icehouse, “Impact Investing”