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
Dr Laura Domigan, Professor Warren McNabb, and Glenda Lewis have penned a piece in Stuff about the growth of cellular agriculture and artificial meats in New Zealand. It’s not just chicken or beef, but also the potential to grow shellfish, eggs, and milk products with a wider variety of nutritional profiles. New Zealand is well placed to be a world-leader in this area of research and move towards commercialisation of these technologies.
Read more here: https://www.stuff.co.nz/science/300150953/synthetic-meat-highly-possible-in-the-next-decade
The most recent Startup Investment New Zealand report, prepared by PwC and the Angel Association of New Zealand, highlights the growth of local deep tech investment. While the total investment activity has dipped slightly due to COVID-19, deep tech investment has been strong with a lot of interest and deal flow in this space.
Read more here (NZ Herald Premium paywall): https://www.nzherald.co.nz/business/startup-investment-pwc-sees-deep-tech-impact/3M5RUNHYUZOMT7XORWTJSCBB5E/
Andressen Horowitz has produced an interesting podcast episode about the recent Nobel Prize in Chemistry awarded to two researchers behind CRISPR, exploring When, Who, How, and What Now. They look at both the history and who was involved, as well as point towards exciting new directions into the future.
Listen here: https://a16z.com/2020/10/10/16mins-nobel-prize-crispr-gene-editing-jennifer-doudna-emmanuelle-charpentier/
Emmanuelle Charpentier and Jennifer Doudna have been awarded the Nobel Prize for Chemistry for their work on developing CRISPR, the revolutionary gene editing technology that allows scientists to cut and replace individual strands of DNA. This is part of the technology that enables the Mekonos platform, so we are ecstatic to see hard work recognised from Charpentier, Doudna, and also by association many others who have contributed to the development of CRISPR over time.
Read more here: https://www.nature.com/articles/d41586-020-02765-9
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.
Coherent Solutions, a early-stage high-tech start-up focusing on optical communication and photonics test and measurement equipment has rebranded to reflect the company’s broadening portfolio of products. Applications include the test of fibre-optic cables, data centres, LIDAR-enabled autonomous vehicles, and more. The company was founded in 2012, and is soon considering a Series B raise, demonstrating how long deep tech companies can take to get to success, but that success can be very large when they get there!
Read more here: https://www.scoop.co.nz/stories/BU2009/S00311/coherent-solutions-rebrands-to-quantifi-photonics-and-sets-sights-on-us24-trillion-global-market.htm