Vancouver-based Active Impact Investments has set out to raise $120 million for Canadian and international climate tech startups in its biggest fund to date.
The venture capital firm has received over $70 million in commitments for its third fund, with Northleaf Capital Partners and Fondaction as co-anchors. Large family offices, Co-operators Corporate Venture Capital Fund and Deloitte Ventures Canada are also participating.
Active Impact, founded in 2018, aims to add 20 companies to its portfolio. The focus is on companies valued at $5 million to $25 million with five to 20 employees that are tackling climate change, according to founder and managing partner Mike Winterfield.
Despite a difficult market for venture capital due to the uncertain economy and higher interest rates, he said the time is right for investing in climate solutions.
“It’s very important for founders to know who has the ability to write cheques right now,” he said in an interview with Sustainable Biz Canada. “It’s been a really tough market this year. There’s been a lot of funds that have not been able to raise money this year. So I think it’s exciting for some founders to hear, ‘oh good, Active Impact has more money.’ ”
Active Impact’s previous funds
Active Impact managed a $10-million fund that invested in 15 companies with an eye for general impact across social and environmental benefits.
The firm narrowed its focus to climate tech with its $60-million second fund, which is now finalizing its 17th investment. Three of its portfolio companies have exited through acquisitions, and a fourth is finalizing its exit, Active Impact noted in a release.
Half of its capital goes to Canadian startups, with the remainder going to mostly U.S.-based companies.
Winterfield said his firm tries to “help our investors get diversified exposure to climate,” with a focus on business-to-business, capital-light fields such as software that boosts efficiency.
Active Impact’s concentrations are on clean energy and transportation, infrastructure and carbon solutions, sustainable food and water, and the circular and sharing economy.
The companies in Active Impact's portfolio have mitigated over 500,000 tonnes of greenhouse gas emissions, Winterfield said. The goal for 2023 is to exceed one million tonnes of greenhouse gas emission reductions.
For its third fund, Active Impact is targeting initial investments of $1 million to $4 million, with approximately half of the fund dedicated to follow-up investments to help with scale-up.
Winterfield said it is a “big deal” to have Northleaf and Fondaction as co-anchors, due to their reputations and size. Active Impact had not had institutional anchors for the previous two funds, he added.
Over 400 investors and entities are in talks with Active Impact to close out the remaining $50 million, Winterfield said.
All the funding must be raised within 12 months.
The expectation is to deploy the funds over three to four years, with one company chosen for investment every two or three months.
He said $120 million is “the perfect size” for the third fund, and Active Impact can deploy the money it has currently while working to reach the $120-million goal.
Investing in a difficult market
Active Impact is hoping to get the message out to investors and founders that investment is still flowing even in a turbulent market, Winterfield said, noting it can actually be beneficial to invest when money is hard to access and many are skeptical about investing.
“We feel really excited about the timing of us having raised this money during period of time where there’s not a lot of people that have the capability to fund. It’s going to allow us to have much more choice in terms of which companies we fund, it’s going to ensure that we’re paying reasonable prices in terms of valuations.”
Though the market is fluctuating, the pace at which “great quality companies are being born doesn’t actually change that much,” Winterfield said.
Active Impact has a long-term vision with a 10-year horizon, so it is not too stressed by short-term economic slowdowns, he added. Plus, the climate is not waiting on the markets and must be addressed, Winterfield said.
Looking ahead, he would like to continue to scale up and franchise his firm so it is recognized as a trusted and respected name in the industry. He hopes to continue to add new climate-focused products and offerings.