Vancouver-based Active Impact Investments has secured over $70 million CAD in initial commitments for its third fund, which will continue the firm’s focus on early-stage climate technology startups.
Active Impact aims to raise a Fund III that is twice the size of its second fund, seeking a total of $120 million, the remainder of which it hopes to close in early 2024. These commitments bring Active Impact more than halfway towards that target, at a time when many other venture capital (VC) firms and startups alike are struggling to fundraise.
“On climate, we are generalists … Where we are specialized is on the business functions.”
– Mike Winterfield, Active Impact
Through Fund III—which is being co-anchored by new limited partner (LP) Northleaf Capital Partners and existing backer Fondaction—Active Impact plans to double down on seed-stage tech firms across North America that are working to solve climate-related problems and take advantage of recent incentives rolled out by the Government of Canada and the United States (US).
In an exclusive interview with BetaKit, Active Impact founder and managing partner Mike Winterfield called Northleaf’s involvement “a big deal.” He noted that Northleaf, which has tracked Active Impact since its first fund, is a “high-performing,” financial results-first fund-of-funds that is “very selective” when it comes to adding new managers.
Winterfield described Fund III co-anchor Fondaction as a disciplined investor with a strong knowledge of environmental and social impact. “They understand and are very meticulous about how they pick impact,” he said, adding that while Northleaf’s support speaks to Active Impact’s performance from a financial-returns standpoint, Fondaction’s continued backing vouches for the “sophisticated” way Active Impact reports on impact.
Existing LP the University of Victoria and new investors Co-operators Corporate VC Fund and Deloitte Ventures have joined Northleaf and Fondaction as LPs in Active Impact’s third fund.
Back in 2017, after leaving Vancouver-based Traction on Demand, Winterfield decided to devote the rest of his life to climate. At the time, he noticed that VC funding and support for early-stage climate tech startups in Canada was lacking and that the institutional demand to address this issue existed.
“There were all these giant capital allocators on stage [at conferences] saying, ‘We want to invest in alignment with our values, but the type of product that we’re used to investing in doesn’t exist yet on the impact side—they’re not big enough … They haven’t been around long enough, their performance isn’t good enough,’” said Winterfield.
Founded in 2018, Active Impact set out to help fill this seed-stage climate tech gap and build an “institutional-grade” VC firm. Today, Active Impact is a Certified B Corporation with over $140 million in assets under management gearing up to begin investing out of a Fund III that counts a number of large institutions among its LPs.
Six years in, Winterfield said he is proud of the progress Active Impact has made, noting that a sizable Canadian pension fund and fund-of-funds have now done “extensive due diligence” and elected to serve as anchors in Active Impact’s third fund.
“I think Active Impact is emerging as one of the top managers in this space,” Fondaction’s portfolio director of specialized funds Jonathan Coupland told BetaKit in an interview. “I think they’re getting to a size and a position in the ecosystem where they can drive change.” According to Coupland, while it remains “early days,” Active Impact’s fund performance thus far has been strong compared to other VC firms.
To date, Active Impact has invested in 31 startups developing tech solutions in the areas of the circular and shared economy, clean energy and transportation, infrastructure and carbon solutions, and sustainable food and water. The VC firm has assembled a Canadian portfolio that includes Audette, Clir Renewables, EnPowered, Manifest Climate, Metafold 3D, Othersphere, RailVision Analytics, Swtch Energy, and Tengiva. Active Impact has exited three companies via acquisitions and has yet to see a portfolio startup shut down.
One of Active Impact’s first institutional LPs, Fondaction first came in as part of the VC firm’s second fund. By serving as a co-anchor in Active Impact’s third fund, Coupland said that the Québec pension fund hopes to help Active Impact become “a more important player” in the province’s early-stage climate tech ecosystem.
Fondaction has a strong environmental, social, and governance mission, and aims to contribute toward a more equitable, inclusive, and greener society, which Coupland said makes Active Impact a good fit.
“We’re trying to be as much as possible a transformative force by investing in what we believe are strong managers that can bring growth to the cleantech industry,” said Coupland, who added that fighting climate change will require innovation.
Coupland indicated that the level and quality of post-investment support Active Impact provides helps differentiate the VC firm from other players.
“On climate, we are generalists,” said Winterfield. “We try to provide a very diversified portfolio and we try to be opportunistic and ready to learn where the newest and best ways to positively impact climate change emerge. Where we are specialized is on the business functions.”
As Winterfield noted, many seed-stage climate tech startups have executive teams with either a strong technical or business background, but usually not both, so when Active Impact began backing companies and offering post-investment support targeted toward filling some of these expertise gaps, it quickly realized it was addressing a need.
According to Winterfield, Active Impact has the expertise and repeatable processes built to help startups with business functions like sales, fundraising, and hiring. To date, the VC firm has placed 29 people with its portfolio companies.
Through Fund III, Active Impact plans to add 20 startups to its portfolio, focusing primarily on companies at the seed stage with some pre-seed and Series A investments. The VC firm’s initial cheque sizes will typically range from $1 million to $4 million. While Active Impact has the flexibility to spearhead or support financings, Winterfield expects it to lead rounds, help price them, and take board seats more often than not.
As interest rates have risen and the tech sector has taken a beating, other asset classes have become more attractive, and many large institutional investors have allocated less money towards VC than in prior years. This has forced LPs to become much more selective about which VC firms they are backing.
According to Winterfield, in light of these conditions, many folks advised Active Impact to sit back and collect its more than two years’ worth of remaining asset management fees and wait until 2024 to go to market. But despite it being a “brutal year” for emerging fund managers to raise capital, Winterfield claimed the VC firm didn’t even entertain the idea.
“We were basically like, we do not want there to be any interruption in our ability to support founders by deploying new capital,” he said.
According to Winterfield, Active Impact has had to work even harder this time around. He argued that the firm’s track record and its approach to measuring impact and communicating with LPs helped it close more than half of its target for Fund III during such a tough fundraising environment.
“I think Active Impact is emerging as one of the top managers in this space.”
– Jonathan Coupland, Fondaction
In an interview with BetaKit, Daniel Sinclair, Co-operators’ VP of corporate development and head of corporate VC, noted that, like other investors, the insurance firm is advising its portfolio startups and VC funds to exercise caution and focus on profitability rather than growth at all costs. “The watchword prudence applies to us also,” he added, noting that Co-operators is taking the same approach to its own investments.
For its part, Co-operators was seeking exposure to a fund dedicated to climate tech when it received a “very strong recommendation” to consider Active Impact from fellow portfolio fund Emmertech. Per Sinclair, Co-operators was attracted to Active Impact’s focus on seed-stage software startups, which, as Winterfield noted, have not been immune from shifting economic conditions.
“Climate tech hasn’t been spared from this downturn,” said Winterfield, who noted that the number of dollars being invested and deals being done are down “dramatically” from prior highs. Investors have become pickier, deals are taking longer to close, and there has been “more honesty” around valuations, he said.
But while the climate technology market has experienced pain and still faces some challenges amid the broader tech downturn, and the Sustainable Development Technology Canada funding pause has been tough for the ecosystem, Winterfield argued that recent legislation in Canada and the US, financing trends, and corporate and personal commitments bode well for the industry.
“Overall, the tailwinds are phenomenal and they will continue to be phenomenal for the next decade.”
Feature image courtesy Active Impact Investments.