PosiGen: Why We Invested

By Ander Iruretagoyena and Priya Parrish

With 2020 being deemed the worst year for climate change, now more than ever it is important to ensure the businesses which are combating it have enough capital to scale swiftly and efficiently. According to NASA, responding to climate change involves two possible approaches: reducing and stabilizing the levels of heat-trapping greenhouse gases in the atmosphere (“mitigation”) and/or adapting to the climate change already in the pipeline (“adaptation”). Solar panels on residential rooftops contribute towards mitigation by fulfilling the electricity needs of households with 80% lower emissions than fossil fuels. For the average household, this 8,460 pound reduction in C02 is equivalent to 432 gallons of gas (UC Berkeley). Typically, these environmental and financial ($17,000 over the life of a solar system) savings have been reserved for high income households due to the upfront investment required. There are 30+ million low-to-middle income (LMI) households in the U.S., representing 42% of the total potential for residential solar, yet they only represent 30% of installations annually. Serving these communities could create meaningful cumulative reduction in carbon emissions while driving additional benefits of economic empowerment through household savings.

SOLUTION

PosiGen, Inc. (“PosiGen”) is a developer of solar power systems intended to reduce household energy consumption and generate power. The company's solar power systems enable customers to achieve greater fiscal autonomy and energy independence by lowering their utility bills. Currently, PosiGen is the only for-profit residential solar platform that focuses exclusively on providing solar and energy efficiency upgrades to LMI households. Over the past 5 years, PosiGen has installed over 15,000 residential solar energy systems throughout Louisiana, New Jersey and Connecticut.

WHY WE INVESTED

PosiGen has a competitive differentiation with a unique product market fit focused on underserved LMI communities (enabled by a competitive moat of having 8+ years of credit history underwriting LMIs with ~100% collections). The company is well-positioned to capitalize on the $67B residential U.S. solar energy industry growing ~30% annually (driven by rising awareness of climate change, state tax incentives, and utility costs). PosiGen’s approach is fundamentally designed for affordability: standardized kit models, project clustering, and subcontractors decrease installation time/costs while a cost savings only approach to underwriting drives referrals and lowers customer acquisition costs. This allows the company to install solar systems for ~40% less than competitors.

IMPACT

We believe that PosiGen has the ability to make a positive impact on climate change and the environment by mitigating emissions, increasing efficiency, and democratizing energy independence. Management, which includes a founder with 25+ years of entrepreneurial and senior management experience and a CFO with over 20 years in renewable energy, is committed to measuring and continuously reporting impact metrics centered around energy efficiency and economic empowerment of customers served. PosiGen is democratizing access to clean energy and its related benefits by focusing on LMI communities, which account for 73% of their installations to date. In FY ‘20, the company is on track to produce over 70mm KWh of clean energy.

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2020: Impact Engine's Year in Review

By Elise O’Malley

While this year has looked and felt different than any other, much of our work at Impact Engine has remained on track, and we certainly didn’t slow down! 

During the small sliver of 2020 when quarantine wasn’t on anyone’s radar, we produced our annual Chicago Impact Investing Showcase, with another record-blowing list of attendees (thanks to all 700+ who signed-up!). The theme of the event was “The 5Ps of Impact,” outlining the ways in which companies and investors can create positive impacts. The agenda included fireside chats with Dr. Helene Gayle of The Chicago Community Trust and Rodrigo Garcia of the Illinois State Treasurer office as well as presentations from leaders at YWCA, Rumi Spice, Gourmet Gorilla, Next Street, and Fixer.

An exciting moment from this year was announcing the close of our very first private equity fund, led by Managing Partner Priya Parrish. The $31.5M fund makes investments in both impact funds and directly in growth-stage companies within our impact areas of economic empowerment, education, environmental sustainability, and health. A goal of the fund is to promote the growth of impact investors in the middle market by both allocating capital and helping them refine their impact strategies. The fund also supports operating companies. Investments include Lumos Capital Group and Footprint. 

Our second venture fund also made new investments this year: Afresh (an inventory management system that prevents food waste at the grocery store level), SupplyShift (a supply chain ESG data management platform), and TimeDoc (a chronic care management platform). Across the rest of our portfolio, notable mentions include: PadSplit and Sokowatch each respectively raised $14M and $10M Series A rounds, Pangea was named one of “The 50 Best Small Companies to Work for in Chicago,” Full Harvest won the Food Category in Fast Company's World Changing Ideas 2020 competition, Climb Credit was included in Inclusive Fintech 50’s 2020 cohort, ReUp earned a spot on HolonIQ’s North America EdTech 100 list - and much more. We are also extremely proud of the many ways in which our portfolio has participated in the fight against COVID-19. 

Back at (now virtual) HQ: Impact Engine was selected to the ImpactAssets 50, a public database that recognizes exceptional impact investors, for the second year in a row. ImpactAssets also highlighted Impact Engine as a lead contributor to SDG #8, Decent Work and Economic Growth, in their 2020 Impact Report. The Conscious Investor included Impact Engine in its “Resource Guide for Impact Investors,” and sat down with CEO Jessica Droste Yagan to talk about our aforementioned 5P Framework. Managing Partner Priya Parrish spoke with McGuireWoods as part of its “Women in PE to Know” series. And one of the brightest spots of 2020 was congratulating Principal Elizabeth Coston McCluskey on the arrival of her new baby girl, Madeline!

Our team collectively worked together to produce a dozen new pieces for our blog. You’ll find Priya’s “In Defense of Private Equity: Why Our Society Needs Middle Market Investments”, Partner Roger Liew’s “Working at a Women-Led Fund: A Man’s Perspective”, and much more on our website. We also launched an Impact Highlights page, which offers a deeper look at the outcomes of our portfolio thus far. This page showcases our diversity stats as well: 58% of our investments are based between the coasts, 22% are led by CEOs of color, and 42% are led by women CEOs. 

While much uncertainty still lies ahead, we look forward to staying connected remotely - please mark your calendars for our virtual Chicago Impact Investing Showcase series, kicking off at 12 p.m. CT, February 10th. Lastly, many thanks to our supportive Impact Engine community and to our portfolio for its collective display of adaptability during this difficult time. We wish everyone a more equitable, peaceful, and healthful 2021!

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Glass Half Full: 2020 Holiday Reading List

By Elizabeth Coston McCluskey

2020 has been quite a year. Many of us are thankful that it is almost over. Before it ends, we wanted to share some of the research and stories that gave us optimism over the past twelve months. Despite headlines having been dominated this year by environmental devastation, racial injustice, an international healthcare crisis, and accompanying economic hardship, we also saw endless examples of inspiration and innovation from the impact investing community. 

You may have seen that President-elect Biden has named his Special Envoy for Climate Change, who will be part of his National Security Council.  This is a promising political commitment, but impact investors haven’t been sitting on the sidelines waiting for the government to act. This year, Amazon announced a $2 billion ‘Climate Pledge’ venture fund, and has already made its first five investments. Microsoft also launched a $1 billion Climate Innovation Fund in concert with its commitment to be carbon negative by 2030. A PwC report published this fall found that over the last seven years, investment into startups developing tech-enabled solutions to climate change has outpaced the overall VC market by 5x.  

Traditional and impact investors have also made numerous commitments to diversity, equity and inclusion (DEI) - both in their own ranks and in portfolio companies. Blackstone issued a mandate for diverse candidates to represent one third of board seats at any companies in which they acquire a controlling interest. Vistria Group set up a new incentive plan that rewards portfolio companies’ management teams for diversity metrics. And Impact Capital Managers announced its inaugural Mosaic Fellowship, which places graduate students from traditionally underrepresented backgrounds into leading impact investment firms for a summer. Mike Asem, a General Partner at M25, shared a thoughtful framework for how other venture capitalists can adopt and execute their own plan for improving racial justice personally and professionally. 

COVID-19 has consumed most of our healthcare organizations’ attention this year. But it has also forced public and private entities alike to take action to address inequities in access to and quality of care. Earlier this month, the State of Illinois unveiled a plan to invest $150M to transform healthcare delivery for underserved communities, with a focus on holistic, relationship-based, continuous care. COVID-19 has also paved the way for rapid acceleration of the adoption of telehealth. Legislation has enabled Medicare reimbursement for telehealth services, with additional proposed bills that would eliminate state cross-licensing requirements for telehealth. Not only is this a breakthrough in providing healthcare access to millions of Americans, but it represents a substantial impact investment opportunity. 

At a time when many Americans are worried about their financial stability, there are more innovative companies and initiatives than ever to support them. The Inclusive Fintech 50, backed by the likes of Visa, MetLife Foundation, and the IFC, recently announced its 2020 cohort of startups driving financial inclusion and resilience. It’s encouraging to know that more than 400 companies applied, with solutions that address accessibility, affordability, and convenience of financial services in both advanced and emerging markets.

Finally, the total ranks of impact investors continued to grow throughout 2020. The number of signatories for IFC’s Operating Principles for Impact Management grew from 58 to almost 100. IFC published Growing Impact: New Insights into the Practice of Impact Investing to highlight case studies from 32 members of the group. The GIIN Annual Impact Investing Survey, now in its tenth year, has grown from 24 respondents to over 300. And the UN’s Principles for Responsible Investment reported a 20% annual increase of assets under management by investors committed to integrating ESG issues into their decision-making, now at US$103.4 trillion.

While 2020 had its share of meaningful challenges, we believe it has also woken more people up to the needs and opportunities of impact investing, and highlighted where we should be spending our financial and human capital in the coming year. We hope that during the holiday season, you are able to spend time (whether virtual or in person) with family, and to reflect on the ways in which you’ve made an impact this year. We encourage you to click through to the reports we’ve included in this list, as we hope that they inspire you to make new resolutions for impact in 2020.

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Impact Engine Closes First Private Equity Fund

CHICAGO, IL - OCTOBER 19, 2020

Impact Engine announced today the close of its first private equity fund. The $31.5M fund makes strategic investments in growth equity and buyout impact funds and invests directly in growth-stage companies driving improvements in economic empowerment, education, environmental sustainability, and health. 

Led by Managing Partner Priya Parrish, the fund was launched to catalyze and support an ecosystem of impact investors in the middle market. Private equity funds can create social and environmental value at scale and are an essential part of the impact investing industry. Unfortunately, high barriers to entry often hold back independent funds unaffiliated by large asset managers from launching. 

“The size and scope of the middle market opportunity set is large and growing, yet launching a new private equity fund with a strong commitment to driving positive impact has proven to be difficult unless you already have access to capital,” said Parrish. “We launched this fund to fill that gap, as companies need purpose-aligned capital throughout their life cycle. We’re here to support proven private equity professionals building high caliber investment firms that drive superior results for investors and society.”

The fund extends Impact Engine’s reputation as an early-stage investor in impact companies through its two existing venture funds. The Chicago-based, women-led investment firm believes that investment dollars can and should have a positive impact on society and the environment, and that those positive impacts can be tied to financial success. 

”Our investor base continues to grow as family offices and institutions are drawn to our team’s rigorous and authentic approach to investing and assessing impact, as well as the support Impact Engine provides them in exploring broader impact investing opportunities and connecting with their impact investing peers,” said Jessica Droste Yagan, Impact Engine’s CEO.

Limited partners in the fund include Surdna Foundation, William Harris Investors, and the Libra Foundation, as well as investors throughout the United States, Canada and Asia. Candide Group, an impact investment advisor, facilitated the Libra Foundation investment. "The fund is exciting from an impact perspective given that it provides access to a portfolio of quality managers investing in more mature businesses that are often underrepresented in impact portfolios,” said Aner Ben-Ami, Candide’s Founding Partner. “Most importantly from our perspective, Impact Engine is not just allocating capital to these managers -- it is also actively supporting them in deepening and refining their impact practices."

The fund will invest approximately 60% of its capital in growth or buyout private equity funds with a firm-wide commitment to investing in companies driving positive impact. Given the nascency of this market, many of these funds are managed by emerging managers. Others are “impact whisperers”, or established managers quietly evolving their investment process towards intentional impact outcomes. Impact Engine supports both types of funds through first-close capital, impact management thought leadership and mentoring, and its network of purpose-driven investors and companies. 

Lumos Capital Group is one of the fund’s strategic investments. “Impact Engine has been a valuable partner in helping us develop and execute on our impact management strategy,” said Victor Hu and James Tieng, co-founders and Managing Partners at Lumos. “The team understood our vision from the beginning, and has served as a trusted sounding board as chair of our Impact Advisory Council.”

40% of the fund’s capital will be invested directly in operating companies. By leveraging the fund’s network of purpose-driven investors in the middle market, Impact Engine supports its companies in scaling impact alongside profits at this critical growth stage where tensions between the two goals can arise. 

The fund recently invested in Footprint, a company on a mission to eliminate single-use plastics through its sustainable food packaging products. Footprint’s plant-based packaging products are used by leading global brands, including Conagra, Tyson Foods, Molson Coors, and Sweetgreen. The company has prevented over 61 million pounds of plastics from entering our environment to date, and thereby decreasing the carbon footprint of disposables by more than 44,730 metric tons, equivalent to driving around the planet 4,494 times.

“As our company grows, we want investors that will help us achieve our environmental mission while scaling profits,” said Troy Swope, CEO at Footprint. “Impact Engine understands that these two goals are intertwined, connected us with mission-aligned investors, and is helping us continue to improve our sustainability practices.”

About Impact Engine

Impact Engine is a women-owned and led, Chicago-based venture capital and private equity firm investing in companies driving positive impact in economic empowerment, education, environmental sustainability, and health. The firm manages $63M AUM and was included on the 2019 and 2020 ImpactAssets50 lists, which recognize outstanding impact investment funds with a demonstrated positive social, environmental and financial impact. Across its portfolio, Impact Engine has invested in companies with 44% women CEOs and 24% non-white CEOs, and 56% of companies headquartered between the coasts.

SupplyShift: Why We Invested

By Tasha Seitz and Chris Wu

Companies are increasingly shifting to responsible sourcing policies. This is due to multi-stakeholder pressures from consumers, investors, NGO’s, and employees, as well as a growing awareness that active management of social and environmental issues in supply chains can decrease risk and create new opportunities.

Deloitte estimates the market for responsible supply chain tools will reach $2.7 billion over the next five years. However, 65% of procurement leaders say they have limited or no visibility beyond their tier 1 (direct) suppliers. Information they do have is often siloed in legacy systems or in unwieldy spreadsheets. Buyers need a system that supports multi-tier networks, provides superior data management and visibility through transparent reporting, benchmarks supplier performance, and facilitates engagement so that suppliers follow-through and act to make business improvements.

Solution

SupplyShift is a supply chain ESG (environmental-social-governance) data management platform enabling customers to trace, assess and manage impacts in their supply chains. It helps buyers efficiently and securely gather and analyze data about supplier performance to any level in their supply chain. SupplyShift’s platform streamlines the process of engaging the supply chain, giving buyers an end-to-end view of supplier sustainability performance. Through its focus on collaboration and shared value, the technology helps buyers and their suppliers make the fundamental shift from simple data management and reporting to active supply chain improvement. It delivers insights that enable buyers to elevate sustainability as a factor of purchasing, risk management, and overall business resilience. The SupplyShift platform makes it seamless to gain the insight needed for a more responsive, responsible, and productive supplier network.

Why We Invested

We believe that SupplyShift’s platform will enable buyers to proactively engage, understand, and improve supplier ESG performance, in turn creating a virtuous cycle that will drive sustainability throughout global supply chains. SupplyShift has demonstrated the ability to sell to large buyers, like Walmart and The Sustainability Consortium. The team also has deep subject matter expertise; the co-founders Alex Gershenson and Jamie Barsimantov both have PhD’s in Environmental Studies and have over 12 years of professional experience in the space as the co-founders of EcoShift, an environmental and sustainability focused consulting company.

Impact

Responsible sourcing plays a key role in ensuring the long-term sustainability of businesses. Global production and use of food and consumer goods accounts for more than 80% of water usage and 67% of tropical forest loss globally, and more than 75% of the greenhouse gas (GHG) emissions associated with many industry sectors come from their supply chains. An EY survey of UN Global Compact participants ranked supply chain practices as the biggest challenge to improving their sustainability performance. In order for companies to address environmental and social issues such as deforestation, human rights, and animal welfare, they must know where their inputs come from and how they are produced. SupplyShift has an opportunity to shift the level of transparency and engagement industry-wide.

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Working at a Women-Led Fund: A Man's Perspective

By Roger Liew

One of my favorite management books is Patrick Lencioni’s The Five Dysfunctions of a Team. The easiest dysfunction for a team to address is “Fear of Conflict”, described as, “…people spending inordinate amounts of time and energy trying to avoid the kind of passionate debates that are essential to any great team.” In my past operating roles, “healthy debate” was considered a sign of high team performance. And in the teams I was a part of, I heartily jumped into disagreements like a gladiator preparing for battle. Unfortunately, I would seldom “..emerge from heated debates … with an eagerness and readiness to take on the next important issue.” Instead, I felt worn out and beat up but told myself it was all in the service of avoiding team dysfunction.

About a month after I joined Impact Engine, I disagreed with my partners about a prospective investment. I just couldn’t get comfortable with the company’s growth strategy and I steeled myself for the coming debate. I prepped my arguments and breathlessly rattled them off. I tensed up preparing for the counterpunch. One of my partners simply said, “I can see how you arrived at that conclusion.” Stunned, I thought, that’s not how things are supposed to go.

Since then, we’ve had many passionate debates but they are always about getting to the right answer and not about who’s winning or who’s losing. One of Impact Engine’s key demographic differences is that we’re a women-led firm (and have a women-led board). As the sole man among the partners (a rarity in investment firms), I’ve observed that how we resolve differences is different from every previous position I’ve held; all of those were with teams led by men.

Aside from how we settle arguments, there are many other differences I’ve noticed. Our talent pipeline for both full-time and intern employees tend to have even gender representation. In the 2019–2020 academic year and this summer, we’ve had 12 MBA interns with 6 women and 6 men. When I spoke to our summer interns, one surprising thing to several of the interns was how flat our team feels when discussing deals. Interns and associates were encouraged and expected to weigh-in on potential investments. Another noticed that secretarial tasks, from note taking to scheduling events, were shared up and down the organization.

All of our partners have families with working spouses and school-aged children. This is also different from most leadership teams I’ve experienced, where it was more typical to have a spouse managing the household. At Impact Engine, we understand that there’s a need for balance and there’s no stress when we schedule meetings around school or other personal events. Not having to worry about what your coworkers think of your commitment to work because of family priorities like soccer games allows me to do my best work.

45% of our investments have had at least one woman founder. It’s not something we set out to do but it is an outcome we are proud of. It’s substantially different from the industry norm and it shows that those investments are out there.

All of these observations have made it apparent to me that greater diversity of leadership naturally leads to greater diversity of thought and outcomes. In addition to gender diversity, we are doing well on diversity of professional backgrounds, which greatly adds to our breadth of understanding of industries and deals.

When it comes to racial diversity in our portfolio, we are proud to exceed industry averages, with 27% of our portfolio companies having at least one non-white founder (including 9% Black and 4% Latinx), but we need to do better. While we do make it a priority to include racially diverse candidates when hiring for full-time roles, those positions don’t come up very often. Our intern recruiting process represents an area where we can effect change more quickly; we are actively seeking underrepresented candidates. We are also working to diversify our board. In the meantime, we’ve redoubled our efforts to source early stage companies founded by members of underrepresented racial groups, through building and strengthening additional sourcing connections.

I believe that the diversity of our team has been core to our strength as a firm. We have had several spirited debates about how we can do better to reflect racial diversity in addition to gender diversity in our team, our investments, and our portfolio companies. We will continue to push each other to raise the bar, even when it makes us uncomfortable. I like to think that we would make Patrick Lencioni proud.

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Afresh: Why We Invested

By Elizabeth Coston McCluskey and Tasha Seitz

Global grocery spend is approximately $7.5 trillion annually, and sales of fresh products (produce, meat, seafood, bakery) are rising as a percentage of that spend. Just under half of a shopper’s cart consists of fresh products. However, existing technology solutions focus on “middle of the store” non-perishable items. Because fresh food is perishable, non-uniform, and merchandised in an extremely dynamic fashion it is difficult for stores to predict and manage their inventory. This leads to 10+% “shrink”, or waste, in fresh categories. Produce waste alone is estimated to cost $10B a year in the US and close to $100B / year globally. In addition, significant (harder to quantify) waste occurs in consumer households due to food spending excessive time in the supply chain — losing precious days of shelf life that could be given to consumers. With supermarkets’ thin net margins of 2–4%, they are looking for solutions to help them reduce waste and improve profits.

Solution

Afresh’s AI-powered software enables department managers to generate waste-minimizing and profit-maximizing order quantities for items in fresh departments. The company’s machine learning model takes into account factors that drive demand such as weather, day of the week, mix of items in store, promotions, and competitive activity. It also accounts for supply considerations such as shelf capacity, shipment frequency, and existing inventory. Afresh’s tablet-based app guides the manager through an ordering workflow for each item, whereas they had previously ordered based on the produce department manager’s best guesses recorded using pen & paper. Afresh is currently serving produce departments, with plans to support meat and food service in the near term, and distribution centers in the future.

Why We Invested

Afresh has demonstrated the ability to sell to large, regional chains including Fresh Thyme, headquartered in Chicago. Early customers are committing to chainwide rollouts, with expansion from produce departments into meat and bakery products. Leaders in the industry have validated Afresh’s solution, and are demonstrating their support by investing in this round. In addition to a sizable market opportunity estimated at over $10B per year, we believe there is substantial impact potential, and the team has a strong commitment to impact.

In these challenging times, we are critically examining the potential impact of the COVID crisis on both our portfolio companies as well as new investments, and we believe that Afresh will continue to be a valued solution in the event of a protracted recession. We expect grocery retailing to see steady demand through difficult economic times. Because Afresh enables grocers to reduce waste and thereby increase profitability, we believe the company has the potential to improve the financial health of grocers during a downturn in the economy. Current customers are pushing to accelerate their deployment of Afresh’s solution, which is a positive indication of the company’s value and potential.

Impact

Food waste in the US consumes 21% of all freshwater, 19% of all fertilizer, 18% of cropland and 21% of landfill volume. Retailers throw away 40+ billion pounds of food annually, equivalent to 10% of the total food supply at the retail level. This problem is most pronounced in fresh produce, which consistently sees 12% losses. Afresh has been able to demonstrate 25% food waste reduction with initial customers, which at scale could have massive environmental impacts. Additionally, if the Afresh solution can enable retailers to make better margins on fresh food, it should become more available and affordable to consumers.

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