Michael Whelchel, co-founder and managing partner of US-based investment bank Big Path Capital, outlines what he thinks will be the hottest trends within impact investing in the next few years, as well as the links between positive impact investments and profits.
Bright Power, an energy and water management partner in the US for multifamily real estate owners and managers, recently closed a USD24.5 million Series B capital raise in a round led by the BMO Impact Investment Fund and Generate Capital. Prior to this, the company had raised a USD10 million debt facility from WindSail Capital Group and USD1.8 million from early angel investors.
Private Equity Wire sat down with Michael Whelchel, co-founder and managing partner of Big Path Capital, the US-based investment bank that facilitated the fundraise, to find out more about what will be the hottest trends within impact investing in the next few years, as well as what links positive impact investments and profits.
“When you look at the world of impact investing, there are a lot of investments that would be below a market rate return on the financial side. Within the ESG area, there are opportunities where the impact is so great that some investors might say: I’m going to intentionally take a below market return – but that’s one area,” said Big Path’s MD Michael Whelchel.
“What we focus on though, is the area where you see both high impact and high returns – it’s easier for a traditional investor to get behind that,” he added.
Big Path Capital focuses on connecting mission-driven companies with mission-aligned investors – by aiming to generate substantial returns while also advancing ESG objectives. The firm works exclusively with raising funds for positive impact companies, typically with an environmental or social angle.
“We use a term called ‘smart money’. People think that if you have a high impact, then you’ll automatically sacrifice returns. That’s the myth that we see out there. We try to turn that on its head and say: actually, the ‘smart money’, smart investors, want to both have market rate financial returns and have this positive impact. Often the traditional investment community thinks that you can’t have both. The argument is more: there is this segment of the industry where you can generate alpha while supporting companies that have tapped into these trends where it’s possible to have commerce which is also sustainable,” explained Whelchel.
Founded in 2004 by Jeffrey Perlman, Bright Power started by connecting the benefits of investing in solar and energy efficiency together. It simplified the process of making energy investment decisions through the creation of an analytics platform, EnergyScoreCards, by using deep engineering expertise in order to find out how to make buildings better for occupants while lowering energy usage, both for existing buildings and in terms of new construction.
The impact themes that will dominate in the next few years, according to Big Path’s managing partner, include the environment, and climate solutions such as addressing fires on the West Coast in the US.
“The evidence in terms of data will be so obvious to everyone regarding the environment that capital has to be part of the solution. Another theme is food & beverage. There’s more and more of an understanding of how we grow our food and how it affects the environment. There will be more of an interest around food, but a lot of it will be driven by its effect on climate solutions,” he said.
In the food arena, Whelchel cites alternative proteins emerging as a major trend, while climate solutions will be ‘an umbrella concept’ covering many of these changes that will take place and that will draw capital in the near future.
One of the purposes of Bright Power’s capital raise was to refinance out Windsail Capital – a debt provider for sustainable positive impact companies- which had funded Bright Power along the way until the company decided to bring in equity to replace some of its debt. In that way, Bright Power is an example of the ecosystem that is building up around positive impact companies, according to Whelchel.
He commented: “It’s a good example of the ecosystem that is developing; to try to start getting some maturity that is focused on these mission driven companies: a sustainable private debt fund like WindSail helped Bright Power scale, and now you’ve got a new set of investors that are also value aligned coming in.”