What is Impact Engine & what sets it apart

Impact Engine essentially operates as an institutional impact investment platform with an 11-year track record of evolution. Initially, it began as a social entrepreneurship accelerator in 2012 and has since grown to manage various investment vehicles, serving both commingled funds and acting as a sub-advisor for separate accounts for larger investors. The firm places a dual focus on generating competitive financial returns akin to traditional venture capital or private equity funds, while also striving to create tangible impact in environmental sustainability, health equity, and economic opportunity, which sets them apart in the impact investing landscape. Their ability to invest across different stages and modes, including funds, co-investments, and direct investments in companies, gives them a unique vantage point in constructing diverse and risk-managed impact portfolios. This approach stands out in contrast to more specialized strategies within the impact investing field, allowing them to identify promising themes and trends while mitigating potential drawbacks of hyper-specialization.

Impact Engine’s investment thesis in climate explained

Chris emphasizes their firm-wide focus on backing business models that seamlessly integrate financial returns with environmental impact. This symbiotic relationship drives value creation within the business, leading to organic growth. Their specific focus lies in climate-centric companies that are pioneering highly scalable solutions across various sectors, including mobility, urbanization, energy resources, food and agriculture, and sustainable industry. Through their venture fund, they target early-stage software or software-enabled companies with proven product-market fit and early revenues. In the private equity stage, they look for companies nearing a $10 million revenue run rate with a clear path to profitability, and this scope extends beyond software solutions.

Assessing the current market for climate investors

Chris points out the significant impact of recent legislation like the IRA, particularly in sectors such as low carbon, hydrogen, and carbon removal, along with the transferability of clean energy tax credits. These positive effects are just beginning to emerge and are anticipated to have long-lasting effects for years to come. On the flip side, there has been a noticeable dip in climate tech investments in the first half of the year, albeit not as sharp as the overall market decline. The early-stage deal count has held relatively steady, with a slight uptick, but there’s been a notable reduction in average deal size and valuations. The most pronounced contraction is observed in the growth stage, where investment criteria have become exceptionally stringent. Chris believes that companies with solid fundamentals and a compelling business case, independent of any green premium, are likely to thrive in this evolving environment.

Identifying major opportunity drivers for climate tech in the upcoming year

In the realm of climate tech investing, there remains a promising convergence of favorable factors, according to Chris. Despite recent market fluctuations, various tailwinds are expected to positively impact the climate sector. These include continuous legislative and policy support, growing corporate commitments to net zero goals, and shifting consumer attitudes toward sustainability. The focus for the coming year centers on three key investment themes: transitioning to clean energy, enhancing resource efficiency, and adapting to climate change. This entails scouting for software solutions that aid grid management amid the rise of renewable energy sources, seeking resource efficiency improvements in areas like energy efficiency, circular economy, and water tech, and identifying climate risk intelligence, carbon management, and biodiversity solutions. There’s also a keen interest in technologies that address the decarbonization of challenging sectors, particularly industrial manufacturing.

From Priya’s perspective, she collaborates with the investment team and Chris, with a focus on three impact areas: climate, health equity, and economic opportunity. She recognizes the challenges faced by emerging climate managers in raising funds and sees an opportunity to support and nurture their growth. Additionally, she highlights the importance of managing risks, including geopolitical and fiscal uncertainties, and embraces volatility as an opportunity for skilled investors to excel and underdogs to prove their capabilities. These factors, along with the influx of talent into the climate investment sector, present exciting prospects for 2024.

Resources Mentioned

• Impact Engine
• Alliance Bernstein
• Market Wagon
• Circuit
• Brightcore Energy
• Afresh
• Full Harvest
• Matsmart
• Acre
• Bloom Equity

Connect with Priya Parrish & Chris Wu

• Connect with Priya on LinkedIn
• Connect with Chris on LinkedIn

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