Entelligent Interview - Foundations are bringing bleeding-edge tech to market, says PRIME exec
This week, philanthropic-investment specialists PRIME Coalition announced a new round of series B funding for RedWave, an Illinois startup focusing on harvesting low-quality heat energy from industrial sources using proprietary “nano antenna” technology, and additional seed funding for Quidnet, a startup now commercializing low-cost, grid-scale energy storage technology based around storing water under pressure in depleted oil wells. In an interview with Entelligent, executive director Sarah Kearney explains how she hopes to unlock a wave of new early-stage climate investment — and why institutional and late-stage investors should be paying attention to PRIME’s efforts.
What's the elevator pitch for PRIME Coalition?
We're a nonprofit that connects foundations, donor-advised funds, and family offices to high-risk, high-reward investment opportunities that are optimized for global greenhouse gas reduction potential.
So you're trying to turn philanthropists into venture capitalists?
That's right — venture capitalists with charitable impact as their paramount end goal. In instances where companies with a real chance of getting to scale and making an outsized climate impact are encountering difficulty raising money from traditional venture capital, that's when charitable capital can fill the gap.
We currently have seven companies that are on our docket and ready for investment — we’re only limited by philanthropists’ willingness to invest. Not many traditional philanthropists know that this gap for early-stage innovation related to climate change is so acute, and that misalignment with traditional venture capital is holding us back from achieving cost reduction for accelerated deployment of climate infrastructure. Even if they know the gap exists, they often don't feel they should step in or that they have the tools in their toolbox to do so.
How are you trying to change that?
What we’ve done is build a comprehensive registry of early-stage businesses in the U.S. at the pre-commercial, seed, series A, or series B stage that promise to reduce greenhouse-gas emissions. That’s about 2,000 companies — and many are actively seeking this type of investment capital. From there, we down-select to a very short list of companies. We aim to show the philanthropy community that these companies promise to be commercially successful, to get to very large scale, and to actually make a tangible charitable impact on the on social problems that philanthropists care about.
Are philanthropists interested in investing in for-profit companies?
Yes — in the U.S. there are quite a few ways for charitable foundations to use their grant dollars to invest in for-profit companies, but this type of transaction has happened very infrequently in the energy sector before PRIME.
The key is that the primary purpose of the investment has to be charitable, and you have to be able to show that the company would have a very difficult time raising capital but for the charitable purpose. The “but for” piece is very difficult for any one philanthropic investor to know with certainty as a single actor — but by surveying experts from the traditional VC community to help assess potential funding opportunities, and having them enumerate the reasons why it might be difficult for their own firms to invest, we can provide philanthropic investors with the documentation they need to qualify their charitable investments.
What kinds of companies are you helping to fund?
We’re active across all areas of energy, agriculture, waste and water, and across the whole length of the early-stage investment pipeline. With our first investment, Quidnet, we were the first money in — the idea being that by injecting philanthropic capital early, you make it easier to crowd in commercial investors later.
In RedWave's case, the team had interest from commercial investors, including a sovereign wealth fund out of Kuwait, that demanded matching capital, so PRIME took a slice of Series B funding in order to unlock that commercial investment. PRIME believe both are important case studies of how philanthropic capital can make a real difference for early-stage energy companies.
So PRIME’s work dovetails with private investment?
Absolutely. As we've built PRIME, we've heard from large institutional investors, like sovereign wealth funds, university endowments, and pension funds, that they'd really like to place more capital into climate infrastructure. And in fact they often need the same kind of intermediation that PRIME has designed for the philanthropy community. We recently housed a project at PRIME, the Aligned Intermediary, to research how best to serve the needs of those kinds of asset owners — and we’re very proud to say that the Aligned Intermediary is now spinning off as a public benefit corporation in its own right, and has almost $1 billion in commitments from institutional investors including University of California Regents and TIAA-CREF.
Sounds great. Still, PRIME’s focus is on early-stage projects — is there anything later-stage investors can learn from what you’re doing?
We believe PRIME’s current focus on the earliest stages of company formation will provide later-stage investors a healthier pipeline of companies and projects to support -- for example, Quidnet is now promising a grid-capacity energy storage solution that's an order of magnitude less costly than the state of the art today. Quidnet’s storage solution could change how the world approaches integration of renewables onto the grid. I believe staying connected with organizations like PRIME, so later-stage investors can see what's coming down the pipeline, is a really smart move.
Realistically, can philanthropy provide enough capital to make a difference?
It’s true that foundations and donor advised funds are a small piece of the global asset pie, but they’re unique in the level of risk they can take and in their prioritization of charitable impact. Grant dollars, in particular, let you do things that nobody else can do, because the status quo is no expectation of financial return. That means that philanthropists can take risks that many Entelligent readers are institutionally constrained against doing.
We believe it is critical to our global climate challenges to accelerate the deployment of proven tech, but we also need to develop the unproven technologies of tomorrow. If we can do that, and use that risk-taking capital with surgical precision along the whole innovation-and-deployment pipeline, then we can make the whole sector healthier and more rewarding for institutional investors.
Ben Whitford is the US correspondent for The Ecologist. He has written for the Guardian, Newsweek, Mother Jones, Slate, and many other publications.