A firm founded by ex-managers from Goldman Sachs and Bankers Trust are launching a $150 million impact fund to invest in small and medium-sized Australian businesses.
Growth equity investor Beckon Capital is developing a fund to invest in small and medium-sized businesses (SMEs) that provide financial return and demonstrable social and environmental impact. The focus is on investing in assets that provide financial sustainability as well as in terms of positive impact on communities and environment.
The Impact Growth Equity Fund is open to wholesale investors with a minimum investment of $20,000, and aims to deliver over 15% annualised returns by investing in impact businesses, lifting their productivity and creating capital gain over time. The Impact Growth Equity Fund is an eight-year fund, with the first round closing May 31, 2021, and a second round planned for November.
Beckon Capital sees small and medium enterprises as an area of the economy that is less well understood, most neglected and provides the biggest opportunity for investment.
"The reality is that this asset class is effectively new in the Australian market, and the job is to move it from where it is, with huge demand from investors wanting impact returns, to actually make it attractive to both for investors who want something of sufficient size, range, and scale," said Chris Selth, CEO and chief investment officer of Beckon Capital.
Beckon Capital started with a "proof of concept fund" with diverse small and medium enterprises - two healthcare businesses, a B2C technology business, a building business, and an environmental services business. The new Impact Growth Equity Fund will seek to invest in 30 to 50 businesses with an average horizon of eight years.
Beckon Capital looks at businesses with enterprise value between $5 million and $50 million, and seeks to take a 20% ownership stake.
The cornerstone of Beckon Capital's business is a tech platform that collects the data from SMEs on financial and positive and negative impact and reduces the time and costs of traditional due diligence related to direct equity investments. The platform has evolved alongside the process of setting up the proof of concept fund.
'We're also starting to adapt it to serve the two types of businesses that we are identifying," Selth said. "These are broad categories, but these are companies that are relatively less developed in terms of their approach to impact. They know what they're going to do, but explaining it to investors is a new thing. Going through the onboarding questions on our platform is seen as productive because it helps them learn how to tell the story. The second category are businesses who are relatively more sophisticated, getting close to developing the investment memorandum, and they can adapt the work to our format."
Selth noted that the idea of impact investing and impact businesses is evolving. He called the first state Impact 1.0, which he labelled a type of philanthropy. Impact 2.0 is considering profit and impact in tandem, and he linked it to the development of ESG as a global integration strategy with reporting requirements around environmental and social sustainability. The industry is currently evolving into Impact 3.0, he said, which means profit through impact.
"The thing about Impact 2.0 is that SMEs are hard pressed to meet the reporting requirements that are needed," Selth said. "We're helping the businesses meet those reporting requirements through Impact 2.0, and helping them design the products towards Impact 3.0."
Beckon Capital was formed by Selth, Phil Moffitt and other people from BT.