Investing in Societal Transition: A Private Equity Fund Approach to Unlocking Opportunities

In this episode, we speak with Marc Romano, Head of Impact Private Equity Funds at Mirova. With a distinguished career in finance, including leadership roles at Rothschild & Co, Schroders, and AXA, Marc brings a wealth of experience to the impact investment space. During our conversation, Marc shares his insights on Mirova’s pioneering approach to environmental and societal transition investing, recent fundraising successes, and the challenges of supporting innovation in both early-stage and growth-stage companies. He also discusses Europe’s evolving role in the cleantech sector, the importance of societal transition funds, and the intersection of impact and financial returns in today’s market.

Could start by giving us a brief overview of Mirova and its mission. How did this start and what are the main goals?

Actually, Mirova is truly a pioneer in the impact investment. Mirova was established more than 10 years ago as a spinoff of Natixis Asset Management by a group of pioneers, Philippe Zaouati and Laurence Roucher, and some others, with the conviction that we shall make finance useful for our planet and society. 

And it has always been the focus of Mirova so far. Today, we manage a bit more than $30 billion of assets, cross-asset class, liquid assets, but also private assets, where we have a strong franchise with infrastructure, natural capital, and impact private equity. We are a mission-driven company, and we also try to apply to ourselves what we expect from the company we invest in.

And you just recently raised over $200 million for the Mirova Environmental Acceleration Capital Fund, which is Natixis Investment Manager's first impact private equity fund, right? So, this was very successful. And how was this process? How did this process unfold? And what are the key learnings challenges and successes from this experience?

It has been successful, even in a very difficult environment for fundraising, especially for a first-time team, and a first-time fund. What the lesson is that I think the barrier to entry is even more difficult for a new manager. We have been, and the reason for our success is Mirova because Mirova has expertise in launching new funds and our LPs have recognized it.

We benefit from all the infrastructure of Mirova, so that makes a strong difference. Plus the quality of the team, I think, and the engagement of the team. The fact that we were at the convergence of impact and PE has helped in our fundraising.

So I think the first lesson is having a strong platform. Second, addressing a strong trend in the market. And I would say that also the third is the fact that we have really, as a mission-driven company, one of our missions is to expand impact finance to the broadest possible range of investors.

This Mirova environment and acceleration capital have been available for institutional clients and wholesale clients. And finally, we have a bit less than one-third of the fundraising coming from wholesale. And I think that's another success and one of the things we are very pleased with.

But you talk about impact finance, right? But you are not an impact fund, right?

We are. It depends on what you call impact. You have as many definitions of impact as anyone. We are an impact fund because we believe, I think we have two strong drivers. We believe that innovation is part of the solution to the challenge humanity is facing and that you need to bring capital to help those innovators to scale and to really deliver the impact. And we also believe that those companies that develop a solution with a positive impact are benefiting from strong trends that feed their growth and value.

So it's really, for us, we do not make any antagonism between impact and return. On the opposite, we believe the two are synergetic and feed each other. And we are an impact fund. For example, 50% of the carried of our funds are subject to impact.

And I'm going to go out of script here, but I wanted to ask you because you said about, you mentioned innovation, right? A few weeks ago, there was this report that Mario Draghi published, and Europe is lagging now in terms of innovation, in terms of especially innovation compared to the US. And one of the problems is investing in companies. Now, why do you think we are so behind?

Well, because we do not have a culture of VC investment historically, and it has been developed over the years. We are behind, but we are catching up. I think I'm definitely optimistic.

So yes, you're right, we are behind. But if you look at the overall allocation in cleantech in the world, the market share of Europe is increasing year after year. So yes, we are far behind the US, but we are catching up.

And I think that's good news. One also of the reasons why we are lagging is that we have a unique set of academic research in Europe, second to none, even to the US. And there have been posts, especially after the Ecole de Paris in 2003, so COP21 in 2015, there has been a lot of money put into VC in early-stage companies by Europe and by governments.

But actually, we are missing, or we were a bit missing the second stage of development, which is the acceleration phase. And a lot of our innovative companies we are finding a route to the US to find capital. One of the challenges is really to convince investors in Europe that growth and early growth is an interesting stage to invest in, in terms of return, in terms of impact potential, and in terms of keeping Europe in the lead, if I may say so. And it's what we try to do at Mirova. But yeah, we are lagging, but we are moving in the right direction, which is good news.

I really loved what you just mentioned, because I had the idea that growth stage investments, not when you go to growth, when you go to more mature companies is when you are making this real, right? Because like in the early stage, I think it's great, but it's still like sometimes it's only like, we're still dreaming. We don't know if this is going to work if this is going to be actually accepted by the real economy, you know? So I think that what you're saying is interesting, but I'm wondering why. I mean, why until now, large companies, I mean, companies that are, we're growing had to go to the US to fundraise?

Because basically, you had a lot of the PE investors or PE allocation in Europe who are going to buy out on a large scale, okay? Which are not the growth. Buyout is more stable, but you have the is less risky.

Then you have a stronger incentive to go to buy. You have a lot of money put by the Europe government region on VC. So this has helped to nurse company, but the middle stage was a missing block.

And I think it's what we kind of, hope to cover better. You know, I was finding my numbers of market share in cleantech of Europe in 2018 was something like 7.5%. And now we are at 21.4% in 2023 for North America at 37. So we have a rebalance a bit, which is good news.

In this, we cover venture and growth investment. And in 2023, you had 11.1 billion allocated to cleantech VC and growth, which is the same amount as in 2021 and 2022, which is good news because if you look at the overall private equity industries, there has been a prediction of allocation in 2023. So I think it's a signal that this cleantech and forward allocation is progressing.

You are currently fundraising for Mirova's Impact Life Essentials, which is a fund, one of the only I could ever find that it's a private equity fund that is focused exclusively on social impact. So why do you think this area has been less explored in the industry? And why, or what motivated Mirova to go and focus on it?

Yeah, to be precise is impact on society, because social impact is also something a bit different. Our view is that we have taken care of the planet with the first one. And now the second one is more on the people. Social impact was at the root of impact finance a decade ago. It was the first impact fund where the proposition was really to ensure social impact at the expense of the financial repo. Here it is different. We believe that we, and where our innovation, we believe that with the same approach, with the idea that companies that innovate with a positive impact on society benefit from circular trends that feed their growth and its return. We need to take care of the planet. That was the first idea.

But we also need to focus more on the individual level to make sure that we accelerate the change in society. And the reason why we have decided to invest in this area is that as Mirova, we want to be holistic in our approach. We believe that environment is very important, but society is equally important.

And to restrict what we are dealing with, we will look at innovation, focusing on well-being and health. So, access to health, it's not a biotech fund by the means, but how can we help people to have a better life? The second will be learning and training. You may know that we, for example, it's a French number, but it's everywhere in Europe.

There have been analyses showing that by 2035, the environmental transition will create 1,5 million jobs in France, which is good news but will also destroy a million jobs. So we'd be net positive, half a million, but it's a major switch of competency and job. So it's important also to have better training and learning tools.

Third, it's clearly also how we, our consumption, how can we have a more savvy consumption. How can we be more respectful of the planet? So the new consumer trend for us is a very important vertical. The last on the list is services to make sure we are not leaving anyone behind in our society. And it's what we want to do.

And we believe it's part of our mission. We observe that we have some competitors that cover together environmental and social impact. We have decided to do it in two different funds because we believe we may be able to address different types of investors.

And tell me a little bit more about this fund, because as you said before, no fundraising process's easy, right? All fundraising processes are hard. But this one is specific because as you said, you are separating concepts. Now you are separating societal transition from energy transition. So how has this, I mean, how is this process so far? And what are the LPs saying? Are they aware of the fact that we need to focus on this specific sector separately?

Well, I think the process is like any process, especially this year is not the easiest. But we have some interesting feedback. I will say on the institutional side, we have two types of feedback.

The ones that are telling us, you know, I decided already to focus on the environment. So I do not really want to diversify my focus. And I'm not really interested in your fund.

But also we have exactly the opposite. We have, fortunately, investors who are telling us, I'm fed up with all this green fund. And I really want to be able to address the S in ESG.

And I believe you can do so. And you bring an interesting diversification, and you complement my allocation. On the whole sense side, we are very well received because when you speak directly to individuals who will invest in the funds, and you speak about aging, about learning, about education, about consumption, you speak about matters that are close to that, and they understand it.

So it's a contrasted feedback. What is interesting is the fund has exactly the same DNA as the first one. So, we invest at the acceleration, so early growth stage. We invest in Europe. We invest with companies that can demonstrate they have a strong impact, on one of the selected verticals. And also, for us, it's really tech for good. So we want to have a technology and innovation, that is proven. So, we do not want to take, somehow take risks. So we want technology ready for commercialization. We expect to have already revenue. The company is not always profitable, but will be profitable in the coming two, or three years.

And if it's not profitable, it's not because they invest massively in R&D, it's because they invest in their development engine. The quality of the management is of paramount importance for us, because, we also invest in our people and the ones creating value in our fund. Unfortunately, it's not only us, unfortunately, sorry, but it's also, it's our, our investee and the management of our investee.

So the quality of the management is extremely important for us. Of course.

You already have built a very impressive pipeline, for this Mirova Impact Life Essentials. So how was this, how challenging it was to find these companies? And also, like, what are your key investment criteria? You were mentioning, you know, like the management, etcetera. And maybe you can like go further and also talk a little bit about what you already have, no? For this fund.

Yeah. You know, it's in, as soon as you do a private equity investment, you are always a bit schizophrenic because you speak to people that want to convince you to invest in their company, that's part of your day. And the rest of your day is you speaking to people you want to convince to invest in your fund.

So we, and if it's difficult to find LPs, it's also difficult to find companies that have good quality in your pipeline. I think we enjoy a very solid pipeline for a couple of reasons. Yeah, we receive two or three opportunities per week, so it's quite a lot.

Not all good. And maybe because, first of all, we are new in this environment, this ecosystem, the team is composed of senior people that have been investing for a long time. We, so with me, I have a very talented team.

We have a network of VC funds with whom we work very well, and that know us. So when they have an opportunity for fundraising, they call us. We are very well integrated in all the ecosystems, you know, in terms of investment bank, but also association and, and, and forum and coalition.

And Mirova is recognized as such. So, for all these reasons that makes a big difference. Also, the entrepreneurs that focus on this type of issue, usually have strong value, and having an LP that shares their value is always, I think, something they welcome.

So the fact that we are big on mission-driven makes also a difference. So that's all the reason together why we have a good, a good pipe, I will say. We are already, so we are at the beginning of our fund, but we have already done the first deal for a company named NeoSilver.

It's quite interesting because as you may know, you're quite young, but you may know that to have good aging, you need to maintain activities. It's well-documented. Also the senior living place, could it be co-living, could it be a retirement facility, or whatever, has the budget to organize activities for the residents, but usually they do not have the time nor the expertise to select the good activities. 

And actually, NeoSilver is a platform. It's a, it's a peer-to-peer platform that puts in contact with the retirement place or with a provider of services, qualifies the quality of the services, and facilitates implementation. It's working very well in France and actually, the fundraising was to develop on a pan-European basis, especially in Germany, Spain, and Italy.

That's one example, but it's a, it's a deal we have in the pipe. We, we have, you know, you were mentioning knowledge. You have a very interesting company that we are looking at.

You have, for example, a company in the Netherlands named Skilllab that helps to better map the expertise of the employee of a given company to be able to maximize their evolution going forward. You have another one named Knowledge, which is a French company, which is very interesting because maybe I used to be a professor at university, but they can take the support of a lesson given by a professor and with AI turning in a more attractive and, and, and dynamic tool. So it's a gamification of a very traditional support to minimize the risk of losing a student during the training period.

In, the vertical of consumption, you have various innovation like a company named Fairly Made that allow tracking, to ensure the traceability of the supply chain in the textile industry. In the services, you have a company named Bodyguard, which is a way to moderate the bad contribution online for a website. So you have a very rich and diverse set of, pipelines after a couple of months, simply because we are in the market and we know we need to train carefully.

Yeah. And, but I have a question about that because the emphasis of this fund is France, mostly, you know, 50% of their resources and then exclusively like Europe, right? So is this, do you always invest only in Europe or not, you don't, right?

No, no. The first fund is investing 80% in Europe and 20% outside Europe.

This one is why we focus on Europe because as soon as you look at the individual level, it's somehow more local. So, we believe it's, was less relevant. If you invest offshore, if you invest far away, you have to ask yourself, what is my additionality? Why do they need me? If I'm not in me, I shall not do it.

So, it's why, for this fund, simply due to the nature of the four verticals, we believe it makes more sense to invest in Europe.

And yeah. And also about like knowing the market, right? Because it's like, societal issues are very different in Europe than in the rest of the world, right? You are, I mean, I don't know if you go to Latin America, for example, I mean, yes, the population is aging, but we are, I am from Latin America, right? We are far behind Europe in there. I mean, our population is younger. So maybe it's also like that, and this is a topic where you have to actually like know very, very well the market, right? Also with the, with the consumption, with the conscious consumption, companies are the same, no? Like here in Europe, we are at a certain level, whereas if you go to India, I mean, it's completely different, right?

You're right. And also, and it's a case for the different, we, regulation can be an accelerator, of course, for those companies that innovate.

If I happen, we look at companies that work on the issue of reuse packaging that we've been closed for all the fast food in Europe shortly. So, regulation is a, is also an extremely strong driver and regulation in Europe, I think is interesting. And, and, and it's why it's, it's important to, to, to be focusing your approach.

And it's why we prefer to focus on Europe, as you rightly mentioned, it's more local, and its social drivers are more important. So it's why it's easier to have a local European approach. And as a team, we have people coming from different countries also, and it helps to, to properly map Europe.

Wonderful. Well, before we go, well, I have just one last question. That's about these transitions. Now you were saying you have this first fund that's about society, and energy transition. Now we have the second one that's society transition. What other transition? I mean, what were, is there like in the future?

You're right. The first one is a bit broader, it's the environment. So it's a planet. So the second one is a people. Clearly, maybe it's part of the planet, but biodiversity is more and more concerned. And it's something on which we are already active, especially with this natural capital practice. But biodiversity is somehow transversal to the people on the planet because we know that if we impact our biodiversity, we impact our people in the end.

Yeah, that may be the next front. But for the time being, we believe with the people and planet, we cover, we have quite a comprehensive coverage of the issue. Yeah, you have a lot to take care of.