MaRS Catalyst Fund focuses on the ‘double bottom line’ — social impact and returns

It started about 15 months back by having an initial seed capital investment of $1 million from the Virgin Unite Canada Foundation and Vancouver’s Mindset Social Innovation Foundation.

Now the MaRS Catalyst Fund, which defines itself like a national impact venture fund, has achieved its first close with $3 million in the kitty. Indeed until that hurdle had been cleared – a target set by Virgin Unite which also helped fund the first operating costs – there would happen to be no closing. The immediate goal would be to have a final close of $5 million.

Those proceeds – from a mix of foundations and high-net-worth individuals – is going to be invested in early-stage Canadian companies that are motivated by a desire to tackle a social or environmental issue and also have the possibility to generate strong profits. In other words, a “double bottom” line.

Early stage investing is either the seed capital round or even the Series A round. In the two cases the company has some revenue and therefore it’s more than a concept.

Selecting those investments would be the responsibility of Kathryn Wortsman, the fund’s investment director, who, pending a preliminary close, continues to be searching for potential investment opportunities either in clean technology, or health or workplace educational employment.

“We are close on two,” said Wortsman, who noted that this fund is different from others in the emphasis that it places on impact – the social good that is expected to range from investment that’s over and above the financial return.

“We take our fund just a little further [on the impact side],” said Wortsman, who has spent about 2 decades within the investment capital and private equity world, adding that the job includes two areas (impact and financial) that have been her separate interests and pursuits for a number of years.

“The opportunities [we are looking at] have to have a clear impact thesis in addition to a financial thesis,” said Wortsman, who works together with two other people on the fund. “There needs to be both. We screen for impact first and if the outcome isn’t there, we are not interested in the financial opportunity.”

But how about the missed financial opportunities? Wortsman replied the fund includes a larger mandate. “This fund is supposed to demonstrate that investors may use their money to generate market returns making an impact. We are focusing on scarce resources, health inefficiencies and high unemployment. We want all efforts, as governments alone can’t solve our social and climate problems,” she said. “We need for-profit businesses to solve these problems.”

The other difference would be that the impact investment that has been area of the public market investing – through SRI (social responsibility investing) and ESG (environmental, social and governance) investing – isn’t that well developed in the world of private equity finance.

There are in least a couple of examples: Toronto-based InvesEco whose main focus is investing in expansion-stage companies in North America “that promote health and sustainability within the food and agricultural sector;” and  Vancouver-based Renewal Funds, which strives “to be considered a force toward positive social and environmental change, while delivering above market returns for the partners.”

The MaRS Impact Fund has a similar structure with other private equity finance funds: It has a 10-year term but contrary to the 2/20 norm charges a 2.5 per cent annual management fee plus a 20 percent carried interest.

bcritchley@nationalpost.com