Private equity fund gives birth to a new capitalism

VANCOUVER -- It's not the typical language a private-equity fund uses to stoke interest among potential investors:

"The 21st century will see dramatic retooling of the ways we live together on the planet."

"There must be a philosophical reinvention of where and how capital is deployed."

This is a new capitalism, coloured green, as envisioned by Vancouver investors Joel Solomon and Carol Newell, 50-something scions of U.S. fortunes, his from Tennessee real estate and hers from Newell Rubbermaid. They have spent the past 15 years on the West Coast, putting their inherited cash behind small companies, to make money and to make the world a better place: "investing for change."

For more than a decade, Renewal Partners Co. invested only the duo's money, $7.1-million, in startup companies such as Vancouver-based Happy Planet Foods and New Society Publishers, which is based in Gabriola Island, B.C.

Now, the small investment firm has opened its doors to outside cash. The call for "a philosophical reinvention" of investing as this century sees a "dramatic retooling" of how society lives was Renewal's unorthodox pitch to potential investors. And it has worked. The Renewal2 fund closed a first round of $18-million a year ago, raising the money through the worst of the recession, and is working toward a final close of the fund at the end of May, nearing a total of $30-million.

What it means for entrepreneurs is a different kind of green investor. Unlike most green funds, which generally put money into clean technology such as alternative energy sources, Renewal Partners focuses on organic food, green consumer products and green building products, areas where it says there is significant growth and a dearth of capital available to entrepreneurs.

"There's lots of companies that need capital and very little capital going to it," said Paul Richardson, president of Renewal2. "Given the number of companies, it's really a funder's world, in being able to pick and choose deals."

In the venture capital world, Renewal2 is tiny, even for Canada's VC sector, which for years has been criticized for being too small and too cautious, to the detriment of Canadian entrepreneurs. The Canadian VC market is $1-billion, according to the Venture Capital & Private Equity Association, which described the domestic fundraising environment as "tepid." The $1-billion raised in 2009 is not much better than the mid-1990s level, which is bad news for Canadian startups.

To put the Canadian market in perspective, Accel Partners, the world's No. 1 venture capital firm and backer of companies such as Facebook, has $1-billion (U.S.) to invest in just two of its recently established funds.

A major problem in Canada is the lack of institutional support, from the big banks to large pension funds, which haven't significantly backed small firms and funds such as Renewal2. Renewal2 decided not to solicit institutions for money, deciding the effort required wasn't worth it. Renewal2 has more than 40 investors, mostly wealthy individuals, about half of them Canadian.

Renewal2 has already made three investments, the latest of which closed this month, a $600,000 injection into Alter Eco Americas in San Francisco. The nine-person company sells fair-trade food products in 2,000 stores in the United States and 30 so far in Canada, starting in British Columbia. Sales are expected to double to $3-million this year.

It took a year to receive the funds from the time Alter Eco co-founder Mathieu Senard first met Mr. Henderson at an investors' conference to when he secured the money.

"If there is one [piece of] advice I'd give to an entrepreneur - never expect you're going to get a cheque in the next two weeks," Mr. Senard said.

Renewal2 expects to look at more than 300 deals a year; its two other investments were also in U.S. food companies. It hunts for companies that are on their feet, having moved beyond the initial startup. Aiming to back companies with annual revenue of up to $20-million (Canadian), Renewal2 makes initial investments of up to $1.5-million, with the goal to triple the money over the course of a decade. Mr. Solomon calls the extended time line "patient capitalism" - most venture capitalists think in three- to five-year terms.

The first Renewal fund has generated an annual return of about 12 per cent, the firm says.

The company got its start when Mr. Solomon and Ms. Newell, both of them looking for something more meaningful, met on Cortes Island, northwest of Vancouver and known for its eco-friendly feel.

"Eventually," Mr. Richardson says, "the world will get to the point where larger institutions start looking at our type of fund."

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GREEN: THE COLOUR OF THE ENVIRONMENT AND OF MONEY

Vancouver-based Renewal Partners Co. started out investing the money of its founders, Joel Solomon and Carol Newell, in startup companies, but the small investment firm has since opened its doors to outside cash. Here are some of its successful investments so far: Happy Planet Foods

The Vancouver-based organic juice maker received an initial $250,000 from Renewal Partners in 1996. Renewal put in additional cash and remains fully invested in a firm with annual sales of more than $12-million. Happy Planet was started in 1994 by "two friends with an obsession for tasty and creative food, one organic family farm, two small juicers and one very impressive blender." Co-founder Gregor Robertson became mayor of Vancouver in 2008.

New Society Publishers

In 1996, over a four-hour lunch, Mr. Solomon persuaded the owners of this non-profit based in Gabriola Island, B.C. to incorporate. Renewal quadrupled its $300,000 investment when the company was sold to Douglas & McIntyre in 2008. "I don't think anybody would have loaned us the money Renewal put into the company," publisher Judith Plant said.

David Ebner