ImpactAlpha, October 20 – Early-stage fundraising is difficult. Finding mission-aligned growth capital can be just as hard. Most of the few impact-oriented private equity funds have come from private equity giants like KKR, Bain and TPG.
Chicago-based Impact Engine is aiming to expand the supply of growth-stage impact capital by investing in new managers of impact private equity funds. The women-led impact investor has raised $31 million from Surdna Foundation, William Harris Investors and the Libra Foundation to back first-time fund managers. Candide Group facilitated.
San Francisco-based Lumos Capital, which invests in companies supporting workforce development, is Impact Engine’s first fund investment.
The growth-stage capital gap jeopardizes the future impact of today’s mission-driven businesses, says Impact Engine’s Priya Parrish. “Early on in a company’s life, baking the impact vision and thesis into the business model is easy.”
When a company grows to hundreds of employees, multiple products, multiple headquarters, and a complex supply chain, tensions start to arise between scaling profits and scaling impact, she adds. “Having mission-aligned investors when a company reaches $100 million or $500 million in revenue is really important.”
Impact Engine will invest in firms wholly focused on impact, not those with impact funds on the side.
“We are really trying to cherry-pick fund managers that we think will be leaders in buyout and growth-equity impact investing in five or 10 years when it’s a much bigger asset class,” Parrish said.
The fund will invest 60% of its capital in five impact private equity and buyout funds. The other 40% will be used for direct investments in impact companies with revenues above $10 million.
The fund’s first direct deal is sustainable packaging venture Footprint.
Impact Engine, which started as an impact accelerator, has raised two early-stage venture funds focused on education, health and workforce development.