The challenge of any new fund in a new market space is to show both potential as well as returns. Ignite, the UK’s first energy-based impact investment fund, has done both with its first exit coming in mid-2015, two years after it was set up in 2013.
The fund, however, had broader goals than just making quick exits. It had three clear goals. First, to create commercial benefits for the parent company, UK-listed energy utility Centrica, by working with new, disruptive and profitable business models and technologies.
Second, Ignite’s investments and partnerships would give Centrica’s employees the chance to broaden their experience and increase their skills by working as mentors or non-executive directors. Finally, the fund was a way to support social enterprises, which deliver positive outcomes – from increased employment to reduced carbon use – to the communities in which Centrica operates.
At the time Ignite was launched, Sam Laidlaw, then CEO of Centrica, said: “The answers to society’s challenges do not lie solely with the private sector or the public sector, but with social entrepreneurs, in communities, and in cross-sector partnerships.
“I am passionate about the potential for Ignite to help find and grow energy related social enterprises to innovate and create these answers.”
Julia Rebholz, Ignite’s managing director, said Ignite aimed to invest a minimum of £10m ($14.2m) over its first 10 years, with individual investment ranging between £50,000 and £2m.
She said: “We have developed a model that has already supported 19 enterprises and invested in 11, and we are delivering sustainable financial returns.
“Our enterprises have supported 10,000 people in the UK, have created 44 jobs and 68 people have been trained as a result of our investments.
“In addition, we have generated a pipeline of projects for the corporate entity to the value of £100m, and we have completed our first exit with a healthy return.”
This exit involved E-Car Club, a pay-per-use electric car club which was sold to rental firm Europcar in July 2015. E-Car Club was the second business Ignite invested in. As well as a taking an initial £500,000 stake in 2014, Ignite worked with the company to define and quantify the social impact of its operations, and provided a non-executive director to offer strategic advice.
An employee from Centrica subsidiary British Gas was seconded to help develop sales and customer insight capabilities.
Rebholz said: “The success of this exit from our perspective was that, although we knew we were selling to another large corporate, we actually embedded the outcomes in the deal structure. So E-Car are going to continue to work for the impact outcomes in terms of their mobility agenda and supporting people in communities to have greater access to transport where local funding and government subsidies have been cut.”
Much of Ignite’s work is devoted to ensure that social businesses are ready to receive funding. The organisation’s pre-investment programme involves selecting up to 10 enterprises a year and matching them with a suitable mentor from within Centrica.
Rebholz added: “On top of that, we run a residential programme in partnership with a business school, where we look at strategy and all the elements of running a business and help them develop a business plan.
“We also provide them with a social impact and outcome specialist who helps them understand the impacts of the activities they undertake, as well as how they are going to measure their business in a non-financial way.”
Rebholz said Ignite was unique in that it is a corporate which is investing for both outcome and innovation. “You’ll see impact funds and corporate venturing funds but you don’t really see corporates blending the both.
“We’ve now got lots of other companies that are talking to us who want to replicate the model. They are seeing that this helps with understanding macroeconomic trends as well as creating dialogues with potential customers and business partnerships.”
So how does Ignite balance its innovation, employee benefit and social outcome goals when picking businesses to work with? “We run a blended portfolio, so when we are screening potential pipeline deals we are looking for enterprises that blend all three,” Rebholz explained. “But we also are realistic in that, if there are organisations with high social impact, we may need to be more forgiving on the financial returns which that particular business is going to deliver, because the social impact is going to require a different level of investment and therefore have a different return profile.”
Ultimately, Rebholz said, Ignite was looking to help the more financially driven organisations to think more about their social impact while at the same time encouraging socially-minded businesses to think about financial stability, growth and how they can scale-up.
But the benefits to the parent company should not be ignored, she added. “We view Ignite as a development programme for Centrica employees: there are multiple roles for people to play, such as a non-executive director, or being part of a due diligence team. With companies not doing many deals at the moment generally, that experience is quite difficult to come across.
“What we have found is that when seconded employees come back to Centrica, they start to look at things like processes and ways of working differently: their experience helps them to be more entrepreneurial in terms of the way they view the world.”