Greg Wasserman discusses raising a $385mn climate fund, and the opportunities in climate investing
Greg Wasserman, Head of Private Climate Investing, Wellington Management
As the global energy transition gathers pace, climate investing has expanded from a niche sector of the venture capital (VC) market to a proliferation of sustainable investment strategies spanning numerous asset classes.
Wellington Management is at the vanguard of private climate investing. Following a series of public climate funds, the $1.2tn AUM asset manager’s growing $8.5bn alternative investing platform is now making a mark in this space. Greg Wasserman, the firm’s Head of Private Climate Investing, spoke to Jayda Etienne, Assistant Editor of Preqin First Close, about raising Wellington Management’s inaugural private climate fund, and the current opportunities in climate solutions.
What’s distinctive about Wellington Management’s private climate investing strategy?
One thing that we think sets us apart is how we define the opportunity sets within the climate field. We consider both mitigation and adaptation. So, anything that helps mitigate emissions or helps society adapt to extreme weather is a possible climate solution. Most opportunities tend to fall within the energy transition, food and agriculture, transportation, mobility, industrial automation, enterprise, and digitization sectors.
What type of companies do you target?
We target late-stage venture and early growth climate solution companies. These are usually around series B and series C, and typically have at least $5mn of revenue. We invest in companies that demonstrate commercial traction, product market fit, and are ready to scale. We also focus on solutions that are more digital as opposed to the science side. More software, data analytics, and enabled hardware, and less of the deep tech or new applications of chemistry, biology, and physics.
Why do you focus on proven technologies as opposed to more developmental solutions?
When sourcing our investments, we prioritize a strong value proposition. So, the company must be saving its customers money, delivering performance, and/or providing functionality. We avoid competing for products that are in commodity markets, which drives us away from many of the more traditional, asset-heavy, cleantech type businesses, and toward solutions that deliver unique functionality and value. For example, our portfolio company SPAN supplies smart electrical panels allowing you to control individual circuits in your home, and provides actionable insights about energy usage so you can optimize consumption.
What’s attractive about late-stage VC for climate investments?
I think that’s where you have the potential for the most impact. It’s great that people are focused on solutions that might work in a decade or two, but there are so many solutions that are ready to scale right now or just need a bit of help getting to market. That’s where we can add a lot of value as a partner.
For example, many of our companies have IPO aspirations, and we can help them think through board evolution. The board of a series B company that has $5mn of revenue is quite different from the board of a series D company with $50mn of revenue, or a board that's heading into an IPO. What’s more, if you do get toward the IPO path, what will the public markets expect of you? One of our strengths at Wellington is that we’re on the private side, but we’re also one of the largest public GPs with over $1tn AUM. We have access to analysts and insights from our coverage of the public market that can be valuable to our private companies.
In April you announced the final close of Wellington Management’s inaugural Climate Innovation Fund. How did the challenging fundraising environment impact your capital raising efforts?
It's obviously been a tough market. When we were in the early phases of fundraising, the market went through a bit of a reset which we had to navigate. Because of that, our fundraising probably took a bit longer than expected. But we're happy we got it done. Now we’re in market fully investing, with a portfolio of almost 10 companies so far.
Are you focusing on any particular region?
Currently our deals are mostly based in the US and Canada. However, our core focus is North America and Europe. Obviously, there are lots of opportunities beyond those regions, but our hands-on portfolio management approach means we need to focus our deal activity in the regions where our team's expertise lies.
Who’s invested in the fund?
Our investor base is global, with a mix of institutional and high-net-worth individuals – though it skews more toward institutional investors. We have commitments from major pension and sovereign wealth funds, and also insurance companies. We’ve been able to foster a strong US institutional LP base because those investors understand our approach and have confidence in our strategy. Our focus on companies that deliver value rather than just impact is central to achieving our goals.
How does raising a climate VC fund differ from other VC funds?
It’s slightly different in the sense that there’s an extra layer of filtering that goes on when selecting deals to ensure we generate both financial returns and climate impacts. Some investors understand that, and they actively want that because they realize the myriad opportunities within climate solutions. So many of the industries we invest in have strong tailwinds because we’re targeting sectors vital to combat current and future climate challenges.
Is now an opportune time for Wellington to venture into private climate funds?
Climate investing has really evolved, and the solutions are continually improving. Back in the early 2000s when I started in this space, the solutions required huge trade-offs. If you wanted a climate-friendly car, for example, you had to settle for a much worse car. If you wanted green electricity, it was more expensive. Plant-based alternatives didn’t taste as good. Today, technologies have evolved so much that climate solutions are often better than what they've replaced. Modern electric vehicles are phenomenal machines which many people buy because they’re the better car, not necessarily because they care about the environment. These improved solutions, coupled with market need, are a big part of why we think the opportunity makes sense right now.
Jayda Etienne is Assistant Editor of Preqin First Close, the essential newsletter for the global alternatives market. It’s quick, easy, and free to subscribe here.
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The opinions and facts included in the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin and Wellington Management accept no liability for any decisions taken in relation to the above.