Cultivating Opportunity – Exploring a Decade of Angel Investing
Laura Hill is one of SWAN’s most experienced investors, and been an active Angel investor for 10 years. Listen to this webinar to learn what her investing experience has taught her.
The Pros and Cons of investing in carbon-credit related startup companies
Carbon credits are part of the overall solution for reducing CO2 in the atmosphere and have attracted significant interest from investors and companies.
When considering investing in a carbon-credit related startup company, it may be helpful to consider the following Pros and Cons.
Pros
- The world must find ways to slow global warming.
- Startups developing carbon reduction products may find that their customers can benefit by selling credits generated when using the company’s products. This may incrementally lower the sales friction encountered by the startup.
- A startup can directly deploy carbon reduction technology and benefit from selling credits. For example, the startup can own and operate wind or solar power generation facilities or can own and operate systems that capture and utilize the methane gas that is emitted from waste disposal sites, coal mines, or livestock farms.
Cons
- Thinking big picture, carbon credits are an indirect approach to reducing carbon entering the atmosphere, and most often don’t reduce CO2 at the source, where the CO2 is most concentrated. And the purchasing of carbon credits allows buyers to avoid reducing or eliminating their own emissions and may be motivated more by a need for greenwashing marketing campaigns than a financial commitment to slowing global warming.
- If the company’s primary mission is to sell carbon credits, consider that carbon credits are unregulated and vary widely in quality and impact. There is no standard way to measure, verify, and certify the emissions reductions or removals that carbon credits represent. Some carbon credits may be based on dubious or fraudulent projects that do not actually reduce or remove greenhouse gases from the atmosphere.
- Carbon credit marketplace startups face the same challenge that every marketplace startup faces, namely, achieving a balance of supply and demand, and having to be equally successful with two disparate marketing campaigns.
- A carbon credit selling startup may be creating credits planting monocultures of trees, which are inherently damaging to the environment by decreasing biodiversity has negative impacts on soil quality, water availability, and wildlife habitat, thereby reducing the resilience and adaptability of forests to climate change and natural disasters. Insect and bird populations around the world are plummeting precipitously in part due to the destruction of the biodiverse habitats that they depend upon. Read more
Tax Law 174 changes the path to Startup Profitability
Under “new” IRS Section 174 capitalization rules, a portion of R&D expenses cannot be expensed for tax purposes in the year when they are incurred. Rather, current-year R&D expenses get spread out over several tax years, including years when early revenue might have resulted in a positive net income.
For example, a hypothetical startup incurred a $350,000 income tax bill in a year when GAAP accounting showed that they were unprofitable. That $350,000 payment to the IRS burned investor-provided funds that could not be used to grow the company.
Melinda Oster, CPA and highly experienced Tax Partner at Atchley and Associates, discussed 174 in an informative webinar which covered:
- Understanding the motivations behind Section 174’s adoption.
- A breakdown of the key provisions of IRS Section 174, including eligible expenses, qualifying activities, and their tax implications.
- Best practices and strategies to ensure compliance with IRS Section 174 while maximizing your tax benefits.
- Examples showcasing the tangible benefits and potential pitfalls associated with IRS Section 174.
Listen to the webinar
New Virtual Power Plant technology investment opportunity
Technologies that support Virtual Power Plants can provide interesting investment opportunities for angel investors.
Electrical power demand varies dramatically over the course of a day, and that demand is out of sync from when renewable electricity is generated. If demand and supply could be brought into sync, there would be less demand for non-renewable-fueled power-plant capacity.
An emerging solution is Virtual Power Plants (VPPs) that can draw on and aggregate behind-the-meter Distributed Energy Resources (DERS) at peak-demand times. A VPP can balance electrical loads and provide utility-scale and utility-grade grid services like a traditional power plant)
DERs are equipment located on or near the site of end-use (for example, behind the meter) that can provide electricity at a small scale when needed by the grid. For example:
- Electrical vehicle batteries that were charged with demand on the grid was low.
- Residential solar/battery systems that store power during the day when residential demand is low.
Projections show that VPPs in the US will be able to exceed the capacity of all US nuclear power plants.
Portfolio EdTech company Acadeum closes $12M Series B
College students can’t always get into the courses they want, even online ones. That’s why many schools share online courses across institutions to give students more flexibility in scheduling the classes they want and help them graduate.
Austin-based edtech startup College Consortium Inc., which does business as Acadeum, is one of the biggest players in this ecosystem, working with big schools like Texas A&M and smaller systems. Today, Acadeum announced it has closed an $11.9M series B funding round led by Austin-based Green Street Impact Partners. It is the fund’s first investment. Other investors included ECMC Group’s Education Impact Fund and Pearson Ventures.
Acadeum’s platform provides course sharing across national and regional schools, and the company has partnered with Coursera to expand offerings of professional certificates. Through course-sharing, schools can offer courses that they might not otherwise be able to.
For example, last year Complete College America launched a course-sharing initiative in partnership with Acadeum to help two-year schools aiming to start or expand technical programs.
“Today’s learners are older, and more likely to be parents or working, than at any point in our nation’s history. That new majority of learners are putting pressure on institutions to align course offerings with the realities of their schedules and responsibilities beyond the classroom,” David Daniels, CEO of Acadeum, stated. “At a moment when some are questioning the role and relevance of American colleges, we’re building tools to leverage the collective strength of our nation’s higher education system to unlock new opportunities for both institutions—and students.”
Acadeum was co-founded in 2016 by Joshua Pierce, Luis Felipe Rincon, Nathan Green, Osei Bonsu and Robert Manzer. It has now raised a total of $23.9M, according to Crunchbase.
Questions to ask before making an Impact Investment
The questions vary depending on the specific interests and priorities of each impact investor, but they generally revolve around understanding the startup’s mission, impact measurement, scalability, financial viability, risks, partnerships, and accountability.
Here are some questions you may ask:
1. What is the mission and purpose of the startup? Investors need to understand the company’s core values and the specific social or environmental issue it aims to address.
2. What is the potential impact of the startup’s product or service? Investors need to know how the company’s offerings can contribute to positive change and create meaningful social or environmental benefits.
3. How does the startup measure and track its impact? Investors are interested in understanding the metrics and methodologies used by the company to assess and report its impact. They want to ensure the startup has a rigorous and transparent impact measurement framework in place.
4. What is the size of the target market and the growth potential? Investors need to evaluate the market opportunity and scalability of the startup’s impact. They want to understand if the company has the potential to reach a large number of people or create significant environmental improvements.
5. What is the business model and revenue generation strategy? Impact investors need to know how the startup plans to generate sustainable financial returns while delivering positive social or environmental outcomes. They want to assess the viability and long-term sustainability of the business.
6. Who are the key stakeholders and partners involved? Investors are interested in understanding the startup’s network of stakeholders, including customers, beneficiaries, suppliers, and strategic partners. They want to evaluate the company’s ability to collaborate and create synergies with relevant organizations.
7. What are the potential risks and challenges in achieving impact? Investors need to identify potential obstacles that may hinder the startup’s ability to achieve its intended impact. They seek to understand the company’s risk mitigation strategies and the management team’s ability to navigate these challenges.
8. What is the exit strategy for the investor? Impact investors often seek to understand the startup’s plans for future liquidity events, such as an IPO or acquisition, to ensure they can eventually realize financial returns on their investment.
9. How does the startup ensure accountability and transparency? Investors need to know how the company ensures accountability to its impact goals, stakeholders, and investors. They may inquire about governance structures, board of directors structure, impact reporting, and the company’s commitment to ethical practices.
10. Has the startup received any third-party certifications or recognition for its impact? Investors may be interested in knowing if the startup has obtained certifications or awards from reputable organizations that validate its impact claims. This can provide additional assurance and credibility.
These are the questions that SWAN digs into before investing. SWAN makes a first investment in 6 to 8 companies per year. A team of 10 volunteers publishes a twenty -page deal memo for each investment opportunity. Joining SWAN as an Angel or Associate member and helping with a deal memo is a great way to learn how to assess an impact-startup investment opportunity.
Making an Impact in 2022: SWAN’s Year End Review
Despite the economic uncertainties experienced by our angel investors in 2022, they
stepped up and invested in eleven social or environmental impact companies. SWAN angels are committed to making the world a better place.
SWAN’s investments enable creative entrepreneurs to
address important United Nations Sustainable Development Goals.
The SWAN Impact Network’s portfolio significantly increased in value in 2022.
And SWAN established a Philanthropic Fund that allows charitable
donations to be invested in companies that have been funded by SWAN angels.
In 2022, SWAN added to its broad alliance of impact and syndication partners.
Portfolio company Yotta in the News
Yotta Energy has been selected by the New York State Energy Research and Development Authority and the U.S. Department of Energy as one of ten climate tech companies, hailing from Europe, Australia, North America and across the U.S, that are dedicated to significantly accelerating the move to a resilient, electrified, and clean economy, in New York and beyond.
Working across the value chain, these transformative companies are positioned for scale and ready to make an impact, with solutions ranging from cells and packs; thermal, long-duration, stationary and portable storage; mobility solutions; and distributed energy resources.
Austin, Texas-based Yotta Energy produces distributed energy products, including EV chargers and the first solar battery that integrates behind rooftop solar panels. The integrated battery significantly reduces installation costs, along with its plug-and-play design that means if you can install a solar module, you can install their battery.
Impact Assessment, YES! ESG Assessment, not yet!
The SWAN Impact Network now has a Director of Impact reporting, Meagan Packard. Meagan is doing a wonderful job of advancing our Network’s understanding of how to assess and document the impact potential of a company before our angels invest. She is also coaching companies on how to measure impact in ways that creates actionable information that helps the CEOs to maximize the impact delivered.
Meagan pointed me to a well-written article that supports what I have been saying for years. SWAN focuses on impact investing, and not on ESG (Environmental, Social, and Governance). Impact investing comsiders a company’s business primary product or service offering. ESG considers how the company’s operations interact with society and the environment.
You can read more in the Stanford Social Innovation Review at ESG is Not Impact Investing and Impact Investing Is Not ESG.
SWAN Director Juan Thurman in the News
The investment tracking platform SERAF featured Juan Thurman in the seventh in a series of interviews highlighting the work of interesting impact investors. Juan Thurman is a Director of the SWAN Impact Angel Network.
SERAF asked, “Looking ahead in early stage impact investing, what are you most excited about? What keeps you up at night?”
Juan replied, “When we started engaging with investors in 2016 they assumed impact investing was concessionary. Fortunately, investors have become more educated and now know you can make market or better returns investing in impact startups. The thing I am most excited about is working with early stage founders, helping them get traction and seeing them deliver impact in their chosen markets. Missing out on good deals is what keeps me up at night.”