Greyparrot Analyzer for waste sorting
Impact investing continues to grow and evolve, driven by the next generation of wealthy individuals who seek to create positive social and environmental change alongside financial return. This is becoming increasingly feasible and achievable, in part because of regulation, a better understanding of what is possible, growing agreement on best practices, and technology playing an enabling role.
The impact investing market has experienced significant growth, highlighting its growing importance among family offices and high net worth individuals, according to a recent report from UBS.
But embarking on this journey can be daunting, confusing and shocking, given generational dynamics, diverse values and the plethora of investment options available. Data from Simple shows that many family offices are reluctant to consider climate change investments, but those that do will only go ahead with an investment if it is backed by a like-minded family. This means that those in charge have a huge responsibility to execute the venture with passion and purpose and deliver results.
At the moment, most family offices are not considering investing in climate change, … [+]
The path to impact investing
Setting up with others who have walked the impact investing path is one way to help avoid common pitfalls. Michael Smith, general partner and co-founder of Regeneration.VC, comes from an entrepreneurial background, and his path to impact investing began after his last exit.
“After I sold my company, I realized that despite donating my time and money, the situation on Earth was getting worse. I realized a more collaborative, catalytic approach was needed,” Smith said.
Dissatisfaction with the status quo often drives investors to define their values and align their capital around issues that matter to them. Like Smith, many impact investors emphasize the importance of finding your true mission and being deeply committed to it in order to work with philanthropic partners to create big change.
“It’s important to identify your true calling and pursue it deeply. For me, it was the environment. Others may find their passion in education or medicine,” Smith says.
The next step in sharpening our climate focus was to launch Regeneration.VC (RVC), a fund open to external LPs to scale the impact of our capital, targeting $45 million in Fund 1 and $150 million in Fund 2. The fund will focus on climate tech in underfunded sectors within the supply chains of consumer industries, including apparel, food, packaging and electronics, which account for approximately 45% of global emissions and 80% of biodiversity loss.
A VC vehicle outside of a family office offers more than just structure: it allows room for collaboration with other impact investors, from sharing knowledge to co-investing in opportunities.
One such collaboration between Smith and Regeneration.VC was with One Small Planet, an impact investing firm founded in 2020 by Will Peterffy (the son of Interactive Brokers chairman and billionaire Thomas Peterffy).
They began their impact journey through a co-investment in Cruz Foam, a company that makes biodegradable foam alternatives. “Cruz Foam was our first co-investment, bringing together an impact-focused family office with our venture fund, and our shared focus on both high environmental impact and financial return opened up the possibility for further collaboration,” says Smith.
Jack Wielebinski, CIO of One Small Planet, brings a unique perspective by integrating traditional venture funding principles with a mission-driven approach.
“My view of investing is not just about generating ROI, but about solving real problems in the world,” Wielebinski said.
Peterffy and Wielebinski’s backgrounds and passion for the environment and indigenous rights shape One Small Planet’s investment strategy, focusing on under-funded areas where they can make a big impact. Wielebinski also emphasizes the importance of focusing on under-funded areas as impact investors, adding: “Around 90% of climate finance is dedicated to the energy transition, and almost half of that is for e-mobility.”
Overcoming Challenges in Impact Investing
Intergenerational dynamics and value alignment
Starting your impact investing journey can be daunting, especially when dealing with the diverse values and expectations of different generations within your family office. Smith suggests starting by deeply exploring your priorities, such as education, healthcare or the environment, and engaging in a learning journey before committing capital.
Simple’s data therefore highlights that most family offices approach sustainable investing in a similar way, through exclusionary screening rather than ESG integration or impact investing.
Most of the family offices surveyed are committed to sustainable investing through exclusionary screening.
Wielebinski adds that family offices should make strategic decisions around stage, sector and capital allocation. He highlights the importance of aligning returns with impact, using Cruise Form as an example: This sustainable materials innovator has demonstrated that private market transactions, while requiring longer holding periods, can generate significant impact and returns when aligned with the right incentives.
Co-venture: Regeneration.VC and One Small Planet
Cruz Foam, a company that makes biodegradable foam alternatives, was the first co-investment that brought Regeneration.VC and One Small Planet together. Smith’s family office served as a pre-seed investor, followed by Regeneration.VC at the seed stage, and eventually bringing on board notable investors like Leonardo DiCaprio. This collaboration laid the foundation for a strong partnership between the two companies.
According to Smith, “This investment demonstrates the power of collaboration in achieving both economic benefits and significant environmental impact.”
Building on this strong foundation, the two firms continued their partnership with a joint investment with Closed Loop Partners in Greyparrot, a company using AI technology to optimize waste sorting. The venture demonstrates that impact-focused technology can deliver attractive returns while addressing important environmental issues. The company recently announced an additional $11 million in capital raising following last year’s Series A round.
A future in which entirely new solutions can thrive seems more likely, according to Wielebinski: “There is a world in which people and the planet live in harmony, where everyone has enough, and where the system is not blindly exploitative, and we can all live modern, dignified lives. And we are all responsible for creating that future. One Small Planet and many other organizations, like RVC, are focused on facilitating that brighter future.”
Advice for aspiring impact investors
For those new to impact investing, Smith and Wielebinski shared three key tips to help navigate this changing environment.
1. Choose the right investments and focus on what you know
Smith emphasizes the importance of leveraging your own insight and expertise when choosing where to invest: “It’s very hard to be a direct investor unless you’re from the industry you’re investing in. Start with a fund that specializes in the impact investing area you’re interested in, or consider a fund of funds that covers your area of interest,” he advises.
Wielebinski agrees, emphasizing the importance of mission alignment: “If an investment doesn’t align with your mission and what you’re trying to accomplish, don’t pursue it. Focus on the areas where you can make the biggest difference.”
2. Build your network and create deal flow
Building a strong network and deal flow is essential to success in impact investing. Engaging with like-minded investors and industry leaders can provide valuable insights and access unique investment opportunities. Wielebinski emphasizes the value of having a diverse network that includes not only other investors but also entrepreneurs, industry experts and thought leaders.
This diversity leads to a wider range of opportunities and a more comprehensive understanding of the market. Smith adds that fund managers can also be knowledge partners, saying: “Relationship building with fund managers is really important. Map out what that relationship will look like, including the cadence of check-ins and learning events.”
3. Engage in learning and focus on your passion
Both Smith and Wielebinski stress the importance of embarking on a learning journey and focusing on causes you’re passionate about. “Before you put in capital, go on a learning journey. Talk to people who have already done it and get involved in ecosystems that can help you grow your understanding and impact quickly,” Smith advises. Wielebinski encourages investors to identify their passions, whether that’s organic farming or indigenous rights, and commit to making a difference in those areas.
Making a difference
Regeneration.VC is launching a new fund with a target size of $150 million with One Small Planet as its anchor investor. One Small Planet’s Fire Fund will manage $100 million across all investment vehicles and will distribute separate philanthropic capital through the Peterrfy Foundation. The fund will focus on conservation through funding for indigenous and local communities.
But it seems like more is needed: Wielebinski says, “We need 100 more funds and many more emerging managers to drive the innovation needed to tackle the world’s most pressing problems.”
The growth of impact investing reflects a widespread recognition of the need for impactful, sustainable and socially responsible investment strategies. With more wealthy individuals and family offices sharing their journeys, the industry may be able to attract more aspiring impact investors looking to make a difference.
