Al Gore sustainability fund Generation raises $1BN growth equity fund

Al Gore's Generation Investment Management announced Tuesday it had closed a $1 billion growth equity fund, the largest in the firm's 15-year history.

Generation's growth equity partner Joy Tuffield and director Shalini Rao told Business Insider the time was right for a large influx of cash for sustainability-focused companies, even with some sustainability companies reporting difficulties raising funds from more traditional firms.

But Generation also plans to use the new fund to expand the definition of sustainable investments beyond environmental projects and include societal and health companies as well.

Generation's earlier growth equity funds have also invested in Asana, DocuSign, Gogoro, CiBO, M-Kopa, Ocado, Optoro, and Seventh Generation.

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Venture investing will look a lot different in five years if Generation Investment Management has any say in the matter.

The sustainability-focused firm was started 15 years ago by former US Vice President Al Gore and former Goldman Sachs Asset Management co-CEO David Blood. On Tuesday, the London-based firm announced it had closed a $1 billion growth equity fund, its largest fund to date.

“Ultimately we have a very high conviction that the world is going to transition to a much more sustainable economy,” Generation's growth equity partner Joy Tuffield told Business Insider. “It's going to be fairer. It's going to be more equitable. It's going to have a lower environmental impact. It will be sustainable and kind of like an environmental practice.”

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The billion-dollar fund plans to grant checks ranging from $50 million to $150 million to mid- and late-stage companies with mission-driven founders. Upon launch, the fund has two investments: the genomics-testing company Sophia Genetics, and the developer-training software company Andela. Generation's earlier growth equity funds hold stakes in Asana, DocuSign, Gogoro, CiBO, M-Kopa, Ocado, Optoro, and Seventh Generation.

“We have always had a growth equity strategy and we are going to continue doing that,” Tuffield said. “We are going to be a pretty meaningful active minority investors in these companies. We'll be looking to play a role in helping support the entrepreneurs in whatever way makes sense.”

Planetary health, people health, and financial health

The new fund will allow Generation to expand its definition of a sustainable business beyond its traditional environmental focus.

According to Shalini Rao, Generation's director of growth equity, the new fund will have three additional areas of focus: “planetary health, people health, and financial health.” That will position Generation to back ideas that may not fit the traditional “sustainability” mold but could offer higher returns in the long term.

“It's taking that long-term vision as to what the world ought to look like and the companies we believe will be on the right side of history and are very much mission-driven,” Rao said. “So for financial inclusion and well-being, how do you think, at a systems level, what returns a better outcome for the population？ In our view, that sort of beneficial return will also be synonymous with a better return from an investment profile.”

Rao points to Generation's earlier investment in the workplace-productivity software company Asana as one of the examples of what the firm's strategy looks like in practice. The company, which helps workers streamline project management in a cloud-based system, is popular with distributed teams and remote workforces.

Rao explained that software like Asana will help better distribute highly qualified technical talent away from urban centers struggling with wealth inequality. Asana checks the boxes of planetary health and financial health, Rao explains, because it also decreases the need for corporate travel and the associated carbon emissions.

“I'm focused really on trying to find different intermediaries and business intermediaries that are helping to address wealth inequality and sort of remove rent extractors that previously didn't add value to the system,” Rao told Business Insider. “We think that's a really important mission to stand behind.”

Investing in a sustainable future

The time is ripe for a fund solely focused on sustainability, Tuffield explained. She said Generation's research-driven approach has helped it avoid some of the pitfalls other venture firms have come across when investing in sustainability companies, most notably the “green tech” boom and subsequent bust of the early 2000s.

“We're not necessarily opportunistic, we're focused and deliberate in the types of investments that we're looking for and the investments we ultimately end up making,” Tuffield said. “Expertise in how these industries are transitioning has helped serve us and not make investments that we otherwise would look back on and regret.”

A recent New York Times report found that startups marketing themselves as “sustainability companies” had difficulty raising capital from traditional venture firms hesitant to look at the industry with a fresh perspective. Rao and Tuffield say, anecdotally, they have seen no evidence of the phenomenon, but do believe that there is a hesitation to make longer term bets from other legacy investors.

“Part of the original mission of Generation is to prove that sustainable investing delivers outperformance and long term investment,” Rao explained. “That is the best way of investing because, not only is the way you ought to invest, but frankly because it's the way that drives long term performance.”