Private investment in climate: opportunities beyond public markets
...and 9 new ways to invest in climate!
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📖 read time - 4 min
Private investment in climate: opportunities beyond public markets
Written by Courtney May (contributor)
In today's evolving financial landscape, private markets offer a distinct set of advantages and opportunities. However, the Private Markets aren’t an option for most people when they go to allocate their portfolios. Almost 90% of people are non-accredited investors, which means they are blocked from investing in venture capital, private equity, and other alternative investments. But a new set of companies are working to open up private market opportunities for individual investors, particularly with climate themed investments.
What is Private Investment, and How is it Different from Public Markets Investment?
Private investment refers to investing in companies or assets that are not traded on public stock exchanges. Unlike public markets, where shares of companies are available to anyone through exchanges, private investments involve participating in privately negotiated deals or funds that focus on non-publicly traded assets. This distinction sets private investment apart from the more common practice of investing in shares of publicly listed companies.
So What’s the Big Deal if you only invest in Public Markets?
1. Public markets are concentrated: One of the tenets of smart investing is to be properly diversified in your portfolio. In the public stock markets, exchange traded funds (ETFs) that track an index like the S&P 500 have surged in popularity as a low cost approach to investing. However, public markets have become more concentrated. According to Morgan Stanley, the top 10 mega-cap companies in the S&P 500 index account for almost 35% of its entire market capitalization compared to an average of 20% over the past 35 years. This leaves public markets investors far less diversified than they might think
2. Difference in Performance: Private markets have a history of outperforming public markets in terms of returns. Several studies have shown that private equity and venture capital investments have consistently delivered strong performance, often exceeding the returns generated by public equities.
For example, top tier VC firms reported annual returns over the past decade ranging from 15% to 27%, compared to an average of 9.9% S&P 500 return per year for each of those ten years. Granted, a majority of VC investments fail or go to zero, the earlier stage the investment, the higher the likelihood. However, the returns on the few companies that survive and thrive have been large enough to outweigh losses - for a well diversified venture portfolio.
3. More Wealth Creation is in Private Markets: An increasing amount of wealth creation is happening while companies are still privately held. Many promising startups and innovative projects attract significant investment before going public, allowing early investors to benefit from substantial value appreciation.
Venture-backed companies used to take 3 to 5 years until IPO. Today, it may take 10 to 13 years for a company to IPO. By that time, a majority of the larger return rates have already come and gone, without any retail investor capital getting a chance to participate. The impact of great companies staying privately held for longer or even indefinitely puts the retail investor at a significant disadvantage.
For these reasons and more, John Finley, Chief Legal Officer of Blackstone, writes:
“Given nature of current mix of public companies, investors need early stage venture, late stage venture and PE to get ideal diversification and superior returns.”
We agree.
Impact Investing - The Climate Investment Opportunity
One area that highlights the immense potential of private investment is the urgent and ever-growing need to address climate change. As the world grapples with this global challenge, a multitude of new companies, projects, and technologies focused on sustainable solutions are emerging. Many of these opportunities lie within the realm of private markets, making them difficult to access for most retail investors.
Fortunately, a number of companies are working to open up these investment opportunities to retail investors. Raise Green, Climatize, and WeClimate use crowdfunding to connect innovative climate projects and companies with regular folks who want to invest in a sustainable future. Steward has created a private lending platform for individuals to participate in funding regenerative agriculture projects.
And at Intention, we’re working on our own product in this space. If you have been following us, you know that our mission has been to empower anyone to invest in climate. We will be making some HUGE announcements soon, so be sure to join us in the Climate Investing Community so that you can be the first to hear our big news.
🛜 Climate Investing Community events
A big thanks to Elizabeth Landau of GreenPortfolio for a wonderful AMA! The CIC has two more events next week, then we’re going to take a slight breather to refuel.
Oct 17: Sustainable Finance Group Discussion (hosted by CIC member Katelyn Kriesel)
Oct 19: Monthly Office Hours - Climate Smart 401(k)/403(b)s (hosted by Carbon Collective's Breene Murphy)
📈 New ways to invest in climate
Newly announced investing opportunities this month. Selection based on company description but impact not assessed. Not investing advice.
CGB Green Liberty Notes (debt note, 5.25% interest): Confronting climate change to create more resilient, healthier and equitable communities.
Hold On Bags (future equity, $15M valuation): A sustainable, household goods company that sells compostable, plant-based products.
Infinity Fuel (common stock, $54M valuation): Patented fuel cells and electrolysis hydrogen generating technology provide carbon-free power and energy for extreme operating environments.
Liz Alig (promissory note, 10% interest): Clothing produced in small fair trade workshops and designed with sustainable textiles.
Northern California Land Trust (debt note, 5% interest): A sustainable, long-term alternative to affordable housing in California.
Primary Plant Based (debt note, 12.75% interest): A plant based restaurant that focuses on local produce.
Reel Paper (future equity, $50M): A tree-free, plastic-free household paper company.
Solar Gaps (SAFE, $15M valuation): The first in the world external smart window blinds with built-in solar panels.
Stark Drones (common stock, $21M valuation): Impact-driven, and want to fix outdated grids and make the world more connected.
New climate investing/finance podcasts
Financial Climate: Attorney and climate entrepreneur Catherine Atkin on California's pathbreaking new greenhouse gas emission disclosure law
👇 see you in the comments section 👇
What’re you investing in this week? Let the community know!