News & Analysis

In brief: LPs cautious on later-stage impact valuations, says Cambridge

Investors 'continue to be cautious about valuations' for later-stage buyouts, which is affecting impact firms in this segment of the market, says Cambridge Associates' Tom Mitchell.

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Impact-focused buyout funds investing in larger, mature businesses are facing fundraising headwinds, according to investment consultant Cambridge Associates.

“A general headwind we see in that market, regardless of ‘impact’ goals, is investors continuing to be cautious about valuations/purchase price multiples in later-stage deals, something we’ve been saying to clients in recent vintage years,” said Tom Mitchell, managing director and partner with the firm.

Last week New Private Markets launched a database of funds, investors and managers. We noted at the time that of 256 impact funds currently fundraising in an increasingly difficult  market, around half have been on the road for more than a year.

Mitchell told New Private Markets that the majority of their clients’ recent sustainable private markets investments focus on seed- to growth-stage opportunities, “supporting impactful innovations and finding strong alignment with managers that have great influence on companies from the start”.

Other insights from Mitchell:

  • Cambridge clients find value in both specialist funds and generalist impact funds, he said: “They invest with generalists that think systemically and see connectivity of sustainability opportunities across sectors, and these funds help diversify venture risks. They also invest with specialists, particularly where deep expertise in areas such as material and bio sciences or climate tech are critical in earlier stages.”
  • Climate-related investments are “key to portfolio growth and resilience” and are “also serving as a source of diversification from VC/PE, with some clients investing sustainable infrastructure or nature-based solutions with real world expected impacts on carbon reduction”.
  • Cambridge has noted “some slowing” in the VC fundraising space: “In recent years some proven managers were simultaneously raising venture and growth-stage funds. In the current environment, we see less bundling and managers sticking to their core competencies (be that either early-stage or growth).”