SWEN closes above target as LPs take the plunge into biodiversity

Despite the current low tide for private markets fundraising, SWEN Capital Partners has closed its first biodiversity-focused venture fund above target on €170 million. Called Blue Ocean, the strategy involves protecting marine biodiversity via three themes that affect ocean health: over-fishing, ocean pollution and climate change.

The successful fundraise is a testament to investors’ growing interest in deploying capital towards protecting biodiversity. “We had a number of LPs saying to us, ‘We want to invest in biodiversity,’” Olivier Raybaud, a managing director at SWEN, told New Private Markets. Such strategies, Raybaud added, “are not easy to find in private equity funds as of today”.

Although being a first-time fund in this strategy meant raising capital was “challenging” – “it is too new… for a number of potential investors”, said Raybaud – many of the fund’s investors have created dedicated impact allocations and “were ready to take the risk of backing a first-time fund. The focus on the ocean is something that really generates a lot of emotion and interest”.

Blue Ocean I is not the only fund with this specialism, but it is among the largest. Other notable examples include Mirova’s $132 million Sustainable Ocean Fund and Ocean 14 Capital’s first fund, which has a €150 million target.

Eighty-six percent of the capital has been committed by institutional investors, such as pension funds, insurance companies MACIF and MAIF, French sovereign BPI France, banking groups Crédit Mutuel and Crédit Mutuel Arkéa, and investment funds Builders Vision and the Planet Ocean Fund; and the remainder committed by institutions, such as France’s IFREMER, and family offices such as Ferd Capital.

Blue Ocean, launched in September 2021 with a €120 million target, will make between 20 and 25 Series A investments. SWEN may facilitate co-investments on an opportunistic basis, but this has not been written into fund documents, NPM understands.

SWEN is targeting returns of 20 percent IRR and a multiple of over 2x, according to a source familiar with the fund. SWEN declined to comment on targeted returns. The firm is linking 50 percent of its carried interest to meeting impact KPIs.

Making an impact

Blue Ocean I will not simply invest in ocean-related start-ups, said Raybaud: “It’s not about any sector.” For every potential deal, “we ask ourselves one question: ‘will this innovation have a positive impact on ocean health?’”

Of the nine investments Blue Ocean I has made so far, one is in 900 Care, a company seeking to disrupt the single-use plastic packaging industry for personal care products with re-usable alternatives. This investment, Raybaud explained, prevents the accumulation of waste plastic in oceans.

SWEN will measure and report on three impact KPIs annually across the fund’s assets in aggregate: avoided destruction of marine biomass (living organisms in the ocean, measured by mass); volume of avoided waste; and avoided greenhouse gas emissions.

To measure avoided negative impacts, SWEN compares companies’ products to a “reference scenario” of the negative impact created in a business-as-usual case, such as the volume of plastic waste if a consumer bought a product with single-use packaging. Avoided negative impacts are specific to the reporting year, rather than projected future impact if the company scales successfully.

All companies will also use the Ocean Impact Navigator, an impact measurement framework developed by the 1000 Ocean Startups Coalition, an association that SWEN co-founded.

Companies will also develop “operational impact KPIs”, said Raybaud. “We want those KPIs to be as decorrelated as possible from revenues.” Such KPIs could include the development of new products or technologies with still lower plastic waste per unit. “That’s a kind of impact that is very operational, and that can be improved” regardless of whether the new products can be commercialised and scaled.

For ventures that have the potential to disrupt less sustainable products and practices – such as avoided emissions (and other avoided negative impacts) – impact is measured and reported in different ways. Many organisations estimate the future avoided emissions associated with projections of the company’s growth, so a company producing a more sustainable product is considered to be an ‘impact deal’ even if it has not yet scaled. Given that SWEN measures avoided negative impacts based of companies’ outputs for the current reporting year, could companies be incentivised to prioritise immediate impact over future impact – focusing on commercialising products rather than maximising the positive impact?

“I don’t see why this would be an issue,” said Raybaud. He believes the firm should “demonstrate and maximise this positive impact now, and that will help with maximising it in the future. Companies are releasing their products and having the impact now, but that doesn’t prevent them from starting to work on the next generation of products that will have an even bigger impact”.