EXCLUSIVE: Earthworm Group, the environmentally conscious VC fund, plans to lend £20m to sustainable scale-ups early next year.
The investment manager, which has invested £110m so far to nearly 50 sustainable businesses in the energy, waste and food sectors, will launch a “green bond” enabling to lend far more to firms at Series B stage.
Will Brocklebank, managing director of Earthworm Group, says a business loan may be far more preferable to founders than giving away more equity in their companies.
Brocklebank said: “The green bond will be ideal for a management team that doesn’t want to give away equity but wants a long-term stable debt partner.”
Earthworm Group, which to date has mostly raised money through the Enterprise Investment Scheme (EIS), says the green bond launch is part of its expansion into a sustainable business consultancy and financier.
Earthworm also plans to increase its volume of EIS investments to around 20 each year, investing between £500,000 and £5m in each investee company through Series A funding.
The eight-year-old company is also launching Groundworks, a sister business which will mentor and help university-based tech start-ups into actual businesses – at least in the short term.
Brocklebank says that outside investors often want to see proof of concept – the IP actually working onsite – before investing and licensing its technology worldwide. Often these proof-of-concept companies need only be in existence for 18 months before outside investment takes them to the next level.
Earthworm Group sees itself as a matchmaker between academia and larger investors, which don’t want to roll up their sleeves but do want to see IP in action.
Brocklebank said: “Using our skills, we can bolt on expertise around a company – site planning, permitting and also corporate finance services — to help put together a funding package, helping them scale beyond where they are now.
“We can hold your hand in that caterpillar stage, helping the core management team focus on the what they’re really good at before the tech is licenced worldwide.”
Denied traditional finance
Earthworm Group began life in 2011 as a composting facility established by former Foresight Group consultant and RAM Capital Partners founder Ben Prior. Unable to raise money through traditional finance, Prior funded Earthworm through his own EIS.
Earthworm became an investment manager after Prior was approached by other environmental businesses also looking for investment.
Initially Earthworm closed an early stage SEIS fund of £2.5m . Over time, Earthworm became a fund investing in three areas: energy, waste and food.
Last month, Earthworm invested £2.4m in Advizzo, a behavioural science company which provides utilities with detailed insights into electricity and water usage.
Other investments include:
- £4m in Vertical Future, an indoor hydroponic system being used by Michelin-starred restaurants to grow micro herbs, ensuring absolute freshness.
- Naked Energy, a solar energy company which converts 60pc of the sun’s energy into electricity through its technology compared with the usual 20pc.
- £2.5m in Hero Labs, machine-learning-based water leak detection technology which spots and closes off leaks in hot water systems. For example, local councils are increasingly installing centralised hot water systems in council blocks; Hero Labs’ tech shuts down pipes before water damage becomes widespread –the insurance industry’s second-largest cause of loss.
Brocklebank became managing director two months ago, having joined the company in January. Previously, he was executive chairman of Shepherd, a machine-learning building systems analysis firm, which Earthworm invested in. He created another four environmentally conscious business before that, each of which he exited, having sold for over £1m each.
Brocklebank said: “I’m poacher turned gamekeeper because I’ve been on the other side of the table asking for funding. To sit on this side of the table I have more of an entrepreneurial mindset.
“This is right up my street because I’ve always been environmentally conscious, so it’s a perfect fit.”
So, why should an environmentally conscious startup approach Earthworm as opposed to a conventional VC fund?
Brocklebank said: “We believe that your experience will be straightforward and simple. We move pretty quickly, and we can complete a first investment within 12 weeks. A quick no is almost as good as a quick yes. We try to act like our ethics suggest, which is upfront, honest and simple.
“We probably know what your problems are because we’ve been in this space ourselves, so if you hit a pothole, we’re not going to throw up our arms and panic. In fact, we’re more likely to have someone in our community who can help you. We want all our investments to be accretive, so that there’s active engagement between investee companies. Yes, the investment returns are important, but the environmental impact is equally important. They’re both as important as each other.”