Prime Coalition is a unique non-profit that provides catalytic capital to address early-stage funding gaps faced by innovative climate technology solutions.
Prime was founded to address financing gaps that might otherwise prevent market-driven solutions with gigaton scale potential for greenhouse gas emission reduction from achieving meaningful scale. At the earliest stages of company formation, many ventures struggle to attract funding from returns-first investors in the venture capital space for a variety of reasons: their technologies were seen as too risky, too early, too capital intensive, the exit potential too unclear, the timeline too long, etc. In response, Prime looked to harness the tremendous appetite for impact among charitable asset owners that were ready and willing to go beyond grantmaking alone to support these high impact climate technology solutions, using the tools of catalytic capital (recoverable grants and program-related investments) in blended finance transactions.
Since 2014, Prime has facilitated investments with over 230 philanthropic entities and mobilized over $200 million towards sustainable, effective, and scalable solutions to climate change.
We spoke to Maggie Cutts, Director of Partnerships at Prime Coalition, about the forward-looking impact methodology Prime developed, how their team manages the risks inherent in supporting early-stage ventures, their plans to expand into project finance, and much more.
Can you tell us about transactions Prime Coalition has been involved in?
When we first started we deployed catalytic capital in standalone transactions that brought together charitable investors directly with companies. We funded 10 companies that way, and mobilized around $24 million. We also concretized our investment criteria: 1) Gigaton-scale reduction of greenhouse gas emissions, 2) fit for additionality - meaning it wouldn’t be able to meet its climate impact goals were it not for impact-first support, 3) attractive to follow-on investment from returns-first investors once derisked by catalytic capital.
In 2018, we launched Prime Impact Fund, a $50 million catalytic fund that closed in 2020 and now has 16 climate ventures in its portfolio from all different sectors. Each one promises at least half a gigaton of CO2-equivalent emissions reduction to the field if it achieves commercial success by 2050.
I’ll tell you about two of the companies supported by the fund. Via Separations is focused on reducing the climate impact of industrial separations, which accounts for 12% of total US energy consumption. Via’s innovation is to replace thermally-driven industrial separations with membrane-driven ones and dramatically reduce energy consumption and attendant emissions in the process. Shreya Dave, Via’s CEO, describes her technology as a strainer to separate spaghetti from boiled water rather than cranking the heat up to boil the water off. We saw the impact in Via’s technology at scale - potentially eliminating 90% of the energy currently used in thermal separations. And we also saw the lack of attraction by VC investors for many of the reasons mentioned above. Prime contributed catalytic capital in the form of an equity investment in the company’s Series A round and has been a presence in the boardroom since the company’s founding. The company has now secured several pilot projects in the pulp and paper industry, secured an oversubscribed Series B round, and is on track to meet its climate impact targets.
An example from a different sector in the Prime Impact Fund portfolio is Clean Crop Technologies, which is mitigating climate change in agriculture with their cold plasma technology that degrades pathogens, toxins and pests responsible for food waste. Similar to Via, Clean Crop was having trouble getting over the entrepreneurial valley of death due to the very early stage of the company and technology. Prime Impact Fund led Clean Crop's seed round in 2020; and since then, the company has a commercial deployment planned later this year with one of largest peanut shelling companies in the U.S and has its sights set next on other market applications in seeds, meat, and seafood.
Finally, Prime recently launched Azolla Ventures with the same investment team from Prime Impact Fund. Azolla builds on the same model as Prime Impact Fund, but bolts on a sleeve of non-charitable capital to participate in funding rounds where the company has scaled enough to no longer qualify for additionality – the experiment is that our longer presence in each company’s life will be meaningful to its ultimate social and emissions impacts. In Azolla, we aim to crowd in capital that would not otherwise participate and also safeguard climate impact throughout the life of a company.
Prime invests in very early-stage ventures, which is often risky, can you tell us how you navigate this risk?
I think one of our assets is that the mission-driven capital we mobilize comes to the table with a uniquely high appetite for risk, they can take risks that almost no other source of private or public capital can. As a 501(c)(3), we are empowered to be unapologetically impact-first, above all else. So the the risk appetite is high. It is also true that our catalytic investors are familiar with the grantmaking mindset where there is no expectation of return, any prospect of a return is secondary to the impact we are trying to achieve.
It’s important to note that while the companies we support are a fit for catalytic capital because of their early stage and high risk, they are not “charity cases:” We believe they can be scalable, self-sustaining businesses and serve as pillars of a low-carbon economy – they just require patient, risk-tolerant capital to begin that journey. This is why returns-first investors frequently follow the rounds that we participate in, once critical de-risking has been achieved. Our venture team would say that they are concessionary on risk, but not on return.
Finally, if we don’t have failures in our portfolio, and so far we have had two out of the 26 companies we’ve supported with investment, then we’re not taking enough risk. If we’re going for the easiest, sure bets, then that’s not the right place for Prime. So, risk is just part of our approach, if we want to tackle climate change, we’ve got to be taking the big risks that no one else can.
How do you see Prime’s blended finance activities evolving?
In the last year we’ve been exploring additional capital gaps beyond early-stage venture, and have started substantiating gaps in the missing middle between venture and project finance. When any company reaches the stage where they need to deploy their technology or build their first infrastructure project, they hit what some call the “second valley of death” because they aren’t yet a good fit for traditional finance. So, we’ve spent the last year characterizing that gap and recently released a report on our findings. As we explore how our catalytic investment model might apply to this stage in a company’s life, we will be launching two to three proof-of-concept investments. In each case, we’ll identify where the catalytic capital need is and determine whether we can add value whether it be by educating entrepreneurs on how project finance works, contributing subordinated debt or another type of catalytic intervention in a capital stack, or filling another gap that would help a particular project get off the ground in a way that can be replicated using purely traditional sources of funding. So that’s our next effort. We’re calling it our Early Climate Infrastructure program.
How do you measure the impact of your blended finance activities?
Most climate impact tools and services have been designed primarily to assess the past climate impact of a business as it exists today. For early-stage businesses or projects still developing their products and services or with many years left to operate in the field, the process to assess future impact potential is non-standardized and complex.
So, we developed a methodology for assessing the Emissions Reduction Potential (ERP) of early-stage climate ventures, which we’ve made available to the public. CRANE launched in 2020 and now has over 2500 registered users. It aims to make the assessment of early-stage companies’ ERP less labor-intensive and more data-driven, transparent, and standardized. This makes it easier for a wide variety of investors, grantors, and entrepreneurs to incorporate climate impact into their own decision-making and monitoring processes.
Prime has also launched an initiative called Project Frame for the climate investment community to better understand forward-looking climate impact assessment, from building collective glossaries, to coming up with best practices and collective standards.
We use CRANE and its underlying methodology while assessing companies in our pipeline, and after they join our portfolio, we report back to investors twice a year on the impact milestones that are set for each company and progress made towards emission reduction realized. Prime Coalition conducts an impact audit of all our work across different programs and funding initiatives every 5 years.
Does Prime apply a gender lens when it comes to its blended finance activities?
It’s not lost on us that the best way to fight climate change is to empower women and girls and this is in the connective tissue of what we do every day – in fact, 80% of our team are women. For Azolla, we also target a minimum of 1/3 of the companies we fund have founders who are female, or come from underrepresented racial or geographic backgrounds. So, we’re not exclusively seeking companies led by or focused on women, but we do look at the diversity of leadership in portfolio companies and examine how their products and services might affect the communities where physical infrastructure is located.
As a non-profit, what are some interesting or unexpected challenges Prime Coalition has had to navigate in the blended finance space?
We’re looking to make more space in the investment world for the voice of the non-profits to lead the conversation on impact without the distraction/pressure of generating financial returns. We are learning as we go, but it is becoming increasingly clear that the nonprofit voice around decisions related to corporate form and “mission lock” governance matter. We are excited to be building new models and have conviction that our own programs are examples of what we need to truly transform how money is deployed and for what reasons. More concretely, we believe non-profits can inform investment decisionmaking when they are in a position of approving impact reports and auditing or verifying an impact transaction. We believe the nonprofit should drive the substantiation of capital gaps and the design process around filling them, and also work hand in hand with investment managers through construction, fundraising, and implementation of those solutions. In implementation mode, the nonprofit must be at the table with investment managers all along the way, from building the impact and additionality case for initial investments, to management of companies in a direction that leads to impact, and also at exit. Otherwise there’s always a risk that decision makers will revert to the status quo. When there is money to be made, my fear is that impact and additionality considerations will be overlooked unless there are operational dependencies and governance mechanisms in place between investment managers and the nonprofit view.
