Startup private equity firm Lightsmith Group raised $186 million for its first fund to invest in technology that could combat the effects of floods, droughts, storms and other climate disruptions.
The firm was founded in 2016 by Jay Koh, a former dealmaker with Carlyle Group Inc. and Siguler Guff & Co who was also chief investment strategist at the former US agency Overseas Private Investment Corporation; and Sanjay Wagle, who has worked at VantagePoint Capital Partners and for the US Department of Energy’s advanced-energy research department.
The Lightsmith Climate Resilience Partners fund has announced investments in two companies. They are Source Global, a US company that makes panels that harvest water from air, and WayCool Foods and Products, an Indian agricultural distribution company that seeks to eliminate the food waste that results when food gets stuck in distribution centres.
Lightsmith’s initial target for the fund was $250 million, according to public documents, but it decided to wrap up fundraising before reaching it. The fund’s largest investor is the Green Climate Fund (GCF), a UN project created in 2010 to channel money to developing economies that face some of the highest risks from climate change and are least responsible for causing it. The GCF has yet to raise its targeted $100 billion a year.
Other investors include the European Investment Bank, the German Agency for International Cooperation, the Nordic Development Fund and PNC Financial Services Group. The Rockefeller Foundation has invested in the Craft fund through its Zero Gap Fund initiative, which supports work toward meeting the UN Sustainable Development Goals.
Lightsmith will focus on agriculture analytics, water, food, geospatial mapping and imaging, catastrophe-risk modelling and supply chain analytics, with a geographical focus on Rwanda, South Africa, Brazil, Mexico and the Caribbean. It is targeting 20-25% returns.
“How can we make good investments that can help generate great returns at the same time as addressing this problem, which will be with us now in some form and an increasingly complex way forever?” said Koh. “That’s the mission we’ve been on.”
Lightsmith’s fund is the first private sector fund investing in adaptation, according to the GCF. Other investors are ahead of the UN venture in receiving cash when the fund’s deals pay out, according to a GCF funding proposal. In turn, the GCF would shoulder a larger share of potential losses, if the investments do not pay out. This reduces the risks of other investors coming into the fund.
Developing countries alone face a $300 billion a year shortfall by 2030 in financing to help them gird for potentially destabilising effects of climate change. Private equity has remained on the sidelines. Most of the funding for so-called adaptation finance—$30 billion a year—is from government and public sources, with $500 million from private investors, according to the Global Center on Adaptation. Asset managers remain wary of untested technology when they’re under pressure to secure returns for their investors.
Venture-capital and private-equity investors plowed $54 billion into climate-related technologies last year, according to BloombergNEF. Of that, investments tied to the transportation sector raised the largest amount, $22 billion, followed by funding to the energy and agriculture industries.
Climate adaptation is “an area that you realise is one that other investors aren’t massively competing in yet,” Koh said.