Logan Yonavjak

On the Quest for Exits: Proteak’s Successful IPO

Editor’s Note: Part two of this interview may be found here.

In the rapidly growing impact investing sector, conversations about the need for exits abound among investors and professionals in the space. As the industry matures, interested investors, particularly mainstream investors, are searching for examples of successful exit strategies from socially and environmentally beneficial companies. These exits will help provide evidence that environmentally and socially focused enterprises can create solid economic returns.

Exits signal that a company is reaching important benchmarks in terms of financial ability and actual scale. For a company to achieve an exit, it has hit significant milestones in terms of revenue, profit, and market validation. The equation seems simple enough: more and bigger exits can attract additional capital into the space. There’s a lot of truth to this equation; exits can generate tangible, liquid wealth. The problem is that actual exits for social and environmental entrepreneurs have been rare, mostly because the market is still fairly nascent.

Many environmental and social entrepreneurs are funded by what has been deemed “patient capital” where investors agree to wait a longer period to get a return, which may or may not be at market-rate. This model works for investors who are prepared to wait, but these timeframes are generally not acceptable for most mainstream venture or equity investors, who require much shorter time horizons and expect higher returns. If the sector is going to attract more mainstream investment capital, more frequent exits are necessary to prove the possibility of liquidity in the sector. For the time being impact investors will likely have to continue to invest patient capital, wait for the company to mature, and then turn things over to more mainstream investors. That doesn’t negate the need to work hard to prove viability through successful exits.

These examples can also help entrepreneurs see that a business with a triple bottom line focus can have mainstream results, thus enticing entrepreneurs to frame their companies with an environmental and/or social focus.

When exits do occur in the impact sector for SGBs, they are often through owner buy-outs, debt repayment, or the sale of preferred shares. This is a different model than standard venture-capital investments. To-date, according to a recently released ANDE report, it is rare that an SGB investment will result in an initial public offering (IPO), given that local stock markets are often underdeveloped or non-existent.

This doesn’t mean that successful IPOs haven’t occurred or aren’t something to strive for in the sector. To find out more about an environmentally-focused company that had gone through the IPO process, I interviewed Proteak Founder Hector Bonilla to learn more about the company’s successful IPO in 2010.

Proteak is a Mexico-based renewable tropical forestry company, one of the largest in the Americas. The company sells conflict-free plantation teak wood products, including decking, counter-tops, butcher blocks, and cutting boards (Pictured left cutting boards. Image credit: Proteak). The products come from reclaimed ranch lands along Mexico’s Pacific coast, which helps bypass the high financial, environmental, and human costs associated with extracting teak wood from Southeast Asia. Since its inception in 1999, the company has planted more than 14,000 acres of teak plantations in Mexico, Costa Rica and Colombia. Proteak was also the first FSC-certified company in Mexico, which demonstrates their commitment to sustainable forestry practices.

In its early days, Proteak managers worked directly with the New Ventures Mexico Local Center to get help with their growth strategy. New Ventures is the World Resources Institute’s Center for environmental enterprise, where I work as the Business Development Officer; our center works in DC and on the ground in six emerging economies (China, Colombia, Brazil, Mexico, India and Indonesia) to support environmental entrepreneurs with their growth strategies and capital raising efforts.

Given all the talk about exit strategies, I thought it would be a good idea to follow up with Proteak post-IPO to learn a little more about how they surmounted this sector quandary and see if their experience could lend any insight to other entrepreneurs thinking about exit strategies, specifically IPOs. I learned a lot from my conversation with Bonilla; I hope you will, too.

NextBillion.net: Can you walk me through the critical parts of the process that made this a success; how did Proteak manage to finalize an IPO?

Bonilla: Laying the foundation for the process began many years ago. For example, our corporate governance systems have been in place since the inception of the company and have stayed pretty much the same pre and post-IPO.

Proteak has always been a company focused on growth, but convincing ourselves of an IPO at the point where we were in 2010 was a difficult decision internally. We had to convince a board and a number of stakeholders who wanted to know how we were going to take the next step. Not everyone believed we could do it. I learned that sometimes pushing from within can be more difficult than pushing from the outside. The process of making the IPO happen lasted 18 months, but preparing the company for it took much longer. You can’t create an IPO overnight – it takes years of hard work.

And then, once you make the decision to go through with an IPO, you have to manifest the capital and human resource commitment to actually embark on a venture like this. Before the IPO we were a small company and we were frugal; this had to change drastically.

I’d say another critical element was finding the right partners to go on this adventure with. I was lucky enough to have two very important partners; an investment banker and a stock broker. This deal was so different than anything we’d ever worked on, and most brokers and bankers didn’t want to do the hard work that needed to be done. Luckily, they did. (Pictured right: Proteak decking. Image credit: Proteak).

NextBillion: Why did you decide to go ahead with an IPO, why and how was this decision made?

Bonilla: Proteak’s desire to grow and explore different things is engrained in the company and everything we do. If an option for an IPO hadn’t come along, we would have grown in some different way. An IPO just happened to be the path we decided to execute.

Since our company was not that big before the IPO, it was a tough thing to convince ourselves that we could actually achieve it. I it was ultimately the combination of imagination and a few beers with a friend that ultimately led to the decision.

NextBillion: How did early-stage investment help Proteak get to the IPO stage?

Bonilla: The participation of early stage investors was critical to our success. Sometimes I think back to 12 years ago when we started, and I think about the investors that really just closed their eyes and put investment into a venture that was very forward looking and unlikely to give any returns in the short-term. They were betting more on me and my partner Luis Tejado, and our capacity to pull this idea off even though we didn’t have a precise plan of where we were going. Finding these kinds of people is very difficult and I’m glad to have had people who believed in me.

It was also grueling hard work. To put it in perspective, before the IPO we had 70 investors and the closing ratio of prospect to investor is say 1 to 5. That means that over the years we have made more than 350 investor presentations just to fund ourselves. It’s not easy to find the investors that will bet on these kinds of projects and who are willing to put money into the longer-term. These people are critical. But you can’t give up, perseverance is essential. It’s the nature of the beast.

Watch for part two of this interview Monday on NextBillion.

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Education, Environment
impact investing