Rising Ventures Investor Profile: Axial Par
New Ventures interviews Axial Par director Paulo Bellotti about his firm’s unique small enterprise development model and the key to successful SME investment.
The tagline for Brazilian venture capital firm AxialPar is “Investing in Sustainability,” but speaking with Director Paulo Bellotti, it quickly becomes clear that a knowledgeable firm in the green SME sector must be focused on more than just a company’s environmental benefits. Paulo explains that investors moving into the profitable but largely uncharted territory of SME finance must have a holistic approach with any investment, taking into account sustainability impacts, but also placing a heavy emphasis on new technology, strong management and clear market opportunities.
It is on these foundational principles that AxialPar has based its efforts, mitigating the risk inherent in investing in small green companies by focusing on high-growth sectors including health foods, renewable energy and clean technology. Paulo asserts that small enterprises have an advantage in these newer industries, as their flexibility relative to larger corporations allows them to quickly adapt new environmental technologies to specific market demands. AxialPar also targets its investments in areas where there is a potential to create clusters of SMEs that can exchange technology and technical assistance in a mutually beneficial value chain – such is the case with portfolio company Mar&Terra, a sustainable fish farm that supports small local producers who form part of the company’s supply chain.
Still, Paulo is quick to add that a successful SME finance firm must go beyond picking the right companies. The structure of the fund is essential, and investing in small, green enterprises requires an approach that tackles the specific management issues SMEs often face. The founders of AxialPar realized quickly that the firm would have to place a special emphasis on corporate governance, separating the management side of Axial, heavily involved in and committed to the business operations of a potential investment, and the financial side, which has to be detached enough from each deal to dispassionately consider involvement with the company. As a result, AxialPar has a unique dual branch structure with Axial Gestora, the management arm of the firm providing technical and managerial assistance to companies that are then reviewed by Axial Investimentos, which makes a final decision on whether or not to make an investment.
Looking ahead, Paulo is seeking a second phase for the firm, in which an additional $30 million of capital will be raised to invest in three to four companies over the next four years. Paulo is confident in the viability of these investments, as more capital overall is flowing into rapidly expanding environmental sectors. Even with the prospects for high returns in these industries, Paulo cautions that financing green startups is not for the casual investor. “You have to be an active investor that will build the company and solve problems,” Paulo explains. “And you need patience – never believe you will get your investment back in one year, it will never happen.” With a unique approach and unwavering commitment to triple-bottom-line principles, AxialPar promises to continue to be a pioneer in sustainable investment.
Written by Derek Newberry, World Resources Institute ?2007 – The Rising Ventures Series features articles, announcements and profiles of investors and entrepreneurs related to the theme of innovative small and medium businesses (SMEs) in emerging markets that deliver social and/or environmental benefits. These businesses have been identified through the New Ventures (www.new-ventures.org) project. To view other Features in the Series, visit http://www.new-ventures.org/risingventures