close window
Expected returns from companies addressing the inefficiencies of social markets such as water, health care, clean technology, agriculture, and education are so high that at least one hedge fund manager is investing only partner capital in these enterprises, said Robert LeClercq, '90, partner in AccessAlpha Worldwide LLC.
"[Companies] think the returns are so good that they don't want to give them out to the market yet," LeClercq said during a panel at the Impact Investing Summit sponsored by the Polsky Center for Entrepreneurship and Northwestern's Kellogg School of Management. The event was held June 13 at Venue 610 in Chicago. Linda Darragh, director of entrepreneurship programs at the Polsky Center, moderated the panel.
Institutional investors are beginning to recognize these sectors represent huge opportunities, LeClercq said. "Some of these foundations who are supposed to be the most forward thinking out there are starting to take hold of at least elements of the space – quietly," he said. "You probably won't see the big institutions until the really hyper returns are already taken out."
Public education, which faces problems with budgets, dropout rates, and ill-prepared students, is a perfect example of the inefficiency that attracts innovators, said Deborah Quazzo, cofounder of GSV Advisors. "When there are enormous problems, typically companies develop great solutions, and great companies will be created," Quazzo said.
Midwestern companies have developed a wide range of solutions in education, she said. Among the primary areas of development, Quazzo said, are:
In clean technology, the Midwest is home to many great ideas and powerful minds, but they often lack the necessary elements to become successful companies and products, said Keith Crandell, '88, cofounder and managing director of ARCH Venture Partners.
Crandell offered the work of Roland Winston, SB '56, SM '57, PhD '63, and former chair of the University of Chicago Department of Physics, as an example. In the 1970s Winston completed research that allows for far more efficient transport of photons in the use of solar power than conventional optics technology.
"Winston's research really served as the basis for solar compound parabolic concentrator (CPV) design methodology of today. At the time he did the research, there really were no groups set up to introduce somebody like Winston or, as importantly, his graduate students to industry folks that could connect them with applications requiring high efficiency," Crandell said.
"This is one story, but many of the leading Midwestern institutions, including Argonne National Laboratory, have similar situations," Crandell said. "Some of the missing pieces are experienced investors and entrepreneurial management."
In sharp contrast, many – but not all – of the Midwestern entrepreneurs in the food and agriculture sector are not interested in venture capital, said Karen Lehman, director of Fresh Taste. For example, revenues at Chicago's Gourmet Gorilla, which provides healthy local and organic food to schools and institutions, have grown 10 times in two years, but the owners are not building their business to exit, Lehman said. "They're really committed to working in this space for a long time," she said.
Gourmet Gorilla is not unusual in this space, Lehman said. "Some of them are food hub-type businesses," she said. "People are putting their hearts and souls into these businesses, which are actually sound enterprises, so there are opportunities there. They may just not want to sell their businesses. Some of them are more interested in creating multiple nodes where they can consult and generate these product aggregation processing facilities that have some type of commitment to community ownership."
—Phil Rockrohr