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Fund manager Dragonfly Enviro Capital, a company founded by conservationist and biodiversity impact investor Nigel Sharp, is taking advantage of a downturn in capital markets to lock in deals with some of Australia’s most promising green technology innovators.
Dragonfly, which last year launched the $50 million Australian Impact Growth Fund (AIGF), has already raised and deployed $7.5 million into five founding investments that the fund manager believes are set for growth.
Dragonfly CEO Adam Tucker, a fellow impact investor who Sharp enlisted to lead the fund manager more than two years ago, says AIGF is breaking new ground in Australia’s capital markets with an asset class in the biodiversity and environment field that he expects has the legs for significant growth ahead.
AIGF, which is open to sophisticated investors and wealth management clients, has targeted returns of 20 per cent per annum for the first eight years. Tucker says the returns are achievable, noting the portfolio’s risk profile is not peppered with startup-style venture capital investments.
“Growth capital is a lot more risk adjusted than earlier stage venture capital,” Tucker tells Business News Australia.
“All of our deals are with companies that have product to market and are well on their way to profitability, if not already there. They’re all solid businesses to which we’re providing funding for expansion.”
Dragonfly Enviro Capital has form in this regard with 13 previous investments that are not part of AIGF delivering a current weighted average IRR (internal rate of return) of 51 per cent.
The AIGF portfolio currently comprises Downforce, a UK-based, female-led company that uses satellite technology to measure soil health, soil carbon levels and biodiversity; The Water and Carbon Group, a Brisbane-based company that extracts cancer-causing PFAS toxins out of waste water; Pacific Bio, a company that uses macroalgae to strip wastewater of environmentally harmful pollutants; Our Trace, a carbon accounting software-as-a-service platform; and Red Earth Energy Storage, a fast-growing Australian manufacturer of energy storage systems.
“Each and every asset within this fund presents a significant and innovative disruption to their respective markets, creating positive, profitable and proven results,” Tucker says.
“These are companies that have already proven markets, that are growing, that provide solutions to the challenges the environment and people are facing, and just as importantly that are profitable or have a clear path to profitability.”
Tucker says Dragonfly currently weighs up between five and 10 potential deals a week for the AIGF - a number that has been aided by a tightening of capital markets.
“We don’t have to chase opportunities at the moment, but maybe in a few years that might change when more people cotton on to this being a great place to invest,” he says.
“We’re seeing really good investment opportunities just by virtue of the way the market is. Valuations and terms are much more investor friendly. We could probably deploy another $10 million right now and really quickly.”
The AIGF was launched in September last year with plans to reach its $50 million target over the next two years.
Dragonfly Enviro Capital, which was founded by Nigel Sharp in 2017, had previously taken an integrated approach to investing in the sustainability space via an on-balance-sheet vehicle.
Tucker, who was also active in the space as founder of ANANDA Investment Group, was invited by Sharp to head the company in early 2021.
“Nigel is a prolific green investor; he’s been doing it for 30 years, long before it was cool,” Tucker says.
“He and I have been pottering around impactful investment for years. I knew of him, and he knew of me, but we actually ran into each other on a deal, and we decided to get together and do something.
“We pulled together some of the assets that I held in my investment vehicle and then when I came on board we pivoted into investing through a fund structure. Last year we got really serious about the funds management approach and now we are onward and upward with that.”
Tucker expects that with $50 million fully deployed, the AIGF portfolio will comprise a total of 15 companies.
“We’re really happy with the baseline portfolio and we are working hard to get another five good deals over the next 12 months. Then we’ll try to get another five after that.”
The fund is looking to invest in businesses commercialising new and revamped industrial solutions that act to decarbonise, reduce waste, use active circular economics and enhance natural resource usage.
According to the Responsible Investment Association, more than $1.5 trillion of assets in Australia are now being managed in line with responsible investing principles.
“Through this fund, we want to continue to prove that investors do not need to pick between positive impact and strong financial returns,” Tucker says.
“The transition toward a more sustainable society presents a historic investment opportunity, and capital has a critical role to play and forward-thinking investors who get in early stand to make huge gains.”
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