‘The skills required to grow an infratech company are quite different from those needed to grow and operate a traditional infrastructure company,” says a fund manager who asked to remain anonymous.
Infrastructure Investor asked the founder of one such company where his funding came from. “Initially, we were able to get C$2.1 million ($1.5 million; €1.4 million;) in angel funding,” says Gareth Brown, who founded Clir Renewables in 2017. “We then leveraged that to get some R&D grants here in Canada of around C$3 million, and then we were able to get that kind of rapid growth that attracted venture capital.”
ArcTern Ventures backed the Vancouver-based company, which has developed a software platform that uses machine learning algorithms to categorise and quantify areas of underperformance across wind assets. The venture capital firm, which is based in Toronto and specialises in cleantech, led Clir’s series A financing round, which closed on C$7.1 million. In January, the firm closed its second fund on C$200 million and secured commitments from the Ontario Municipal Employees Retirement System and another “leading Canadian pension fund”, which it has not named. Both institutions had also invested in ArcTern Ventures Fund I.
According to Brown, who spent more than a decade working as a consultant in the renewables sector, many institutions that invest in infrastructure are also investing in infratech, but through their venture capital arms. A good example is Sidewalk Infrastructure Partners, an investment firm launched last August by Google’s parent company, Alphabet. One of the firm’s backers is the Ontario Teachers’ Pension Plan, which invested in SIP through its venture- and growth equity-focused Teachers’ Innovation Platform.
“A lot of the tech that will initially get adopted by infrastructure asset owners and managers will not be revolutionary, but evolutionary”
Infratech Growth Partners
“There’s so much money looking for a home that all these infrastructure investors are looking for an edge on their investments, so they are setting up their own VC activities or investing in other VCs as LPs,” Brown says.
Matt Morgan of Infratech Growth Partners, which is raising its first fund, says institutional investors realise the importance of infratech “and recognise that someone needs to do something in this space, but they don’t yet know how”. The Australia-based firm will focus on growth equity opportunities rather than venture-type start-ups, which pose greater technology risks.
“I think a lot of the tech that will initially get adopted by infrastructure asset owners and managers will not be revolutionary, but evolutionary,” Morgan says. “Operational cost savings and extensions in asset life will be delivered via managed solutions that generate valuable business insights through the use of innovative artificial intelligence, but with proven lower risk hardware technologies.”
Paris-based InfraVia Capital Partners is also looking to tap into infratech. Last October, it expanded its strategy with the launch of the InfraVia Growth Fund and hired three new team members with backgrounds in growth equity and venture capital. The vehicle, which has a target of €300 million, will invest in leading tech companies operating in mobility, logistics, telecoms, utilities, health and energy.
AMP Capital may not be planning the launch of a growth strategy, but in hiring and working with tech companies, “it’s inevitable we’ll find companies we should probably invest in because they’re so adjacent to our sector”, says Boe Pahari, the firm’s global head of infrastructure equity.
Asked whether AMP Capital would invest through its infrastructure platform, he replies: “We’re an early mover, not a first mover. We will continue to look at how we move early but not first in various areas, including infratech.”
Whether the firm would do that via a different platform or through its global infrastructure platform “really depends on the scale, size of the asset, the relative stability – all these things that lend themselves to the infrastructure thematics we’re looking for,” says Pahari. The thematics are long-term annuity cashflows and capital-intensive assets with monopolistic characteristics that are essential to urban living and provide protection against inflation.
The Australian firm would not be opposed to hiring VC talent, if necessary. “In terms of attracting the kind of talent that would be suited to venture capital activity that we could bring in to augment our position and our thought leadership and then create a consciousness throughout the organisation about these issues, we’re certainly open to that and continue to look and survey the landscape for talent in these areas,” Pahari says.
However, he adds that it is not just about hiring: “It’s about embedding or injecting talent and ideas that become all pervasive throughout our business, throughout our own management team and then across our portfolio companies, so that everybody is thinking infratech.”