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Friday, May 24, 2024

Dave Kirkpatrick’s SJF makes green by investing in sustainable projects

Dave Kirkpatrick has been a pioneer in impact investing, combining the financial support of clean-energy and other sustainable companies with a skill at meeting private-equity industry standards for profit.

By David Dykes

Dave Kirkpatrick’s love of the environment grew from fishing trips with his dad and a freshman orientation program at Duke University that included backpacking in western North Carolina. Over the ensuing decades, the co-founder and managing director of Durham-based SJF Ventures has shown an ability to make lots of green by investing in sustainable, environmentally friendly projects.

Since 1999, SJF has backed more than 60 companies that innovate in technology, sustainability and resource efficiency, from brokers of pre-owned laboratory equipment to manufacturers of natural cosmetics and cleaning products. While he won’t divulge details about the $260 million invested through SJF’s four funds, the “returns have been competitive at or above venture-capital benchmarks,” Kirkpatrick says. Industry officials peg successful VC returns at about 15% to 20% compounded annually.

That prowess has led to offices in New York, San Francisco and Seattle, giving SJF a national presence and connections with more entrepreneurs and investors. It typically invests between $3 million and $7 million in promising companies, always with a social agenda. While Kirkpatrick is a North Carolina devotee — he also has an MBA from UNC Chapel Hill — SJF has made relatively few investments in local companies. A key exception is TransLoc Inc., a Durham-based transportation-technology company that raised $8 million in a March 2016 offering led by SJF and Detroit-based Fontinalis Partners LLC.

Started in 2004, TransLoc designs technology to assist users and providers of transit services, including lining up rides, paying fares and scheduling service. The company made Fast Company’s 2017 list of the most innovative companies in transportation, joining Uber and Tesla. In January, Ford Motor Co. bought TransLoc, creating an undisclosed windfall for SJF.

Kirkpatrick, who chaired TransLoc’s board until the Ford acquisition, conducted the most extensive due diligence that TransLoc CEO Doug Kaufman has experienced in a career that includes starting several companies. “It was intense, and it went on long enough that I did worry, ‘Is this the way everything’s going to operate going forward if we take their money?’” he says.

Within months of SJF’s investment, Kaufman proposed a new strategy for TransLoc. “There was a plan in place, and I came to the board and I essentially said, ‘Put all of that stuff aside. I want to take us in a different direction,’” he says. “That is very challenging for an investor to hear so soon after an investment is made. And it’s not like the other stuff was going badly. It was going fine, and I was saying, ‘I think we need to go all-in in this other direction.’ That’s how CEOs get fired.”

Kirkpatrick reviewed the new plan, then put his faith in Kaufman. “That was a very important moment for [TransLoc] to get where it is today,” Kaufman says. “It wouldn’t have happened without him being supportive.”

Kirkpatrick, 57, was born in Columbia, S.C., to a military family and later lived in Germany, Houston, Charlotte and Greenville, S.C., where he picked up the science bug from a favorite teacher. After graduating from Duke in 1982, he spent the next decade at SunShares, a Durham-based solar-energy and recycling nonprofit that promoted conservation and alternatives to fossil fuels and nuclear energy. In 1993, he started KirkWorks, which provided research for the clean-technology industry.

Part of his work involved holding forums for investors that included talks by venture capitalists such as Rick Defieux, a general partner at a Princeton, N.J.-based fund. The two hit it off and in 1999 started SJF, raising $17 million for what they named the Sustainable Jobs Fund. Its focus was helping companies that provided entry-level work in sustainable industries. A second fund closed in 2007 with $28 million and took a broader mandate to include education, health and other sectors.

“The important thing was that we were widening the set of the types of companies we could invest in,” Kirkpatrick says. “In the first fund, if we saw a company and it didn’t have substantial inner-city or rural job creation, we just wouldn’t look at it.” The wider canvas was necessary to attract investors. “With Fund 2 and going forward, if we see a software company that helps drive solar energy or helps with health care, even if they don’t have a lot of entry-level jobs, we’ll still consider that.”

By 2012, sustainable investing was attracting more money and notice from bigger companies and governments. SJF and a community-development unit of New York-based Citigroup partnered for SJF Ventures III, a $90 million fund that made investments of up to $5 million. While the fund had only private capital, a Small Business Administration program enabled banks to participate under federal guidelines.

While that fund reported excellent returns, Kirkpatrick says, SJF returned to its traditional model for its fourth fund, which completed its $125 million round in 2016. “We basically judged that we would have enough sufficient investment interest from pension, endowment and family office capital that we didn’t need the banks,” Kirkpatrick says. “And that proved to be the case.”

So how does TransLoc, one of SJF’s best investments and now part of a giant multinational company, meet SJF’s criteria for social investing? “The more people get out of single-occupancy cars and into shared transportation, the better it becomes for the planet,” Kaufman says. “As you may know, transportation is now the leading contributor to greenhouse gas.”

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