Paris Green Fund helps SMEs to deploy faster solutions for the ecological transition of Paris
A few days before the first investment, we talk with the people who manage the innovative Fund worth 200 million euro
- 15. Veljača 2019. 11:30
- Aseniya Dimitrova
Stéphane Villecroze is Managing Partner at Demeter, the investor who manages Paris Green Fund. Paris Green Fund (Paris Fonds Vert) is a territorial investment fund created on the initiative of the City of Paris with the objective to support the development of innovative fast-growing SMEs, thereby accelerating the energy and environmental transition of major cities.
Mr. Villecroze, Paris Green Fund is an innovative financial instrument aimed at stimulating sustainable development. Could you explain how it works?
Paris Green Fund is what we call a private equity fund, more precisely - a development capital fund. It is a fund that is intended to invest in capital of Small and Medium Enterprises (SMEs). What is innovative about the Fund, is that it was initiated by the City of Paris, which is also one of the investors. Otherwise, as a legal tool, it is very typical, the innovation is that it is a project initiated by a city and partly funded by it. The objective is to fund through minority stakes in buying shares in the capital of unlisted SMEs working for the ecological transition of big cities. So, it's quite varied: you will find enterprises working in the field of sustainable construction, sustainable mobility, green energy, energy saving; you will find companies providing solutions for air quality, everything related to the circular economy. And then the digital solutions for these markets.
Could you say a few words about the cooperation with local authorities and what changes is it supposed to bring about? What can other European cities learn from this model?
In fact, Paris Green Fund is only one tool among others. It is a fund that has 200 million euros and will invest in about twenty SMEs. It is not much as a number, however, the impact for the companies in question will be very strong and so the Funds will help accelerate the growth of these SMEs, which is interesting for the City, because these SMEs can deploy faster solutions for the ecological transition of Paris. It is not necessarily a question only of Parisian or French companies. One will see SMEs in Europe, mainly in France, Germany and Spain. Of course, other cities could launch equivalent funds to invest in SMEs, either in their region or in their country, but which interest them as cities.
A few months after the establishment of the Fund in 2017, Demeter made the first close above 100 million. Please explain what results have been achieved so far.
The City of Paris chose Demeter in February 2018, we did what we call the first closing. The fund exists from July 2018 when it reached 100 million euros. Today, we are still fundraising and continue to accept new investors, who join us. We are approaching 150 million euros, aiming at 200 and we start the investment very soon. The first investment will take place next week. We must put a little time to invest, because these are companies that are not listed, hence there are quite long negotiations with contractors and shareholders which are going to take place in the coming weeks.
The City of Paris is the founder of Paris Fonds Vert and invests 10% of its capital. Is it reassuring for other institutional and private investors? What kinds of stimuli do they receivе? Is the Fund open to new players?
What the Fund is expecting is above all financial performance. The objective of the investors is a financial investment which must lead to a performance specific to the capital investment and the objective of the Fund is to deliver a performance twice the net setting of the expenses. So, first of all, it's a financial profit, and that's what public and private institutional investors are looking for. Then what they're looking for as well is having a performance in terms of impact. That is to say, the companies in which they invest, they provide solutions for the ecological transition and therefore, if there is a beneficial effect in terms of pollution reduction, improvement of the quality of the air, in terms of reducing the impact on the environment, the fight against global warming, that for many investors is also important. And among them, there are industrial investors, who look forward to the financial performance and performance in terms of impact, but also seek to develop links with SMEs in their ecosystem, in other words SMEs operating in the same markets as their industrial group. And finally, the establishment of links with the City of Paris.
And what innovations will be introduced by these companies?
The SMEs, in the sense of European SMEs, but for Paris Fonds Vert in terms of target, are those SMEs that make 5-50 million euros in turnover, which are innovative, but are already profitable. It is not venture or risk capital, we are talking about profitable investment, companies that are already growing strongly and make profit. Their innovations can be very varied, for example a first investment that has been realized, it is an SME that makes about 25 million turnover and provides a digital solution for the management of construction waste. Naturally, construction waste for large cities is important. This is a technological advance relative to the good management of construction waste.
Another example is in consultants, who do energy retrofit of buildings and turnkey operations, but their innovation is that they guarantee the result with insurance. They guarantee the energy performance of the renovated building.
And it all happens in the territory of Paris?
Not necessarily. SMEs can be European. We are mainly in France, Germany and Spain, so we tend to fund SMEs from these countries. They may not be already present in Paris. But the idea is that for the time when the Fund is shareholder of the SME in question, the latter will be trying to develop its business in Paris, notably by selling its products, solutions, services in Paris.
For example, we can invest in a society in Germany, that has never worked in France, considering that its expertise is useful for the City of Paris, trying to accompany its development in France and in Paris in particular. But in general, when one invests in a company that provides solutions to the ecological transition of large cities, being able to find customers in Paris or the Paris region, is attractive, because it is one of the largest agglomerations in Europe.
So, it's still very early to talk about visible results?
Yes, it is too early, because the city chose us only one year ago and the Fund has been in existence for 6 months, the first investments not having been made yet. What can be mentioned however, is that over 2018 the Fund received and analysed between 350 and 400 investment opportunities. Having received more than 350 companies in which to invest, it's makes one per day.
Finally, Demeter has been supporting the energy and ecological transition for more than 10 years. Could you say more about the successes of other cities where you operate: Grenoble, Metz and Madrid?
We also work in Germany, in Munster. Demeter is an independent company and we manage Funds that are all oriented towards the ecological transition. This includes venture capital, funding start-ups or development capital financing SMEs, as in the case of Paris Green Fund, or infrastructure, for financing infrastructure projects related to the ecological transition. We have a fund that invests in renewable energy and energy efficiency projects; we have another fund that supports green and sustainable transportation projects.
In addition, today we manage 1 billion euros, with a team that comprises of 35 people. For example, Solair Direct, which was a major player in the solar industry; Quadran who was a big developer of renewable energy; Paprec - a major French player in recycling, we have been a shareholder in these enterprises. And a risk capital company, Ynsect - making protein from insects, which provides a supply for animals with reduced impact on the environment.
Finally, as the Fund is still open, if there are interested professional investors, they can contact us.