InterviewBridging the gap: Impact investor Bridges Israel crosses the social and environmental divide
Interview
Bridging the gap: Impact investor Bridges Israel crosses the social and environmental divide
“Investing in impact is not inferior, and in many cases superior, to other investments,” says Ran Grodecki, a managing partner at Bridges Israel impact investment fund.“ Fellow managing partner Gal Hayut: “We can go from being the startup nation to the impact nation”
With a name like Bridges Israel, it’s no surprise that the three managing partners of this local impact investment fund come from varied backgrounds and bring a wide array of skill sets to their joint mission.
Gal Hayut, who holds a degree in computer science, comes from the venture capital and tech industry, Sandrine Montsma, who served as CEO and board member in various companies and industries, comes from a management background, and Ran Grodecki has extensive private equity experience from years of leading local investment funds. “Gal has experience in investing in startups and I have experience investing in more mature companies,” says Grodecki. “Together with Sadrine, who brings her vast corporate managerial experience, we compliment each other very well. The three of us have worked closely together for several years now, so we are a well- balanced team.”
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Bridges Israel Managing Partners (from left) Gal Hayut, Sandrine Montsma, Ran Grodecki
(Photo: Nir Slakman)
Established in 2018, the fund invests in Israeli businesses with the aim to generate competitive financial returns alongside significant measurable social and environmental impact. CTech sat down with two of the managing partners, Gal Hayut and Ran Grodecki, to learn more.
What does the term ‘impact investment’ mean to you?
Hayut: “That’s a very important question. For us ‘impact investment’ is the combination between, on the one hand, addressing the global issues - as defined by the UN, including SDGs (sustainable development goals) in a measurable and significant way and turning things in a positive direction - and on the other hand investment that comes along with uncompromised financial returns. This last point is very important because we are out to prove that investing in impact is not inferior - and in many cases is superior - to other investments. The combination of these two sides of our goal, addressing global issues together with uncompromised returns, is what will make this impact investment market large and successful.”
Grodecki: “When you think about it, impact investment is looking to solve some of the world’s biggest problems. If you are an entrepreneur who has been able to solve a large global problem, and you have a competitive advantage (product, IP, distribution, brand - it doesn’t matter what it is), and a fund can invest in you to fund your future growth, it’s a business opportunity for the entrepreneur and an investment opportunity for the fund. That’s what we look for, situations where we can generate significant impact and growth. So, yes, impact is a driver, but we also believe it’s a huge business opportunity.”
Why does Bridges Israel choose to specialize in investing in certain fields (ag-tech, water-tech, climate tech, healthtech, etc.) as opposed to others?
Hayut: “First, there’s the advantages of the Israeli tech market. We look at the global issues and see what advantages our local hi-tech entrepreneurs bring to the table globally, because this is where these companies can be very successful. That’s why we have chosen to invest in the fields of ag-tech, water, digital health, and climate in general. So our criteria in selecting companies to invest in is through determining where the big issues and opportunities are and what can be brought from the local market technology to address these challenges globally.”
Grodecki: “Because of our impact lens, we tend to invest in sectors of ‘basic needs’, so if you look at our portfolio we invest in agriculture, water, cement, food, digital health, in the things that we believe are less sensitive to market fluctuations, because the underlying demand will always be there and in a way the risk associated with these types of companies is a bit lower.”
Where does ESG (environmental, social, & governance) come into play?
Hayut: “Regarding ESG, I would not say it is an investment theme. It is a criteria inside investment, a subcategory, if you will. It’s very important, of course, we strive for all the companies we work with to be ESG compliant. However, ESG alone is not making an impact, but rather it makes the company comply and operate in the way we expect them to.”
So, what are you looking for in a startup to invest in?
Hayut: “There are two main themes in our guidelines which all of our investments fall under. One, is the planet crisis - and I say ‘planet crisis’ rather than ‘climate crisis’ because it goes beyond climate. It can be agriculture, it can be food, and it can also be climate, but not limited to climate. The second theme is social gaps, which has become a very serious issue in the world, and that has many dimensions which we examine carefully.”
Grodecki: “As far a criteria goes, we are looking for excellent companies and excellent motivated entrepreneurs. It’s not enough that an Israeli startup has a very impactful product, because for example, if the market niche they approach is too small, or if their go-to market strategy is not supported by a detailed plan and concrete business leads, they will not be able to scale and their impact will be limited. We want to invest in the best. We are looking for the best companies in every segment. When you have not only a very strong product solution, but also the right business strategy and the right distribution channels, strong team, IP, proper funding, and all the advantages a company needs to succeed, then you can scale both commercially and also make a huge difference with regards to your impact. So we look for the best in every area that we consider.”
You’ve both had experience investing in other fields, what’s a key differentiator when it comes to impact investing?
Hayut: “I think one main differentiator is the entrepreneurs. We look for entrepreneurs that have ‘impact’ on their mind and that their personal and their company’s alignment with our goals are high. We are looking for entrepreneurs looking to make a big change. It’s something that’s got to be part of their core values.
“Don’t get me wrong, we focus on creating strong businesses, but underneath that the theme of impact and being aligned together must remain. When we proceed to invest with them we come to an agreement of how we will measure these achievements. While a typical investor will measure the financial side, we at Bridges Israel measure both, financial on one side and the other side the KPIs of impact. And of course, we have to be able to work well together.”
How does Bridges Israel operate?
Hayut: “First of all, although we are part of the larger Bridges organization, we have a dedicated Bridges fund for Israel. We invest in Israeli companies and the whole fund of $80 million is exclusively for Israel - although we do work very closely with our Bridges Fund Management partners from the UK, US and Australia. Our investment portfolio currently contains 12 Israeli startups from a variety of fields. Our sweet spot is to invest in A rounds, primarily in companies that have commercial traction, which really helps a lot when we are looking at more than one segment to validate companies through their customers and validate the commercial attractiveness of their solution. We care a lot about what our startups’ customers say about them too.
“Our sweet spot in our initial check is $3 to $5 million, and from A round all the way through exit we always expect additional rounds of funding. We are constantly involved in the ongoing business of the startups we work with and always look to be a significant, if not ‘the’ significant investor in their company.”
Big picture, how has the current financial crisis affected Bridges Israel?
Hayut: “I would say that even before the current crisis, we saw companies priced at unrealistic valuations and we reduced our investment pace because of that. We may not have foreseen the crisis looming, but we certainly saw what was happening, that the expensive pricing did not reflect the true business status. So we encouraged our companies to raise capital when they could, which they did and still do.
“We’ve also encouraged our companies to have a longer runway, meaning that if they could reduce some of their cost, they should do so. We never forced anyone, but we helped them decide when and where they could cut costs, without jeopardizing their strategic business direction. .
“We did not have a dramatic reduction on the business side because we have seen much less of a crisis. Our portfolio companies are addressing needs that do not disappear, such as global warming, water, food, health, etc., so if anything, they continued to thrive during the pandemic and the financial crises.”
Kando: Predicting Covid-19 outbreaks
Can you give an example?
Hayut: “A perfect example of one of our Israeli startups that proved vital due to the climate crisis and the pandemic is Kando, which provides end-to-end monitoring solutions allowing cities to control, remotely and continuously, their wastewater quality and protect public and environmental health.
“Israel, by the way, is the world leader in treating sewage and utilizing it. But besides controlling pollution, when the pandemic hit, Kando realized that by analyzing the wastewater of the 150,000 residents of the Ashkelon area, where there was an outbreak, they demonstrated that Covid-19 hotspots could be detected down to specific streets and neighborhoods. As a result, the Israeli government has been using Kando technology to pinpoint where an outbreak of Covid-19 cases will happen 5-6 days before regular tests can, which is very significant.”
Nazid: Healthy food & fair employment
What about Bridges Israel’s effort to close social gaps and help those in Israel’s periphery? What do you mean by “impact growth” vs “impact tech”?
Grodecki: First of all, regarding impact growth and impact tech, we view these as two separate things - and we invest in both. Any company we deal with is typically dealing with one facet or the other. I’ll give you some examples. We invested in a company called Nazid Impact Food, which is a catering business providing healthy meals to schools and businesses across the underserved communities in Israel while also providing fair employment to Bedouin men and women. The company is owned by a Bedouin entrepreneur, Ibrahim Nassasra, and the CEO is a religious Jew, Shay Amira who work together in harmony for the success of the business.
The “impact” we found was the ability to employ (mostly) Bedouin women near their homes in a way that was suitable for their culture, while the company also provided opportunities for growth and promotion from within. To be clear, this is a top of the line food manufacturer in a state of the art facility employing 100 locals using the latest technology, not a mom and pop operation. The employees are producing top-ranked healthy meals and supporting themselves financially thanks to the company. And when you talk about literal ‘impact growth’, they have grown as their first facility was established in southern Israel and the second one, due to great demand, has just been opened in Taybeh, which is in the center of the country. This is just one example of closing social gaps with impact, so that poor students should not go hungry, but also, and equally important, fair employment for the local Bedouin population - and of course, it is also a business opportunity too. The company is growing very nicely.”
Hayut: “We also have investments in Israeli medtech, like TailorMed, a startup that provides a personalized projection of a patient’s out-of-pocket costs and automatically finds cost-saving opportunities based on insurance optimization and financial assistance programs. We even have an investment in the tourism sector with Abraham Hostels which is all about sustainable tourism. And of course we have multiple ag-tech startups in our portfolio as well and much more.”
From ‘startup nation’ to ‘impact nation’
In conclusion, where is impact investing in Israel heading?
Hayut: “When we first started Bridges Israel around five years ago, we had to explain what impact investing is and why it’s not social investment or philanthropy. It was an educational process. There was very little awareness about it at the time and that was a challenge. But today, we see a totally different situation, as when you talk to investors they understand what impact investing is and how important it is, as well as its potential to generate strong financial results. So we see a gradual improvement and the change is coming slowly, but surely.
“We also see our role at Bridges Israel to be an example for others as to what successful impact investing can be, making a social and environmental impact while also providing strong returns.
“We are already the ‘startup nation’ but we can become the ‘impact nation’. It’s all part of the concept of ‘tikkun olam’ (repairing the world), it’s in our DNA.”
