Catalyst, Big Issue in VC joint venture

UK VC firm Catalyst Fund Management, alongside the publishers of UK homeless magazine The Big Issue, is launching a £50m fund to invest in education, healthcare and renewable energy.

News that Catalyst, the London-based VC firm, has agreed to partner with the publishers of The Big Issue magazine that uses its profits to help the homeless, has raised eyebrows from both sides of the argument as to whether venture capitalism can successfully participate in projects that have an explicit social dimension.

 

Catalyst, which is also looking to raise its second private equity fund specialising in financial services investments, and The Big Issue have announced plans for a £50m investment vehicle which will back companies in the education, healthcare and renewable energy sectors. The partners in this project claim serious profit intent, with a share of the profits to be returned to the homeless via The Big Issue.

 

Said one doubtful VC: “Although the principles are to be lauded, as soon as the agenda is modified from the essential ‘find top management, invest, develop, exit’ model I think you’re going to see problems. Will principles get in the way of pragmatism?”

 

It’s clear that Catalyst are aware of this kind of scepticism. The Financial Times quotes Catalyst CEO Rodney Schwartz as saying: “We are seeking to demonstrate to investors that financial returns – at least matching comparable VC funds – can be realised through investing in the social sector.” The message is that profitability is paramount and that the beneficial social effects of the funds investments occur as a by-product. “'Social benefits will be created by default,” said Schwartz.

 

The partnership with The Big Issue originated from an approach the publishers made to Catalyst about setting up such a fund in order to tap the entrepreneurial talent they saw residing within the sectors mentioned above. The Big Issue business is distinctive because it is designed to run as a profit-making operation, employing homeless people as distributors and vendors of the magazine, and redeploying profits it makes amongst the homeless. The continued growth of the operation is evidence that this model can work.

 

The new fund has attracted an impressive advisory board which will go some way to underline its serious intent. It includes Gerald Holtham, chief investment officer at Morley Fund Management; John Studzinski, deputy chairman at Morgan Stanley International; Gordon Roddick, co-founder and chairman of The Body Shop as well as John Bird, chief executive and founder of The Big Issue. They are also to be rewarded with up to three per cent of the funds profits.

 

Schwartz is quoted as saying that the new fund would be exclusively focused on profit-oriented companies with professional management. “The social sector poses challenges in this regard as there may not be the same hunger for wealth as elsewhere. Catalyst aims to address this primarily through careful screening of management.'

 

A spokesman for Catalyst said today the firm was in principle keen to set up additional  specialist sector funds to invest in, with the food industry being the most obvious target area. However, such projects were unlikely to be launched any time soon, as Catalyst was going to be busy raising its main financial services fund as well as pursuing the Big Issue joint venture.