Bridges Ventures made its first foray into the North American market this month after completing a deal to invest in Massachusetts -based Springboard Education.
Bridges US partner, John Rogers, believes the group is close to striking two more US deals that are derived from impact investment specialist Bridges’ three areas of focus: education & skills, health and wellness and sustainable living.
Bridges already has a track record of investing in education sub-sectors in the UK, such as Babington Business College, which provides apprenticeships, and London Early Years Foundation, which provides early childhood education.
For Rogers, who joined the firm in 2013 to set up Bridges’ New York office, the deal signifies a slow but steady shift in the dynamics of private equity firms looking to invest in sustainable sectors.
Rogers believes the three areas that Bridges focuses on are becoming increasingly important to many entrepreneurs who often pick them from a vocational point of view.
He told Private Equity International: “There are those who question whether there are enough opportunities in impact investing. What they are missing is the enormous number of entrepreneurs in these sectors who built their businesses because they care deeply about serving students or patients.
“What is missing is a source of capital that is aligned with that sense of mission,” he adds.
Rogers argues that while this has been missing in private equity over the past 15 years that is now starting to change.
Springboard is a classic Bridges company, because it focuses on an underserved market. In this specific case, it is the gap in achievement between affluent and poorer US students.
Bridges’ strategy is to put up to $10 million into a company but also to keep some capacity for growth and add-on acquisitions.
“Our impact lens led us to look for education models that are relatively affordable, and located in areas that have the greatest need. That nexus of affordability and demand creates a tremendous commercial opportunity.”
Springboard’s founder Kevin Flynn had previously founded a software company but had become frustrated by the level of opportunity for his own two children in terms of after school education opportunities. Springboard began with his investment in two local schools in Massachusetts.
Typically the programmes provided by Springboard cost $15 a day, with all the activities taking place on the school campuses.
“This is a very favourable price point compared to most day care centres, where there are limited education programmes. The programs have proven effective in improving academic performance for kids of all social backgrounds,” says Rogers.
“The demand for before and after-school education is enormous, and there are few quality providers at any meaningful scale.”
The model has now been expanded out to a total of seven US states, as well as the District of Columbia, with some 53 school sites.
Rogers says it is now eyeing opportunities to expand into three or four more states.
“Springboard is right in the middle of our target profile because it is a company that has already gained some traction.
We expect to scale the business and generate attractive financial returns for investors.”
“We underwrite to the same commercial standards as in conventional private equity. We are looking for IRRs in the mid-30s and at least three times cash on cash returns even in a conservative scenario.”
With the investment in Springboard secured, Rogers is focused on adding further US investments that fall within the firm’s three specialist areas.
“Over the past three months we have evaluated several hundred businesses and around four dozen have been discussed by the investment committee.”
Of that 48, Rogers says that “substantial extra diligence is being done” on about 15 companies.
Three formal letters of intent have been signed so far, Rogers says.
Bridges co-founders Philip Newborough and Michele Giddens are out in the US once a month and travel with Rogers and fellow US-based partner Brian Telstad to assess these businesses.
“We have a small US team in New York but we are well supported by a large team of investors and finance staff in the UK and a broad team of advisors in the US,” he adds.