Large, Underserved Market
There is a lack of financial vehicles available for both socially and environmentally conscious investors and businesses. Currently, one can find high risk, long-term private equity investments as an individual or institutional investor through organizations such as angel networks or via venture capital or project finance funds. There is also a full suite of commercially available, low risk, socially screened, retail mutual funds and there are over 800 registered investment advisors in the U.S. who specialize in building screened portfolios for their clients. There is, however, little availability of medium risk, mid-term structured investment opportunities to round out a portfolio.

While there are very few financial vehicles available for environmentally and socially sustainable growth-stage firms, but entrepreneurs are looking for mezzanine money to help them reach the scale where they can be self-sufficient or are appropriate for traditional commercial debt or IPO. Despite the growing number of sustainable companies in the U.S. today, we believe that an attractive market opportunity exists for a specialty finance company focused primarily on structured debt investments in such firms. By speaking with hundreds of entrepreneurs and alternative sources of financing in these markets, we found green companies are seeking funding from sources that understand their markets, share their ethos, and therefore, evaluate risk more appropriately.

These companies are significantly underserved by traditional lenders for the following reasons:

  • Market drivers and company’s sustainable practices are not well understood by traditional lenders;

  • Non-traditional asset profile of ‘green’ companies lead lenders to inaccurately perceive risk;

  • Industry development and/or companies’ operating histories are perceived as immature and inadequate to risk financing; and

  • Deal sizes and scales are inefficient for traditional lenders.

For the reasons outlined above, we believe that many viable sustainable companies have either not been able, or have elected not, to obtain financing from traditional lending institutions. Institutional bias and high switching costs prevent traditional lenders from being the first or second movers to address this growing market opportunity. As a result, the market for debt financing for sustainable companies is generally less developed than the debt markets serving other industries and presents Ecosa Capital with an addressable opportunity. We believe that these factors are likely to continue and our proposed investments in debt securities will be viewed as an attractive source of capital.