DEAL FLOW & DILIGENCE
Thanks to the breadth of experience of our managers, advisors, and affiliates, the Realize team reviews several dozen potential investments each month. A primary task of our leadership is to select from this deal flow those companies with the greatest likelihood of success, measured in terms of financial returns and social or environmental impacts. Although certain situations warrant flexibility, effective due diligence typically requires months to complete and is best performed in a systematic and disciplined way, to adequately address market risk, technical risk, and management/execution risk.
If a positive preliminary determination is made for a company at one of our monthly Investment Committee meetings, we solicit input on the company’s business plan and financial model from industry experts (some of whom are existing Realize investors or affiliates), conduct customer interviews (for those entities that already have a product or service in circulation), check references, and meet with key personnel. Only then will we identify possible co-investors and drill down on the structure and size of the anticipated investment, including the potential appropriateness of a reserve for follow-on investments. The Committee also decides how the investment will be monitored (i.e., board seat or observer) and which Director or Partner will be the primary and secondary monitor of the portfolio company. When a transaction closes, the deal moves into the portfolio company category. If an organization does not become a portfolio company, it moves into one of three other categories: 1) rejected; 2) on-hold; or 3) lost (meaning, the opportunity was won by another firm, or it was withdrawn from active fundraising).
MONITORING & COMMUNICATIONS
The Realize team provide more than just seed-money to our portfolio companies. Usually through a seat on a portfolio company’s Board (or as an observer of that Board) we assist with strategic planning, marketing strategy, financial planning, business development, R&D, growth management, and even recruiting. We anticipate this position will be filled by a Managing Director or a Venture Partner, but in certain situations, the Board seat may be filled by one of our Advisors or Affiliates. The team-member responsible for primary and secondary oversight of a particular portfolio company will provide reports to the whole Realize team regarding the company’s performance on a MONTHLY basis, and will have in-person meetings with the portfolio company’s management on a QUARTERLY basis.
By way of investor communications, the MD’s will provide audited YEARLY financial statements and GIIRS Impact Ratings for our funds and each of their portfolio companies, QUARTERLY progress reports, and MONTHLY bulletins containing matters of interest. Additionally, the MD’s select at least three and not more than five investors to serve on the Investment Committee for a given fund. The Investment Committee will have the authority to approve or disapprove certain transactions as described in the fund's operating agreement, but generally will have no other authority nor responsibility to participate in the fund’s management.
EXITS & IMPACTS
Similar to other venture capital firms, RF1 intends to harvest value from its portfolio companies through one of three possible exit paths: 1) a subsequent round of financing (in which RF1 would presumably sell down some or all of its stake in the portfolio company in exchange for cash); 2) a merger or acquisition (in which the entire portfolio company is sold, and RF1’s equity is repatriated); or 3) an initial public offering (in which RF1’s interest in the portfolio company converts to a marketable security, that is subsequently exchanged for cash). The MD’s and Venture Partners have experience with all three paths to liquidity and can advise our portfolio companies regarding which path is most appropriate for a particular portfolio company, in alignment with RF1’s financial interests of course.
Unlike other venture capital firms, RF1 is also measuring each portfolio company’s social or environmental impact via the Global Impact Investing Rating System (GIIRS), which is administered by B-Analytics. Specifically, based on extensive review of documentation, telephone interviews with management, and occasional on-site third-party verifications, B-Analytics will rate the performance of each portfolio company as well as the entire fund in four distinct categories:
- GOVERNANCE — mission, stakeholder engagement, accountability, transparency
- WORKERS — compensation, benefits, training, ownership, work environment
- COMMUNITY — job creation, diversity, choice of suppliers and distributors, civic engagement
- ENVIRONMENT — products and services, inputs, outputs, suppliers, transportation