Jan 5, 2021
The Future of Impact Investing: Arborview Capital — Impact Capital Managers
Interview with Carolyn Farley, Principal at Arborview Capital
Carolyn Farley is Principal at Arborview Capital, an investment firm founded in 2008 with the recognition that sustainability is becoming central to consumer and business decision-making. For over a decade, Arborview has partnered with high-quality management teams building a more environmentally sound, resource efficient future.
Based in Washington, D.C., Carolyn invests in sustainability companies across the U.S. We discussed her path into investing and sustainability, the future of impact investing, and her advice for practitioners today.
This article has been edited for clarity.
How did you first learn about the impact investing field?
Carolyn: My first introduction to impact investing was through Echoing Green, an organization that provides the earliest stage seed funding to social entrepreneurs. I attended an event with a large group of their Fellows and learned for the first time about the idea of building a scalable business model that enshrines a social or environmental mission. I fell totally in love. The room brimmed with possibility and optimism. As entrepreneurs shared their ideas and experiences, I was captured by their vision, drive, and resilience. I decided to move into an operating role alongside one of these entrepreneurs. From there I met the investors who backed him and the world of impact investing.
I fell totally in love. The room brimmed with possibility and optimism.
What was your first impact investing role, and how did you land this role?
Carolyn: My first role was a Portfolio Manager at the Awethu Project. I’d actually met the founder of the firm, Yusuf Randera-Rees, 3 years before I started working for him. Yusuf had become a mentor to me during my time at Goldman Sachs and afterward in a startup. When I was looking to transition back to the investment side, I asked for his guidance. Halfway through our discussion, he offered me a job. He was starting a new fund to invest in early stage entrepreneurs. He knew I had the financial training from my time at Goldman, and saw my experience as an operator as an advantage. He also knew that I’d been humbled by the experience and would have more empathy for management teams when they hit the inevitable stumbling blocks.
How is your job different today than when you first started out in the industry?
Carolyn: This is a hard question for me because I was very lucky to be given a ton of responsibility in my first venture role. The combination of the co-founders’ personalities and South African culture led to an empowering, trusting, and high-accountability environment. I ended up building a pipeline from scratch, speaking directly with founders, building models and investment memos, negotiating deal terms, and working alongside management teams after investment. I also participated in some of our fundraising and brand building efforts. My experience was pretty unusual for a first role in venture.
A lot of this is what I do today, just faster because I’ve had more reps under my belt. I’ve also moved into a later stage of investing. In my first role we were using SAFE notes, which simplified the investment process. My second role was in venture. And now I’ve moved to growth equity, which can bring more complexity in the operating track record of the company, the size of the team, and the financing of the business.
What has been your favorite deal at Arborview, and why? What role did you play?
Carolyn: My favorite deal has been Soupergirl, which we closed in September. My partner Karl Khoury and I jointly led the deal. The company is local to DC and was founded by daughter and mother duo, Sara and Marilyn Polon.
There are two core elements that impress me about the business. First is the product. Soupergirl makes plant-based soups that fuse modern flavors and old-fashioned cooking techniques. Plant-based food sales have consistently grown 5x faster than overall US food sales in the last few years as consumers have become more discerning about what they put into their bodies and their environmental footprints. Soupergirl plays on this trend and reduces greenhouse gas emissions while increasing sustainability by crafting 100% vegan recipes, sourcing ingredients locally and seasonally, and using “ugly” produce. As a refrigerated, ready-to-eat meal that is packed with nutrients, Soupergirl makes it easy for consumers to transition to a plant-based diet.
Under Sara’s leadership, Soupergirl invested in masks, face shields, thermometers, and proactive weekly testing for the whole team… Sara’s actions have defined leadership in this time.
The second element that impresses me about the business is the thoughtfulness that founder and CEO, Sara Polon, has for her team. We issued our term sheet to Soupergirl in the first week of March. Then the world turned upside down with COVID. Watching Sara pivot the business by building a robust direct to consumer program to adapt to changes in consumer buying patterns, while staying laser focused on keeping her people safe was inspiring. Under Sara’s leadership, Soupergirl invested in masks, face shields, thermometers, and proactive weekly testing for the whole team. She worked with her team to reconfigure the kitchen for social distancing and to create carpool routes so that no one took public transportation. She sent PPE home with team members who had vulnerable family members. Sara’s actions have defined leadership in this time.
What are the most important skillsets for a new impact investing Associate? What about an impact investing Principal?
Carolyn: The two most important attributes for an Associate are passion and curiosity because the role gets a lot thrown at it. The best Associates can be nimble and find joy in learning new skills. It’s also essential to have a strong analytical skillset to distill what forces are at play in a market and likely to drive a company’s success or failure. An Associate should also understand financial modeling and have well-developed written and verbal skills to translate financial analysis into narratives in memos and presentations.
Be the person who management turns to with transparency and trust in the challenging times as well as the good times.
The Principal role builds from the Associate’s skillsets. What’s needed in addition are some of the softer skills around building rapport with founders and CEO’s, which is how you can build a strong pipeline of new deal flow, negotiate better terms, and ultimately be the person who management turns to with transparency and trust in the challenging times as well as the good times. This kind of emotional intelligence will make a Principal a better advocate for deals during investment committee meetings and when raising capital for new funds.
What is one of the most important trends in sustainability investing today?
Carolyn: One of the most important trends in sustainable investing today is the transition of our food system to be more resilient and efficient. Today, nearly 25% of global greenhouse gas (GHG) emissions come from our food system. Livestock production alone accounts for 15% of GHG emissions. To reduce the damage that we are doing to our planet, we need to shift our agricultural practices, eat more plant-rich diets, and dramatically reduce our food waste.
Fortunately, consumers are waking up and taking action. As I mentioned above, plant-based food sales have consistently grown 5x faster than the overall US average. We’ve also seen the emergence of companies pioneering new agricultural practices and ways of reducing waste. For example, Arborview has been a long-standing investor in Shenandoah Growers , the US’s leading culinary herb grower and distributor. The company is applying best-in-class organic greenhouse and vertical farming technologies to reduce water consumption, optimize resource efficiency, and reduce GHG emissions and food waste due to transportation by locating facilities closer to customers. I’m heartened by the growing number of compelling companies I see in our pipeline who are addressing this issue in innovative ways and by the proof points already in our portfolio.
What is your biggest hope for the future of impact investing?
Carolyn: My hope is that impact considerations become core to every investment decision. All investments have positive and negative impacts on our society and environment. The status quo in investing is to ignore the negative externalities. This creates a brittle system and society. Through impact investing, we have found a way to price into our investments these positive and negative attributes, which will lead to a more resilient and inclusive economy.
My hope is that impact considerations become core to every investment decision… The status quo in investing is to ignore the negative externalities.
What’s one advantage to being a woman in impact investing?
Carolyn: I have a different lived experience than my partners, which can lead me to bring a different lens when evaluating new opportunities and to connect with different founders. Many of the social and environmental issues we’re trying to address through our investments are longstanding, systemic challenges — it will require some fresh perspectives to solve them! I am grateful that my partners at Arborview truly embrace the idea that differences of opinion strengthen our decision-making as a team.
What’s your advice to diverse candidates who want to break into the impact field?
Carolyn: Start talking to as many firms as you can. The impact investing field is large and diverse, and it’s growing ever more so. Different firms take different approaches to investing. For example, Firm A makes 20 investments per year with a smaller equity stake in each company, which means a new team member would spend most of her time sourcing and evaluating deals. Meanwhile, Firm B makes 1 investment per year seeking a significant equity stake, which means a new team member would spend the majority of her time partnering with management in operations to make the company a success.
Firms also differ in sector-focus, size, impact measurement, and culture. By speaking with a broad cross-section of firms you’ll be able to find the right fit for you. You may also find a mentor through this process who can advise and advocate for you.
What’s your advice to investment firms looking to increase diversity?
Carolyn: Before writing your job spec with the experiences and qualifications for the role, reflect on all the different activities that make your firm a success and consider what’s missing. My hypothesis is that you’ll be reminded just how broad the range of skillsets are. At our firm, we need number-crunching, writing, relationship building, researching, making predictions, visual communication, and more. No one person is likely to have all of these and there are myriad different ways to gain these skills. Try to approach the hiring process with a curiosity to hear how candidates’ experiences have equipped them with the skills you seek, rather than looking for experiences you recognize.
Try to approach the hiring process with a curiosity to hear how candidates’ experiences have equipped them with the skills you seek, rather than looking for experiences you recognize.
How do you usually spend your weekends?
Carolyn: Outside for as much time as possible! Luckily, DC’s weather allows for this most of the year. I live near Rock Creek Park and often hike there. Gardening is an activity where I can get into a flow state and that helps me recharge. And in March, my husband and I adopted a very energetic pup, Gracie, who gives me ample opportunities to be outside walking her, chasing her around our yard, and (if I’m lucky) snuggling with her on our patio couch.
What’s your favorite book of all time and why?
Carolyn: It’s too hard to pick one. I love fiction as a means to slip into another world. I gravitate toward books with female protagonists and especially enjoy books that begin with a few different narratives that ultimately intertwine. I recently read Girl, Woman, Other by Bernardine Evaristo which follows the lives of 12 women in the UK over several decades. I highly recommend it.
What’s one thing you want readers to take away from your experience in impact investing?
Carolyn: I hope readers feel excited by how multifaceted the role is and heartened by the idea that there are many possible paths into this field. When I speak with candidates interested in impact investing, I often hear people express concern about not having a traditional background or about taking time “away” to build operational experience. But because this role requires everything from financial modeling to relationship building, there are many ways to develop a competitive advantage as an investor. If you’ve learned about the operations of a business from sales to logistics, you’ve developed a better understanding of how to help others build these functions. If you’ve worked on new technologies, you can bring this insight to evaluating investment opportunities. If you’ve worked in client services, maybe you’ll be great at building trust-based relationships with founders. Whatever your past experiences, think creatively about how your unique strengths and insights can apply to impact investing.
Originally published at https://www.impactcapitalmanagers.com on January 5, 2021.
