The Builders Fund 2023: Investing to Build a Better World
An overly short-term and extractive financial system, centered on shareholder profit alone, has fueled the planetary issues we confront. Nevertheless, capitalism has the potential to drive solutions. The Builders Fund aims to foster a global shift in financial markets, encouraging a holistic, system-aware, and regenerative investment approach. By backing purpose-driven companies, the fund generates exceptional returns and aims to catalyze a fairer and sustainable form of capitalism. Tripp Baird, founder & managing partner of The Builders Fund, chats with DeliveryRank.
What inspired the creation of The Builders Fund and its mission to catalyze a shift towards a more regenerative approach to investing in businesses?
The Builders Fund invests to build a better world. Our founding partners came together around the insight that capitalism can be a force for good instead of simply extracting wealth over the short term. The firm was formed to celebrate and support the entrepreneurs, leaders, and “builders” crafting a better future, and our team members have spent the majority of their careers focused on investing in and scaling businesses in the sustainability and health and wellness spaces.
As experienced operators and business builders ourselves along with our community of operating partners, we leverage this collective expertise to guide and scale purpose-driven companies to regenerate systems and benefit both people and the planet.
The Builders Fund has invested in and partnered with several leading food and beverage brands such as Traditional Medicinals, Urban Remedy, and MIXT. Can you tell us more about the criteria and values you consider when selecting companies in this industry to invest in?
Builders partners with growth-stage companies whose fundamental business models generate environmental and social benefit, and where purpose can be harnessed for competitive advantage. The food system is an example of intersecting environmental and social challenges, with conventional agriculture contributing significantly to climate change and resource depletion, while generating significant waste and delivering nutritionally inferior food that exacerbates chronic disease.
Within food systems, Builders has particular interest in companies building purpose-driven brands in regenerative agriculture, sustainable aquaculture, organic food and beverage, local/sustainable restaurants, and composting and food waste solutions. We generally partner with emerging growth stage businesses with $20-200 million revenue and positive cash flow, where our investment can support expanding a proven business model. Builders takes a partnership-first approach and we seek to identify values-aligned management teams where we can work together to scale the business and impact.
Can you elaborate on the partnership philosophy of The Builders Fund and how it contributes to the success of your investments?
Compelling evidence exists that operationally-oriented private equity outperforms “buy and hold” or leverage-driven financial engineering strategies. Operational engagement with our portfolio companies has always been a pillar of the Builders Fund’s investment strategy, and across our two flagship funds and predecessor firms, we have accumulated experience working with a variety of businesses at the emerging growth stage.
In addition to our core team, our “Builders” advisors, former operators and C-level executives who are investors in our fund, are an operational resource to the fund and our portfolio companies. While many large private equity platforms have internal operating groups, we believe Builders is distinct in our focus for the size and stage of our investments and the integration of our operational focus across all stages of the deal lifecycle.
We focus on company operational performance from the beginning of diligence. In late-stage diligence we co-create an “Operating Blueprint” with management that provides a roadmap for sustainable value creation over the hold period. We actively participate in corporate governance and advise on and support operational improvements ranging from growth strategy and key hires to acquisitions and financing.
In order to ensure that management teams and employees share in value creation, Builders establishes options or long term incentive programs, granting, on average, about 15% of each company to employees.
As a B Corporation, how does The Builders Fund ensure it maintains a strong focus on both financial returns and positive impact? How do you measure the success of your investments in terms of their impact?
We integrate financial returns and positive impact by seeking out companies that translate purpose into competitive advantage to create impact through the business model, not just alongside it.
We believe these companies can outperform their peers by leveraging their mission and values to attract and retain talent, increase employee and consumer engagement, earn media, drive customer loyalty, and lower their costs of customer acquisition.
The collinearity of business growth and impact aligns stakeholder incentives and is core to Builders’ approach of generating attractive financial returns while scaling businesses that deliver positive environmental and social benefit.
Builders has a robust impact measurement and management approach that incorporates internal and third-party standards to ensure that all our investments lift up people and contribute to sustainable systems.
Prior to investment, Builders defines company-level impact objectives and key performance indicators (KPIs). We use B Lab’s Impact Assessments as a tool of diligence and to measure ESG improvement from baseline at entry, which we also refresh every three years in order to maintain B Corporation certification.
We actively work with our portfolio companies to improve ESG factors because we see strong evidence that ESG drives better economic outcomes. (Builders itself has been a certified B Corp since 2015.) Metrics are reported quarterly to LPs and disclosed publicly in our annual Impact Report.
What are some of the challenges you face in promoting a more equitable and sustainable form of capitalism through your investments, and how do you overcome them?
In recent years there has been increasing backlash against ESG and “woke capitalism,” which has created challenges for impact investing broadly, whether in terms of capital formation from more traditional institutional investors, or evolving regulatory guidance. At the same time there have been a proliferation of ESG strategies, not all of which take a rigorous or authentic approach to impact.
Despite these challenges, we have high conviction in our original theses - that purpose can be harnessed to competitive advantage through the alignment of values with employees and customers through an authentic culture and an activist brand; that “systems responsibility” will be a distinguishing factor for companies in the context of rising awareness of climate change, finite global resources, the evolving global pandemic and movements for racial justice; and that being operationally-oriented and concentrated in our approach leads to investment outperformance. By staying the course and taking a long-term view on investing and creating value alongside management teams, we will overcome these challenges.
If you would like to find out more about The Builders Fund, visit https://www.thebuildersfund.com/
