Counteract aims for GBP 50m fundraise by year-end

The firm has set a GBP 35m target and a hard-cap of GBP 50m for the vehicle, which held a first close in December 2022 on GBP 15m, he said.

Counteract receives legal advice from boutique consultancy Perlin Partners and diversified consultants MJ Hudson, both based in the UK. The firm was founded in November 2020.

The VC plans to remove five billion tonnes of carbon dioxide equivalent from the atmosphere by 2050 through its investments, he said

The firm is targeting investee companies that have the potential to massively scale up any existing carbon capture projects at a competitive price, he said. At present, investee companies are doing this at costs of around USD 500 to USD 1,000 per tonne, he estimated; for them to be viable long-term, such costs must fall to close to USD 100 to USD 300.

The fund targets a gross internal rate of return (IRR) of 22.4% and a net of 16.6%, he said. This translates into a multiple of invested equity of 3.1x and a total value to paid in of 2.37x, he added.

Counteract plans 35-40 investments over the fund’s five-year investment period, and has already made 12, with a 13th investment due within weeks, Shebbeare said. Managers expect to make eight investments a year, or around one a month during active months, he said.

Counteract typically asks for 5%-10% of equity, but does not have firm rules, Shebbeare said. Where the fund invests in a seed round, it commits to following on into the Series A round and may even go into a Series B, Shebbeare said. It does not typically make its first investment in a Series A, but will “entertain conversations” with seed-funded companies that are seeking decarbonisation expertise to boost a product or service in an existing portfolio, he said. Counteract does not always want to lead funding rounds and is happy to be a syndicate member where it can make a meaningful contribution, Shebbeare said.

2023 campaign underway
As the fundraising continues, Counteract is approaching three types of potential limited partners (LPs): funds-of-funds, especially those that are focused on impact and are open to first-time managers; corporate investors that have an interest in decarbonisation; and family offices, Shebbeare said.

In general, the firm prefers investors who have strong views and expertise, he said, and potential new LPs should also be willing to tolerate risk. The fund seeks active and ongoing collaboration with investors, he said. The fund’s target companies are typically in capital intensive fields unlikely to show much income by the time Series A funding is needed, and the fund seeks to hold investments for 12 years with a possible three-year extension, he added.

Existing LPs include Decarbonisation Ventures, which is owned by mining giant Anglo American [LON:AAL]; Allstars, a fund of funds owned by German investor Extantia Capital Management; and the US’s Grantham Foundation, Shebbeare said.

Counteract is also actively studying allowing in a crowdfunding platform as an LP, seeking to democratise access to private equity, Shebbeare said. However, up to this point the fund has preferred to work with a small number of LPs in order to have deeper relationships and greater trust, he said.

Founders must be committed
Counteract is looking for “really committed” founders, who are not prepared to cause damage elsewhere in the name of carbon removal and are also resilient and flexible enough to pivot and return to the project in response to criticism, Shebbeare said. In the carbon reduction sphere, participants will face pressure from regulators, scientists and investors, and founders must be willing to handle that, he said. A red flag would be founders who think problems could be fixed quickly without deep expertise in their field, he added.

Counteract seeks companies with diversified revenue streams and prefers those that are not wholly dependent on selling carbon reduction credits, Shebbeare said. He cited portfolio company Atlas Materials as ideal: the firm’s key product is nickel – which is sold to battery manufacturers – but it also uses a process that removes five tonnes of carbon dioxide equivalent from the atmosphere per tonne of nickel produced, versus around 13 tonnes for typical rivals, generating carbon credit income.

Counteract seeks to invest worldwide and the climatic or geographical conditions that facilitate carbon capture are the most important guide to where the investment should take place, Shebbeare said. Key carbon capture technology-enhanced rock weathering works better in hot, humid atmospheres, suggesting that Brazil and India might be good places for projects, he said. Africa’s Great Rift Valley has formations that suggest carbon dioxide injection would work well, he added.

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