Patagonia's Latest Product: A Venture Fund
In 2006, after working 25 years in private equity and for public companies, Rose Marcario had a crisis of faith. “I went through what many people do at that age, in my 40s, the sort of crisis of conscience about whether my personal values aligned with my work, which is where I spend most of my waking life,” she says. The answer was no, so she shifted gears and in 2008 joined Patagonia, known for profitably making outdoor gear while going to great lengths to protect the environment. Now Marcario is helping spread Patagonia’s environmental and social values through the Ventura (Calif.)-based company’s new in-house venture fund. Called $20 Million & Change, it will invest in startups trying to have a positive impact in five areas: clothing, food, water, energy, and waste.
“We’ve had a great five years—we basically doubled the company,” says Marcario, now president and chief executive officer of Patagonia’s holding company, Patagonia Works, and also head of the fund. “We have cash on the balance sheets, and unlike a lot of other companies that sort of hoard their cash, Yvon and I started talking about what we could do that might serve the causes that we care about.”
Marcario is referring to Yvon Chouinard, the 74-year-old environmentalist and former world-class rock climber who founded Patagonia 40 years ago. Chouinard has focused his highly profitable business on combating environmental destruction as well as promoting positive labor practices; Patagonia offers flex-time so employees can go skiing when conditions are ideal, as long as their work gets done on time.
Companies have been operating in-house venture funds for roughly 40 years, says James Mawson, founder of the trade publication Global Corporate Venturing, and several focus on socially conscious ventures. Nike, for example, runs the Sustainable Business & Innovation Lab, which backs startups focused on alternative energy and more efficient approaches to manufacturing.
Marcario says the problem with most venture funding is that investors value companies based solely on their economic returns and rarely consider their social and environmental impact. Privately held Patagonia’s fund will instead focus on fostering startups that share its values, such as using only sustainably sourced cotton, reducing waste, and carefully examining how supply chains affect workers. “This is a great idea,” Mawson says. “It blurs the line between venture philanthropy and social positive impact funds and corporate venturing.”
Patagonia hasn’t yet identified startups to fund, but Marcario says most investments will be in the $500,000 to $5 million range and include equity investments and minority and majority partnerships, as well as joint ventures. It will initially look at U.S. ventures but may eventually invest internationally.
In its fiscal year ended April 30, Patagonia Works’ sales were $575 million, up from $543 million in 2012 and $417 million in 2011. Marcario credits the company’s steady growth to improved operations and global expansion but also to shoppers embracing the company’s values. “Even though it was a really horrible time during the recession, a lot of consumers were really drawn to Patagonia’s brand because they believe in the ethos,” she says.
Patagonia Works already sells more than its trademark outdoor apparel and gear. It oversees Patagonia Provisions, a startup that offers organic and sustainably sourced food, including salmon jerky made from wild fish caught by native tribes in North America. The holding company also operates surfboard maker Fletcher Chouinard Designs, as well as Patagonia Media, which produces and sponsors books and films that mostly have an environmental bent.
All the Patagonia Works companies are “benefit corporations,” meaning they are third-party certified as benefiting workers, the community, and the environment. They also donate 1 percent of sales to environmental preservation and restoration. Startups funded by $20 Million & Change won’t have to be benefit corporations or donate 1 percent of their sales, but they must exhibit Patagonia’s core values.
Besides money, Patagonia will share its 40 years of experience in sourcing materials, manufacturing, and selling products. “We’ll also help companies that have a great product but may not have the ability to bring it to distribution,” says Birgit Cameron, director of Patagonia Provisions. “We can start by having it incorporated under our label and nurture businesses by helping with distribution through our stores, online, and then eventually, hopefully, out to grocery stores.”