Patagonia, a company known for its progressive environmental and social practices, is launching an in-house venture fund. But unlike traditional corporate funds, many of which simply aim to reduce risk by diversifying company assets, Patagonia’s fund will invest in startups trying to make a positive impact in five areas: clothing, food, water, energy, and waste.
“How [the fund] came to be, really, was we’ve had a great five years—we basically doubled the company,” explains Rose Marcario, Patagonia’s former chief operating officer and chief financial officer, who is now CEO of Patagonia’s newly-announced 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.”
By “Yvon,” Marcario means Yvon Chouinard, the 74-year-old environmentalist and former world class rock climber who founded Patagonia 40 years ago. Since then, Chouinard has focused the highly profitable business toward combating environmental destruction, as well as promoting positive labor practices. (Patagonia employees enjoy “flex-time” hours so they can, say, go out surfing or skiing when conditions are ideal, as long their work gets done on time.)
Patagonia’s fund is named $20 Million & Change, “a nod to the fact that $20 million is the starting amount with the ability to grow and, more importantly, with the ability to ‘change’ the way business is done,” writes Chouinard in a letter announcing the fund’s commencement.
The company has not yet identified startups to invest in, but Marcario says most funding will be in the $500,000 to $5 million range and will include equity investments, minority and majority partnerships, as well as joint ventures.
In its fiscal year ended April 30, Patagonia Works earned $575 million in sales, 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 more 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. “And our products are very durable.”
Patagonia already sells more than its trademark outdoor apparel and gear. It oversees Patagonia Provisions, a startup that produces and sells organic and sustainably-sourced food, including salmon jerky made from fish caught in the wild by native tribes in North American. The holding company also operates surfboard maker Fletcher Chouinard Designs, as well as Patagonia Media, which produces and sponsors books and media projects that mostly have an environmental focus.
All of the Patagonia Works companies are “benefit corporations,” which means that they are third-party certified as benefiting workers, the community, and the environment. They also donate 1 percent of all sales toward environmental preservation and restoration. Some of the divisions are fairly new and not yet profitable.
Startups looking for capital from the $20 Million & Change fund won’t have to be benefit corporations or donate 1 percent of their sales, but they must share Patagonia’s core values. “The only real restriction, besides our environmental ethos, is that they have to have at least $1 million in revenue or capitalization,” says Marcario.
Patagonia will focus its fund on investments in clothing, food, water, energy, and waste in hopes of creating the biggest environmental impact. 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.”
Patagonia managers say launching $20 Million & Change is a logical step for the maturing company to broaden its reach. “I came from a very traditional background of private equity and public companies and I really have seen for 25 years what that paradigm does, and I don’t think it’s that healthy,” says Marcario, who joined Patagonia in 2008. “We need a revolution in business, and we need business leaders to drive that revolution otherwise we won’t have a world worth living in. I think [the change] is not going to come from scientists or politicians or social activists.”
The company hopes to spread that social consciousness through its new fund. “It’s lofty but I think Patagonia is a very good example of how, when you do the right thing, it’s also good for business,” says Marcario. “We’ve really proved that with our apparel business, and we’re using those same principals, and applying them to these other ventures and other businesses.”
