Azolla Ventures
Azolla Ventures (Azolla) is an independent venture capital management company founded by Prime Coalition in 2021.
Azolla Fund I started active investing at its first close in October 2021. In June 2023, Azolla conducted its final close at $239MM, comprised of 1/3 catalytic capital and 2/3 impact-aligned investment capital. In this context, catalytic capital is characterized as capital provided by philanthropic asset owners who prioritize impact, seek additionality, and recognize that achieving commercial potential enables impact. In comparison, impact-aligned capital may seek commercial and impact potential, but do not seek additionality.
Together impact, additionality and commercial potential are the cornerstones of Azolla’s investment criteria:
Impact: climate solutions must have the potential to achieve gigaton scale greenhouse gas (GHG) emissions impact at scale.
Additionality: climate solutions must be unlikely to raise sufficient financial support from investors providing capital under conventional terms — such as amount, rate of return, or expected exit conditions that are representative of their asset class.
Bridge to somewhere: if the company receives sufficient investment, it will be attractive to follow-on capital to continue developing and deploying its novel climate solution.
Fund Structure: Blending Capital to Serve Impact
Azolla Fund I brings together catalytic and impact-aligned capital under one fund thesis to advance Prime’s nonprofit mission. First, initial investments hold both its catalytic and impact-aligned sleeves to the standard of catalytic capital. For every initial investment, all three investment criteria must be met, and both impact-aligned and catalytic capital pools participate equally. In comparison, Prime’s previous fund and syndicated investments supported companies with catalytic capital only.
Second, Azolla Fund I deepens and lengthens the participation of its impact-centered investment managers by providing follow-on capital out of both the catalytic and impact-aligned pools as long as additionality and impact criteria are met. Once portfolio companies “graduate” from additionality, follow-on capital is available from the impact-aligned pool only, through exit. Prime’s goal is to help guide its portfolio companies toward optimal impact outcomes through Azolla’s investment managers contributing longer into each company’s life cycle than would be possible with catalytic capital alone.
Operational Structure: Exploring New Relationship Paradigms
Azolla is intended to serve as a showcase of experimental partnership between nonprofit mission and market forces.
Prime Coalition, a nonprofit 501(c)(3), founded Azolla as an impact-first fund manager dedicated to accelerating solutions that could massively reduce GHG emissions reductions. Prior to founding Azolla, Prime’s previous funds and syndicated investments were managed by staff employed at Prime. Azolla operates as an independent entity bound to Prime’s GHG impact and additionality goals and is a majority woman-led emerging fund manager. Click here to learn more about its team.
Prime’s roles in relation to Azolla Fund I
While the Azolla investment team sources climate ventures, assesses each for commercial potential, and manages the investment portfolio toward maximum impact day to day, Prime gates and assesses GHG impact and additionality for initial and follow-on investments, especially emphasizing additionality as a point-in-time assessment that changes as the landscape of climate capital quickly evolves.
For every investment, Prime convenes a committee of prominent climate venture investors to help verify whether a given investment is unlikely to receive investment and if it might attract capital once Azolla Fund I has made an initial investment. Prime’s Mission Alignment Committee governs both additionality and impact diligence for every investment and gates the portion of Azolla investment managers’ performance incentives that are tied to impact outcomes.
Prime and Azolla also incorporate dimensions of impact beyond GHG emissions reduction in their decisions. For example, Prime imbued Azolla with its values and shared Code of Conduct. Also, Azolla is committed to investing in women and people of color-led climate solutions and helps portfolio companies reach and exceed a variety of impact goals. Meanwhile, Prime’s impact diligence addresses the charitable co-benefits and co-risks of each Fund I investment, contemplating threats to human thriving that go beyond and are related to climate change.
Prime views Azolla as an important experiment for the field of catalytic investing and expects to leverage lessons learned into working with additional investment teams around acute capital gaps in climate in the years ahead.
Prime’s Roles
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Prime’s mission to mobilize catalytic capital toward market-driven solutions to climate change constitutes the unique value proposition of Azolla Fund I’s paired fund concept. Prime’s history and brand enabled Azolla’s launch. Prime’s track record with philanthropic partners instilled confidence in the market to invest in Azolla. Prime subsidized the Azolla investment team’s time and fund formation legal fees during each of the launch phases. Prime has imbued Azolla with its values and a shared Code of Conduct.
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By aggregating traditional grants, recoverable grants, and PRI loans toward a single equity subscription, Prime is the largest investor in Azolla Fund I’s catalytic sleeve.
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Prime is an equal partner with Azolla Fund I’s general partners to recoup its launch subsidy, balance the charitability ledger, and reinvest in future nonprofit programming.
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Prime staff are responsible for evaluating two of Azolla Fund I’s three gating underwriting criteria – additionality and greenhouse gas emissions reduction potential – as well as staffing the governing Mission Alignment Committee and driving impact-related management, tracking and reporting. Prime’s team is compensated at fair market value for these services.
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Prime’s board appoints 2 of 5 seats on the Limited Partner Advisory Committee (LPAC), all members of Prime’s Mission Alignment Committee, and holds an observer seat on the LPAC. It also holds a short list of unilateral governance rights as founder and influence as a large block voter among LPs.
