Do-gooder fund aims to raise $50M

It hasn’t been a great year for socially responsible funds. JPMorgan said in June that it would no longer support Bay Area Equity Fund, its double bottom-line venture arm that invests in socially beneficial startups, and would spin it off. Also, Omidyar Network, which invests in nonprofits and for-profits that promote individual self empowerment, has been overhauling its team and strategy for several months.

But the rough year for do-gooder funds hasn’t discouraged Josh Becker and Benjamin Black. The two have launched fund-raising for New Cycle Capital, a $50 million early stage fund that will focus on socially responsible investing, PE Week has learned.

The fund has already received an undisclosed anchor commitment from The Rappaport Family Foundation and a number of other high-net worth individuals and family foundations. The firm’s investment committee includes Andy Rappaport, general partner of August Capital, and Anne Martin, who manages venture investments for the Yale Endowment. The New Cycle partners say that the fund might balloon up to $75 million if limited partners like the offering. Becker says that he anticipates generating six to 12 times the LP’s initial investment.

Becker also says that he is encouraged by the The Anne E. Casey Foundation, which has promised to allocate 2% of its $3 billion in holdings to socially responsible investing, and W.K. Kellog Foundation, which says that it would put $100 million into such funds.

Co-founders Becker and Black have experience in entrepreneurship and venture capital. Black started Harris Interactive with his father, worked for private equity firm Rosewood Capital and venture firm Maveron. Becker was an early employee at EarthWeb and spent time at DCM and Brentwood Venture Capital, which later became Redpoint Ventures.

The co-founders have been investing for the past six months using their own financing as they hope to build a track record that will lure limited partners. The firm has invested in four startups so far. It backed undisclosed rounds in inner-city retailer Sneaker Villa, energy efficiency company Positive Energy, carbon-offset company TerraPass and domain name fraud fighter CitizenHawk.

The market for backing socially responsible ventures has exploded in the last year, Becker says. “The perception was that the management wasn’t there, the teams weren’t there and the returns weren’t there.” But that’s changed now, due, in large part, he says, to the boom in cleantech investing.

Despite the socially minded agenda that Becker and Black are pushing through the portfolio, Becker is quick to make the distinction between New Cycle Capital and a specifically mandated do-gooder venture firm. “We don’t look at ourselves as double-bottom line investors that have confined themselves to certain constraints, such as a regional focus fund,” he says. “It’s hard enough to make money in the traditional role of venture capital.”

Some institutions, such as JPMorgan and other large banks, have specific federally required social mandates associated with the lending and investments they make. They have turned, on occasion, to double-bottom line venture-style investors to help fill those requirements. That’s how JPMorgan’s Bay Area Equity Fund got its start, for example.

Bay Area Equity Fund last year scored a significant exit when it sold PowerLight, a solar panel producer that employed middle-income residents of Berkeley, Calif., to SunPower (Nasdaq: SPWR) for $330 million. The fund had invested $5 million in PowerLight’s $15 million Series C in August 2005. In addition to PowerLight, the fund was involved in several high-profile startups such as online-music player Pandora and electric-car maker Tesla Motors. But the future of BAEF is unknown as JPMorgan, which has been casting off private equity divisions since 2006, said that it would spin off the do-gooder fund. It is unknown if JPMorgan will return as a limited partner in a reconstituted BAEF. The first fund counted 10 banks among its limited partners, seven foundations and a handful of retirement plans.

For Omidyar Network, at least nine investors that had once been employed by Omidyar are no longer involved with the firm, according to records from Thomson Financial (publisher of PE Week).

Still, the firm has managed to make seven investments this year and has brought in Managing Partner Matt Bannick, a former eBay executive, to run the operation. As recently as September, more than six months after he took the position, Bannick is still formulating his strategy and not ready to talk, an Omidyar spokesperson told PE Week.