CVCA Member Profile: MacKinnon, Bennett and Co. (MKB)
On February 1, CVCA member MacKinnon, Bennett and Co. (MKB)held an initial close for their MKB Partners Fund II, securing CAD $100M of the targeted $150M fund.
MKB Partners Fund II fund will invest in late-venture and early growth-stage companies focused on the decarbonization and electrification of energy and transportation. The fund will partner with outstanding management teams using technology and business model innovations to accelerate the energy transition.
Montreal-based MKB specializes in providing growth equity to the next-generation energy and transportation sectors. MKB takes significant minority positions in its portfolio companies and proactively assists management teams in reaching their full potential.
On the heels of the initial close of MKB Partners Fund II, we spoke with the MKB team (Kenneth MacKinnon, Managing Partner, Antonio Occhionero, Partner, Chanel Damphousse, Principal, and Patrick Bennett, Partner) to dive into MKB’s history, thesis, and what the firm has in the pipeline.
Tell us about MKB. What are its roots, who were the primary players when it began, and who are the players now?
MKB was launched over a decade ago as a vehicle for its founders and their friends and family network to make private investments in renewable energy. In our first investment, Potentia Solar (now Potentia Renewables), we were one of three founding shareholder groups in the Ontario-based rooftop solar power producer. We raised a dedicated special purpose vehicle (SPV) to make the investment with capital from our own balance sheet, our shareholders, family offices, and high net worth individuals.
A similar SPV approach was used for our next investment in MiovisionTechnologies, a Kitchener-based transportation data provider. Miovision represented an expansion of our investment focus with an initial foray into the transportation sector. As two large and concentrated positions made up the totality of our AUM at the time, we took a very pro-active approach and dedicated all our efforts to helping these companies grow and succeed. This hands-on involvement in Potentia and Miovision played a big role in building MKB’s investing culture – it was a good trial by fire for our core investment team which came together around these investments early in the firm’s life.
In 2016 we expanded our scope of activities by launching the MKB Partners Fund, a specialized fund that expanded our investing activities in next-generation energy and transportation while also broadening our LP base to foundations and institutions. The Partners Fund is now fully invested in a diverse set of companies operating in off-grid solar, car sharing, electric grid digitization, last-mile mobility, and transportation data. We have recently had our initial close on a larger successor fund with a similar investment mandate. With the expansion of our fund management activities, we have also been lucky to find great talent in a small but growing and diversified team that has helped the firm build up its operations, finance, and investment support functions.
Tell us about MKB’s investment thesis?
We are entering an age when innovation and disruptive value creation will be concentrated in essential service sectors such as energy and transportation as we all come to terms with the environmental consequences of one hundred years of mass industrialization. Sectors such as media, retail, and telecom have experienced large leaps in innovation over the past two decades, but at the same time, we have taken for granted the foundations that make it all possible – energy, transport, food, water. These foundations are now impacted by a growing set of challenges such as climate volatility, environmental degradation, and global supply chain risks. Thankfully, there is an incredible engine of innovation emerging globally to tackle these challenges and re-imagine such basics as where our electricity
comes from, how we get around a city, and how we mitigate the impact of climate change on the critical resources we depend on. Not necessarily sexy, but certainly a generational investment opportunity. The companies who successfully scale up the innovative business models to address these challenges will be well-positioned to become the long-term growth stories of the age.
Our focus to-date has been making equity investments in late venture and early growth stage companies to capture this opportunity, when companies have demonstrated product and commercial traction and are reorienting business, product, and finance strategies for scale. We think getting involved at this transition stage and helping management teams hit growth inflection points is a good risk/return proposition: at this point, companies have survived (most of) the early-stage wars with the potential for a powerful value uplift if we are successful in growing and de-risking the business in the eyes of follow on the institutional, public market or strategic corporate capital.
Is MKB noticing any unique trends in clean energy, transportation, and smart city investing? Or anything particularly in private capital investing in Canada?
With a growing focus on ESG, investors have finally begun to understand that the opportunity presented by the energy transition means that financial returns do not have to be sacrificed for positive impact. Rather than viewing our thesis through solely an altruism lens, investors in public markets, as well as more traditional VCs and private equity investors, are coming around to the view that these trends are likely to define the medium- to long-term outlook.
More specifically in energy and transportation, there are a number of trends that have emerged in the past few years, and that we believe will continue to gain momentum in 2021 and beyond. Maybe the most obvious today is the race to the electrification of transportation, but we’re also seeing the continued consumerization of energy and focus on customer engagement, the aggregation of behind the meter energy loads to create virtual power plants, continued bidirectional approach to energy consumption and production, increasing need for sophisticated real-time energy management technology as distributed and renewable assets are being added to the grid, and focus on dynamic last-mile mobility, just to name a few. 2020 was a reminder of how fast change can occur, and we’re certainly seeing this pace keep up in 2021.
Tell us about some of your successful exits. Anything you’d like to highlight?
Potentia Solar, now known as Potentia Renewables, is a great example of how we helped a company execute effectively upon the strategic plan set out at its inception. Potentia took advantage of favorable regulations in the rooftop solar sector in Ontario and developed 100 MW of rooftop solar projects before MKB sold its shares at a nice profit to one of our long-time partners. This transaction helped MKB build a loyal base of investors and its the value-add strategy and playbook that has been applied to other companies in our portfolio.
Any unique lessons learned over the years that you’d be open to sharing?
The importance of time horizon when investing in essential services such as energy and transportation. Changes in these industries can be complex and uneven, and just because a thesis on transformational change in a sector ultimately proves correct doesn’t mean it will occur within a time horizon that allows value creation in a particular investment. We spend a lot of time analyzing the market and industry signals to understand, for any potential investment, where its industry is in its change cycle and how that impacts a company’s ability to create sustainable value on a time horizon that makes sense for the investment vehicle. Different types of businesses will find success at different times in the change cycle.
To do this you have to really dive deep into the sectors to understand their dynamics and not be swayed by capital market buzzwords and hype. While people are naturally attracted to “moon shots” because they are exciting, we have often found that companies driving tangible incremental change can also achieve success in a sustainable way. When we are lucky, we find companies that do this while also building a longer-term more transformational vision – generating good growth by improving the world of today while embedding themselves as sector leaders to re-imagine how the world works tomorrow.
Understanding the real value creation time horizon of a business is also key to avoid unrealistic expectations around growth rates, milestone achievements, and capital requirements that can cause avoidable misalignment with management teams.
What’s on the horizon for MKB? Anything big we should keep watch for?
With the growth of our specialized funds in energy and transportation, we are building an investment platform to gradually expand our scope into other essential service sectors such as food and agriculture. Just as our initial investment in renewable energy was followed by an expansion into transportation, we are now seeing more and more business model and technology innovation that has crossover application in other essential service sectors beyond our focus today.
Stay tuned for more on this front!