CPP Investments' Growth Equity Invests in Form Energy
Solar and wind power have intermittency in their productive hours, as multi-day weather events can affect output. Therefore, cost-effective, multi-day storage is an important feature in grid reliability.
Boston-based startup Form Energy has developed multi-day iron-air batteries to address this need. The company said its batteries can store renewables-sourced electricity for 100 hours at system costs that are competitive with conventional power plants. At full-scale production, Form Energy said the modules would deliver electricity at about one-tenth the cost of lithium-ion batteries.
The iron-air battery is composed of cells filled with thousands of iron pellets that are exposed to air and create rust. The oxygen is then removed, reverting the rust to iron. Controlling this process allows the battery to be charged and discharged.
The technology has garnered significant interest from investors. Most recently, it raised $450 million in a Series E funding round led by TPG Rise Climate. Also joining the Series E round are GIC and Canada Pension Plan Investment Board (CPP Investments), along with existing investors ArcelorMittal, Breakthrough Energy Ventures (BEV), Capricorn Investment Group, Coatue, Energy Impact Partners (EIP), MIT’s The Engine, NGP ETP, Temasek, Prelude Ventures, and VamosVentures.
“The development of reliable, long duration energy storage technology is critical for the global transition to renewable energy,” said Leon Pedersen, managing director of CPP Investments. “By introducing new storage solutions to the market, Form Energy can contribute to the energy transition process while also providing attractive risk-adjusted returns for the CPP Fund.”
The technology is less energy-dense than its lithium-ion counterparts, making it a better fit for large grid-scale applications. This may come as an advantage for the company, as EV batteries are in competition for lithium, a metal with geo-political mining concerns and battery fire risks.
The battery modules are grouped together in environmentally protected enclosures. Hundreds of these enclosures are grouped together in modular megawatt-scale power blocks. Depending on the system size, tens to hundreds of these power blocks can be connected to the electricity grid. For scale, in its least dense configuration, a one megawatt system comprises half an acre of land. Higher density configurations would achieve >3 mw/acre.
The company’s first project is a 1 MW/150 MWh pilot installation with Minnesota-based utility Great River Energy. Form Energy said it expects to have the facility deployed at a Great River Energy power plant by 2023.
“Form was founded with a unified mission to develop a multi-day energy storage battery that would unlock the power of extremely low-cost renewable energy to transform the electric grid,” said Form Energy CEO Mateo Jaramillo. “Over the last five years, through rigorous R&D and product engineering, our 100-hour iron-air battery product is ready to scale. The Series E funding will accelerate our ability to responsibly build a globally competitive US battery manufacturing supply chain and advance American innovation.”
Form Energy said it is currently engaged in a site selection process for its first full scale battery manufacturing facility. Starting with identifying over 100 initial sites across 16 states, the company said it has narrowed the site selection to three states, and expects to make an announcement before the end of the year.
The funding round builds on last year’s $200 million in Series D funding. This round was led by $25 million from ArcelorMittal’s XCarb innovation fund. ArcelorMittal will non-exclusively supply the iron materials for the battery system production, and Form Energy said it intends to source its iron domestically, manufacturing the batteries near where the iron was sourced.
Form Energy put out a press release announcing the $450 million Series E financing:
Boston, MA – October 4, 2022 – Form Energy, Inc., an American technology company developing and commercializing a new class of cost-effective, multi-day energy storage systems, announced today a $450 million Series E financing round led by TPG’s global impact investing platform, TPG Rise. This financing includes amounts that are subject to regulatory approval and allocations to existing investors.
TPG Rise is making the investment through TPG Rise Climate, its dedicated climate investing strategy, and The Rise Fund, its longstanding, multi-sector impact investing strategy. “Form continues to demonstrate its ability to rapidly advance and scale long duration energy storage technology. The company is a leader in a market that is a critical part of the energy transition. We are delighted to deepen our partnership with Mateo and the team as they position Form for its next phase of growth and innovation,” said Marc Mezvinsky, Partner at TPG, who is also joining Form Energy’s Board of Directors.
Also joining the Series E round are GIC and Canada Pension Plan Investment Board (CPP Investments), along with existing investors ArcelorMittal, Breakthrough Energy Ventures (BEV), Capricorn Investment Group, Coatue, Energy Impact Partners (EIP), MIT’s The Engine, NGP ETP, Temasek, Prelude Ventures, and VamosVentures.
“The development of reliable, long duration energy storage technology is critical for the global transition to renewable energy,” said Leon Pedersen, Managing Director and Head of Growth Equity at CPP Investments. “By introducing new storage solutions to the market, Form Energy can contribute to the energy transition process while also providing attractive risk-adjusted returns for the CPP Fund.”
Ang Eng Seng, Chief Investment Officer of Infrastructure at GIC, said, “To meet the urgency of mitigating climate change, we must accelerate the deployment of new cost-effective technologies capable of fully decarbonizing the electric system, while maintaining grid reliability and resiliency. We are pleased to partner with Form Energy’s best-in-class team as the company scales to manufacture and broadly commercialize its breakthrough multi-day battery technology.”
“At GIC, we look to invest in ambitious and innovative companies that are on track to make a meaningful impact in achieving net-zero in the real economy. Over the next decade, Form Energy’s low-cost, iron-air battery technology will unlock gigawatts of new renewable energy capacity and open the door to tremendous opportunities. We have strong confidence in Form’s team and technology and look forward to working together in the global clean energy transition,” added Choo Yong Cheen, Chief Investment Officer of Private Equity at GIC.
“The necessary transition to a 100% renewable grid creates a massive opportunity for energy storage technology,” said Katie Rae, Form Energy Board Member and Managing Partner and CEO of The Engine. “From the earliest days, Form Energy’s remarkable leadership team singularly focused on applying their breakthrough engineering to this tough tech problem and is solving a clear global need. With this new capital Form Energy will accelerate its growth to enable a reliable and fully renewable grid year-round.”
Mateo Jaramillo, CEO and Co-founder of Form Energy, said, “We thank TPG Rise for their leadership in our Series E fundraising round and for their continued partnership. We are also very pleased to welcome GIC and CPP Investments to our investor group and appreciate the ongoing trust and support from our long-standing investors who have been with us for many years.”
Jaramillo added, “Form was founded with a unified mission to develop a multi-day energy storage battery that would unlock the power of extremely low-cost renewable energy to transform the electric grid. Over the last five years, through rigorous R&D and product engineering, our 100-hour iron-air battery product is ready to scale. The Series E funding will accelerate our ability to responsibly build a globally competitive U.S. battery manufacturing supply chain and advance American innovation.”
Form Energy is currently engaged in a robust site selection process for its first full scale battery manufacturing facility. Starting with identifying over 100 initial sites across 16 states, Form has narrowed the site selection to three states and expects to make an announcement in this regard before the end of the year.
To learn more about Form Energy, please visit www.FormEnergy.com.
This is exciting news and I agree with Leon Pedersen, Managing Director and Head of Growth Equity at CPP Investments:
“The development of reliable, long duration energy storage technology is critical for the global transition to renewable energy. By introducing new storage solutions to the market, Form Energy can contribute to the energy transition process while also providing attractive risk-adjusted returns for the CPP Fund.”
Growth Equity is a relatively new unit at CPP Investments which was launched earlier this year and is part of the Private Equity group:
When people think about companies with the potential for tremendous growth, start-ups usually come to mind. In fact, some of the most promising opportunities for growth are hidden in companies that have been doing business for years. Identifying that growth potential – and providing the necessary skills, resources and relationships to unlock it – is where CPP Investments’ growth equity team comes in.
Growth equity, like venture capital and buy-out investing, exists within the world of private equity, where investments are made in companies that are not publicly traded. Venture capital focuses on investing modest amounts in promising start-ups, most of which have enormous growth potential but are not yet turning a profit. Buy-outs usually involve a majority transaction to take a control over a company with an eye towards exiting investments within 4-6 years. Growth equity, meanwhile, lies somewhere in between. Put simply, growth equity involves taking minority stakes in businesses that are poised for transformational growth and providing them with the funds and support to make that growth possible.
“At CPP Investments, we’ve been involved in growth equity transactions for years, even without a formal team dedicated to serving that area,” said Suyi Kim, Senior Managing Director and Global Head of Private Equity. “When we looked across the organization, we recognized that our team of highly-sophisticated investment professionals had all the elements required to build a formal growth equity practice that was truly one-of-a-kind, on a global scale.”
Those elements include the deep sector expertise of team members focused on the key investment themes driving the future; the solid network of relationships nurtured by investment professionals who manage partnerships across geographies and asset classes; and the know-how of operations experts who have experience working with management and guiding companies along their journey towards transformational growth.
“That’s where our comparative advantage really makes a difference,” said Leon Pedersen, Managing Director and head of Growth Equity. “Not only can we utilize all these resources across the organization, we can also offer a long enough time horizon to maximize their impact. Companies can work with us even far beyond IPO, bringing the entire weight of the CPP Investments organization to bear across the business cycle.”
A key aspect of CPP Investments’ growth equity approach is our focus on building direct relationships with promising companies before they need growth capital. Our patient approach allows our team to spend time working with management without any pressure to deploy capital right away. Investing the time and effort before a company needs funding means we can diligence investment opportunities faster and close transactions more efficiently.
“We are playing the long game,” Pedersen adds. “Our reputation as high-quality investor and as stable source of patient, long-term capital is an important one that helps us support our mission, which is maximizing returns without undue risk of loss for the more than 21 million contributors and beneficiaries of the Canada Pension Plan.”
In an interview with BNN Bloomberg back in May, Leon Pederson said they were seeking targets amid a 'perfect storm':
One of North America’s biggest institutional investors is pushing into the growth-equity business as it anticipates declines in private-company valuations will catch up with those of publicly traded stocks.
Canada Pension Plan Investment Board, which managed $539 billion at the end of March, is building an arm that focuses on buying minority stakes in closely held firms as global markets face a “great reset,” the unit’s leader, Leon Pedersen, said in an interview.
Markets are shifting from a scenario in which growth equities were “lifting all boats,” to one where it will be easier to differentiate between high-quality companies and those that are more vulnerable, Pedersen said Thursday.
“It’s almost like the perfect storm and it will be easier to identify the winners,” he said.
Soaring inflation, rising interest rates and war in Europe have battered global equities, with the MSCI All Country World Index tumbling about 15 per cent this year. But the impact of the geopolitical and economic turmoil isn’t fully reflected in the valuations of private firms, with potential sellers resisting price cuts for now.
CPPIB plans to wait for them to capitulate.
“It will take some time for the markets to actually find these new levels,” Pedersen said.
The growth-equity team will focus on buying minority stakes in businesses focused on health care, and battery and food technologies, among others, he said. While the pension plan has invested in growth equities for years, it now has a team dedicated to that segment.
Among CPPIB’s growth equity investments, according to its website, are 10x Future Technologies, a provider of business-to-business solutions for banks; software and database management firm Aerospike; and DriveWealth, a brokerage infrastructure platform.
Investments in startups are expected to slow this year as growth-stage companies and venture-capital firms adopt a wait-and-see approach.
Many businesses have raised a lot of capital but are postponing deployment, Pedersen said.
And in mid-June, Barbara Shecter of the National Post reported that faltering tech markets don't bother CPPIB's new growth equity team:
Rising rates, inflation and supply chain issues are contributing to a tech-sector rout, with some valuations down as much as 90 per cent, so it might seem like an odd time to step up the pace of growth equity investing by creating a unit to pick winners among early-stage innovators and disruptors.
But Leon Pedersen, who was selected to lead a team dedicated to doing just that at the Canada Pension Plan Investment Board (CPPIB), said the timing couldn’t be better.
“We have a massive reset in the valuation of, particularly, growth companies, so it’s an interesting point in time to go in and really do our foundational work to try to get it right,” said Pedersen, who was head of equities at Denmark’s BI Asset Management Fondsmæglerselskab A/S for four years before joining CPPIB in 2019 to lead thematic investing.
The sector’s reset from frothy valuations and record activity has created opportunities on the private side, where CPPIB’s team hopes to find gems long before they become public companies, as well as in the public markets, where there was a rush to take advantage of the hot initial public offering (IPO) market, which has since cooled off. The growth-focused Nasdaq Composite index is down more than 30 per cent from its peak in November.
“Some really high-quality growth companies have gone public over the past couple of years, maybe even too early (in hindsight),” said Pedersen, who spent more than two decades at Copenhagen-based Nordea Investment Management AB earlier in his career. With the markets punishing tech companies, CPPIB’s team might find some of those are ready “to think about public-to-private transactions,” he added.
The heightened focus on growth equity at the $539-billion pension manager has meant rethinking internal teams to bring together expertise in private equity and thematic investing.
The result is a 19-member growth equity group that is housed in two locations, San Francisco and Toronto, where Pedersen hopes to replicate CPPIB’s boots-on-the-ground and funding-partnership successes in Asia, where the pension fund became an early-stage investor in tech darlings such as e-commerce play Alibaba Group Holding Ltd.
Alibaba paid off in 2014, at least on paper, when the company went public with a value of US$25 billion, though the company subsequently faced domestic regulatory and consumer challenges.
“In our Private Equity Asia group, where we actually had the Alibaba investment originally, that model of collaborating with our partners, and direct approach, has been very successful … and that model is actually the inspiration for the group we’re doing now in growth equity,” Pedersen said.
“My group is focusing on North America and Europe … That model has proven very successful (in Asia) and we are seeing similar synergies in what we’re doing here in the growth equity group.”
Among the investments made so far this year are California-based Eikon Therapeutics Inc., which uses computing to track and measure movements of proteins in living cells in order to discover new medicines, and N26 GmbH, a branchless European bank based in Germany.
Some CPPIB investments made before the fund’s growth equity platform was formed have now been rolled into that portfolio, such as Sensibill Inc., a Canadian digital banking services company and Sila Nanotechnologies Inc., a California-based electric-vehicle battery company, both of which CPPIB invested in back in 2019, as well as Bermuda’s Viking River Cruises Inc. from 2016.
In addition to direct investments, the growth equity group will be investing through venture funds such as Forerunner Ventures Management LLC and Sequoia Capital. The former is a recent addition, while CPPIB has been investing through Sequoia funds since 2018.
The growth equity team will be able to take advantage of CPPIB’s “one-fund approach,” Pedersen said, adding that being a unit within a large and diversified fund with access and expertise in private equity, as well as credit and secondary markets, is a key ingredient that will help it compete with others chasing growth assets.
“We think the secret sauce for us will be to be early on in building relationships with these companies, and also, of course, through our partners,” he said. “That ability to have permanent long-term capital is going to be even more valuable in the years to come … (and CPPIB) can stay with these companies also when they go public.”
It’s not an entirely unfamiliar model among large Canadian pension funds. For example, the $241.6-billion Ontario Teachers’ Pension Plan launched an innovation platform in 2019 that it hopes will account for as much as 10 per cent of the fund’s assets by the end of its first decade.
Teachers’ Venture Growth, which makes up about three per cent of the fund’s assets today, set a goal to deploy up to $2 billion each year in markets around the world, with about three-quarters of that capital destined for direct investments and the rest invested through funds.
The two pension giants’ platforms share a focus on early-stage innovative and disruptive companies and technologies, and a split between direct investments and investing through funds. Initial direct investment targets are also similar, with Teachers’ looking in the range of $50 million to $250 million, and CPPIB looking at $25 million to $200 million.
The innovation portfolio at Teachers would grow to more than $21 billion by 2030 if the fund’s projections hold.
Pedersen was not willing to disclose the size of CPPIB’s growth equity portfolio or discuss projections for its eventual contribution to the overall CPP fund. But he said the industry has a growth equity benchmark of at least 20 per cent of private-equity allocations.
As of March 31, 32 per cent of CPPIB’s worldwide assets were in private equity, including in Asia where Pedersen’s group is leaving growth equity investments to other teams.
“This is a really important area and we will be significantly growing our exposure to growth equity over the next five years,” he said. “That was part of the impetus for creating it as a separate group.”
I am providing some background so you understand the mandate and focus of CPP Investments' Growth Equity team and why they will play an important part in its massive Private Equity portfolio.
You can learn more about CPP Investments' Growth Equity team here and below:
The Growth Equity team builds positions in the most attractive growth and venture backed companies by investing across a company’s lifecycle. The strategy is carried out through a combination of a thematic model and a partnership model leveraging the benefits of our GP relationships. We invest both directly and through co-investments in a wide range of next generation technologies and business models, focusing our direct investments in areas of high domain expertise. Among our thematic domains, we focus on direct investments within Innovations in Healthcare, Fintech, Climate Change Opportunities and Automobility. We invest primarily in North America and Europe, with direct investments ranging from investment sizes of $25M to $200M+ as we follow growth companies through their lifecycle.
In related news, CPP Investments took part in Inari's latest $124 million funding round to design seeds for a nature-positive food system:
These are exciting times as innovation is taking place all over the world and CPP Investments' Growth Equity team is busy investing in these innovative new companies.Meet Inari, The SEEDesign™ company that pairs AI-powered predictive design with multiplex gene editing to unlock the full potential of a seed.
The company recently announced that it secured $124 million in the successful completion of its latest fundraise. Working to deliver nature-positive solutions, the SEEDesign™ company’s cumulative equity raised now totals $475 million.
The investment will further advance Inari’s position in multiplex gene-edited seed technology, support expansion of company product development and ultimately deliver new value in the commercial seed market.
The Series E fundraise received strong support from investors, including new investor Canada Pension Plan Investment Board (CPP Investments) and company founder Flagship Pioneering.
Additional funds were raised from existing impact investors including Hanwha Impact Partners, NGS Super and Banque Pictet on behalf of some of their customers, as well as new investor Sage Hill Investors.
For Flagship Pioneering, the funds signify continued support of Inari’s founding vision.
“When Flagship Pioneering founded Inari, we envisioned the potential of adapting technology platforms previously used for human health to transform our global food system and have a restorative impact on our planet,” said Robert Berendes, Ph.D., Flagship Pioneering executive partner and board member.
“This fundraise further validates the company’s pioneering advances and fuels the next phase of bringing breakthrough seed solutions to market, thereby unlocking new possibilities for farmers, consumers and the planet.”
Inari’s unique take on tackling climate change focuses on using the seed itself as a driver for sustainable solutions.
“Inari is introducing innovations that stand to make a big impact on the long-term future of the global food system,” said Leon Pedersen, managing director and head of growth equity at CPP Investments.
“As long-term investors, we are confident that our investment will support their efforts to feed the world more sustainably while also producing strong risk-adjusted returns for the CPP Fund.”
About InariInari, the SEEDesign™ company, makes seeds that address the world’s needs, pushing the boundaries of what is possible for a more sustainable, nature-positive food system.
Through a combination of AI-powered predictive design and a pioneered multiplex gene editing toolbox, the company is unlocking the full potential of seed to bring step-change products to market.
Founded by Flagship Pioneering in 2016, Inari is based in Cambridge, Mass., with additional sites in West Lafayette, Ind., and Ghent, Belgium.
Inari is a growing team of more than 230 employees, leveraging AI and multiplex gene editing technology to meet the food system needs of the future.
It's important to note while the team is new, growth equity isn't new at CPP Investments:
“At CPP Investments, we’ve been involved in growth equity transactions for years, even without a formal team dedicated to serving that area,” said Suyi Kim, Senior Managing Director and Global Head of Private Equity. “When we looked across the organization, we recognized that our team of highly-sophisticated investment professionals had all the elements required to build a formal growth equity practice that was truly one-of-a-kind, on a global scale.”
And that is exactly what they are doing, building a formal growth equity practice that is truly one-of-a-kind, on a global scale.
CPP Investments' Growth Equity team is investing in many exciting companies and you can see a full list of them on their website here (click on growth equity under Holdings at the top to view them).
Below, the biggest issues of wind and solar is that they are variable and intermittent. The solution is low-cost, multi-day energy storage. Can Form Energy’s iron-air technology reach the holy grail price of $20/kWh? That’s what Form Energy founder and CEO Mateo Jaramillo (former vice president of products and programs for Tesla’s stationary energy storage program) aims to deliver. If he is successful, the grid and renewables will be transformed.
And Form Energy is among the most buzzed-about battery tech companies in Silicon Valley, with backing from Bill Gates and Jeff Bezos among others. CEO Mateo Jaramillo talks about what, exactly, Form is building; he also talked about his career at Tesla, and what it was like spending more than seven years, working for Elon Musk. He is interviewed here by CNBC's Lora Kolodny, who writes about climate and other emerging tech.
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