1. Where will my capital go?

Our portfolio funds invest in 7 to 10 top climate venture capital and growth equity funds. Each fund has a dedicated investment team to invest in 10-30 leading climate tech startups and scaleups for you. That means, with a single investment, you will invest in 150+ climate tech companies powering the global transition to our net-zero future.

2. How does Carbon Equity select the best climate tech investment opportunities?

Carbon Equity uses a thorough investment and proprietary impact process, executed by our team of investors and climate experts, to select climate private equity funds globally. Only 5% of climate funds make it through our diligence process. In this way, our investors gain access to the leading investment teams focused on true climate impact and financial returns.

1. Landscaping: we start with our database of 800+ climate funds
2. Shortlist: we screen funds based on their climate ambition and financial attractiveness
3. Quick scan: we perform a high-level analysis of all relevant aspects of a fund
4. Climate impact assessment: we ensure a fund meets our climate impact standards
5. Full assessment: we deep dive into a fund’s strategy, team and track record
6. Final decision: our Investment Committee (IC) below unanimously approves a fund

3. What happens to my capital during the lifetime of the fund?

The first 1-4 years is the investment period, where the underlying funds make their investments to build their portfolios. A fund may reserve part of its capital raised to make follow-on investments in its most successful companies, even after the investment period.

Once the investment period is over, the harvesting period starts. During this period, the underlying funds gradually shift from value creation to generating liquidity for its investors.

Typically, funds seek liquidity after holding an investment in a company for 4-7 years through an exit. Exit methods include selling portfolio companies via secondaries (i.e. to another PE fund), strategic sales (i.e. to a corporate), or a public listing (IPO).

This means that our investors typically have received back the amount equal to what they invested by years 6-8. All the additional proceeds that come in during a fund’s lifetime (10 to 13 years) are profits.

Disclaimer: The above and below information is based on general best practices and are for illustrative purposes only. We cannot and do not guarantee that any fund committed to via Carbon Equity follows this trajectory.

How does this play out for you as an investor with Carbon Equity? Well, it’s different depending on how much you commit. Here are two examples:

€100K investment

• First capital call (request to transfer capital): The first capital call will be your full €100K commitment plus expenses.
• Next capital calls: A significant part of the first capital call (100k) will remain on a reserve account and will be used for future capital calls in the next few years as the funds make their investments. As such, you may not have to make any more capital calls (payment requests).
• After 4-7 years: The underlying funds could start selling their first investments, meaning you would receive cash distributions.
• After 7-8 years: You can expect to have received your initial investment back and all cash distributions received after that will be your positive returns.‍

‍Note: We don’t expect to call the full commitment of any investor that commits more than 100K as expected distributions in years 4-6 have the potential to offset the later capital calls. For example, an investor commits 125k instead of 100k. The upfront cash capital called in both scenarios is 100k. The return would be higher for the 125k commitment (25k times 2-2.5x net return) if they do not have to transfer the last 25k.

€250K investment

• First capital call (request to transfer capital): The first capital call will be €100K plus expenses, meaning the remaining €150K of your commitment will remain with you at first.
• Next capital calls: After that, you most likely will not receive any capital calls in the first 1-2 years because a part of your first capital call will be on the reserve account. Once this reserve account is depleted, you can expect bi-annual capital calls totaling 10-15% per year going forward.
• After 4-7 years: The underlying funds could start selling their first investments so you would start receiving cash distributions. If you still have outstanding capital calls, these distributions may be used to cancel out (part of) the remaining capital calls (typically 20% of the commitment), meaning you'll likely not have to pay in the full committed capital but you will still be making your return based on the full commitment.
• After 7-8 years: You can expect to have received your initial investment back and all cash distributions received after that will be your positive returns.

€1M investment

• First capital call (request to transfer capital): The first capital call will be 25%, meaning the remaining €750K of your commitment will remain with you at first.
• Next capital calls: After that, you most likely will not receive any capital calls in the first 1-2 years because a part of your first capital call will be on the reserve account. Once this reserve account is depleted, you can expect bi-annual capital calls totaling 10-15% per year going forward.
• After 4-7 years: The underlying funds could start selling their first investments so you would start receiving cash distributions. If you still have outstanding capital calls, these distributions may be used to cancel out (part of) the remaining capital calls (typically 20% of the commitment), meaning you'll likely not have to pay in the full committed capital but you will still be making a return based on your full commitment.
• After 7-8 years: You can expect to have received your initial investment back and all cash distributions received after that will be your positive returns.

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Disclaimer: These are general expectations of how your capital could work during a fund’s lifetime. This is not a guarantee, and there may be circumstances where it will work out differently. Our team is happy to go into more detail here with you.

4. What are the expected financial returns and costs of our climate tech funds?

Our funds aim to generate a 2-2.5x return (i.e. double your commitment) after all fees and costs. For fees and costs, this is what you can expect:

• Annual management fees: Carbon Equity charges different fees based on the amount committed (between 0.30-1.00%) and the underlying funds we invest in charge 2% on average during their investment periods
• Fund expenses: we expect these costs to be around 0.2% of assets under management (AUM) for Carbon Equity and 0.3-0.6% for the underlying funds
• One-time setup fee: Carbon Equity charges 1% of your investment, which is calculated on top of your chosen investment amount
• Fund performance fees: underlying funds charge a performance fee of about 20% (known as ‘carry’) once fund-level returns exceed 6-8% per year
  ‍Note: Carbon Equity does not charge a performance fee

5. What are the key risks of investing in our funds?

Due to the type, structure, and duration of the investments we make, you can expect certain risks:

• Long-term investment: Funds have a lifetime of 10-13 years to make, manage and grow and their portfolio companies into scaled businesses. As an investor, this means you are making a long-term commitment requiring the same patience as the funds.
• No liquidity: An investment in our funds is illiquid, as none of the assets we invest in are listed on any stock exchange or can be easily sold or changed ownership.
• High risk: On average, 1 to 5 out of 10 companies in early-stage venture capital and growth equity actually make it to significant scale and business success. At Carbon Equity, we provide investors with 150+ shots on goal instead of 10-30 made typically in a single fund.
• Venture capital & growth equity: The startup/scaleup nature of the investments by underlying funds will typically have negative cash flows for a period of time.
• Default of your commitment: Failing to comply with a capital call can result in a financial penalty of the amount invested so far or half of your total commitment (whichever is highest).
• Liability: Stichting Carbon Equity Climate Funds (II) will hold and administer your investment, even if Carbon Equity B.V. stops operating.
  ‍Note: You are never at risk of losing more than your initial investment amount

Our portfolio funds will invest in at least 7 underlying funds — based on historical return data, this would mean the probability of not receiving your initial investment amount back is 1.5%.*

6. What can I expect from Carbon Equity after I invest?

Carbon Equity wants to take you on a climate tech investing journey.

Once your transfer request is confirmed, you'll formally be onboard as an investor. From then on, you can expect continuous portfolio updates in your Investor Dashboard, quarterly investor/fund updates, and annual reports to keep track of your portfolio.

Get real time insights into your investment portfolio through the Investor Dashboard

Currently, you can already find:

• Your commitment and wired payments to date
• Overview of your investments with Carbon Equity
• A timeline with key events in your Fund(s)
• Underlying funds included in your portfolio(s)
• A short company profile for all your portfolio companies, which includes the climate challenge, technology and competitive advantage
• New capital calls
• Coming soon: Financial metrics and performance updates

We’ll also share many learning opportunities with you along the way through online masterclasses, blogs, founder interviews, offline events like our Climate Investing Drinks and more.

Do you still have questions? Get in touch with our team through the chatbot or email us at invest@carbonequity.com. We’d be happy to connect with you!