Wall Street’s spectacular implosion in 2008—illustrated by the failure and subsequent sale of Bear Stearns to JP Morgan and, soon thereafter, the bankruptcy of Lehman Brothers and the government’s spectacular bailout soured many on Wall Street’s Masters of the Universe.
But investment banks don’t just trade credit-default swaps and collateralized debt obligations. They also help companies raise capital—often taking shares in companies themselves—while providing sector-specific expertise. Their backing makes it possible for industries like technology to flourish.
They will also play a role in the expansion of the sustainable economy.
Enter the Boutique Investment Bank
On the West Coast, the success of the technology industry was due in no small part to the local investment community. From the 1970s through the dot com bubble, boutique investment banks like Hambrecht & Quist, Robertson Stephens, and Montgomery Securities, all since acquired, played a significant role in helping tech companies find funding, underwriting the IPOs for companies that include Apple Computer, Genentech, and E-Trade.
Partnership Capital Growth (PCG), a boutique San Francisco-based investment bank, is positioning itself to do something similar for the healthy, active, and sustainable living companies. The difference?
The market is bigger.
“The size of the sustainability market and market opportunity is multiples of the Internet opportunity,” says Brent Knudsen, PCG’s founder and managing partner. “I’m not the first to say it.”
However, companies need a large enough financial community to capitalize the industry’s growth—including angel investors, venture capitalists, commercial banks, and investment banks. As businesses mature, companies need to go up the capital structure.
“Cycles do return to where things were before. In the early days of investment banking, it was a boutique business,” says Knudsen. “I think what we’re doing and what a lot of other banks like us are doing is returning a little bit to the old days.”
The Growth of the Healthy, Active, and Sustainability Market
A registered B Corporation (“We found out about it and said, ‘hey, that’s us,’” says Knudsen), the growth of PCG’s clients is impressive, especially in the current economic cycle. “Anybody that tells you the economy hasn’t affected them is lying. People aren’t doing great. It’s been a pretty tough year for anybody,” says Knudsen. But he says the companies PCG invests in, including Sambazon, which makes beverages using the açaí berry, is up 40 percent and CytoSport, which makes a healthy, protein-based muscle milk, is up some 35 percent.
Focusing on companies in the healthy, active, and sustainable living market takes advantage of trends like the aging of Baby Boomers. “What you see going on with health care right now is really encouraging in many ways. It’s pushing people to more control over their own health. I think you’re going to see a lot of that,” says Knudsen.
In Minnesota, for example, Blue Cross and Blue Shield of Minnesota offer a fitness center credit for those who work out a minimum number of times at participating fitness centers, exactly the sort of emphasis on prevention that will help companies like Anytime Fitness succeed—which is part of the reason why PCG invested in them.
While Knudsen doesn’t see the overall economy improving that much in 2010, “The good news is we’ll have a lot of growth year over year, because this year was so lousy,” he says. But he also believes that a more conservative approach to finance is good for the type of businesses PCG invests in, and that the outlook for the sector his company targets is rosy. “I think 2010 is going to be quite a breakout year with regard to innovation and sustainability. In this area, there’s so much enthusiasm for the companies that are starting to emerge.”
Frank Marquardt is the author of The Solar Job Guide, among other things.