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Governance Investing

Novata Raises $21M for its ESG Platform for Private Companies

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Investors are increasingly taking Environmental, Social, and Governance (ESG) considerations into their analysis when evaluating the merit of potential investments as well as for reporting purposes once an investment has been made.  ESG factors can have a significant impact on risk as well as growth implications.  There is a myriad of resources for understanding sustainability for public companies but private companies have been overlooked.  Novata is a new technology solution focused on bringing transparency related to ESG for private companies.  The platform provides private companies the ability to create a free ESG reporting framework, allowing them to showcase their efforts to key stakeholders.  Investors are able to access a fee-based platform for comprehensive ESG data on private companies, providing analysis, reporting, and benchmark figures against both private and public companies.

AlleyWatch caught up with Novata CEO Alex Friedman to learn more about how the company came together through a combination of non-profit and for-profit leaders, future strategic plans, recent round of funding, and much, much more.

Who were your investors and how much did you raise?

Our $21M Series A investment included members of the one-of-a-kind consortium that collaborated to launch Novata in October 2021, including the Ford Foundation, S&P Global, Hamilton Lane, and Omidyar Network.

In addition to the principal investors, Novata’s founding employees are investing in the company through the Series A funding. Further, a range of leading private equity firms serve as advisors to the Novata consortium, including Bridgepoint, Clearlake Capital Group, Kohlberg & Co., KPS Capital Partners, Lindsay Goldberg, Summa Equity, Thomas H. Lee Partners, and The Vistria Group. Several of these advisors—The Vistria Group, Clearlake Capital Group, and Kohlberg & Co.—have made investments in support of Novata, with all proceeds from such investments to be donated to nonprofits.

Tell us about the product or service that Novata offers.

Novata’s launch marks the first time that the non-profit and for-profit worlds are working together to build critical ESG infrastructure that will enable the private markets to build a more inclusive and sustainable form of capitalism.

The Novata platform offers an independent, intuitive and effective solution to enable private companies to better collect, analyze and benchmark their ESG data. It comes at a critical time, because reporting ESG performance in a streamlined way, while avoiding fragmentation of standards, requires a multi-faceted solution.

The Series A investment helps Novata bring to market its three-part open architecture approach to holistic ESG analysis—including a streamlined ESG reporting framework that builds on previous industry initiatives and is currently free for all companies to immediately leverage, plus a fee-based secure platform for objective ESG data capture, analysis, reporting and benchmarking against private and public company peers.

What inspired the start of Novata?

From racial justice movements and new diversity mandates, to climate change and extreme weather events, to the destruction wrought by COVID-19, the events shaping our world have shined a light on the importance of a proactive approach to ESG. Now more than ever before, stakeholders and shareholders are holding companies responsible for their actions.

The industry is at a tipping point—which is why the Consortium set out to create Novata, with the goal of developing a unique, unified approach to easier ESG reporting. Given the majority of the world’s economic activity is driven by private companies, we believe Novata will enable private markets and PE leaders to move from talking about ESG to effecting actual, measurable change—and, in turn, moving the global lever of what capitalism can do.

How is Novata different?

There is a critical need to empower the private markets, including GPs and LP investors, to better understand impact. Yet varying ESG reporting standards, subjective ratings, and data collection challenges make evaluating a company’s ESG impact exceedingly difficult.

With Novata’s unified methodology, along with a data repository and the ability to benchmark against comparable private and public companies, we are uniquely positioned to provide the private markets with the insights to see how companies are performing against peers on an anonymized basis.

Novata is unique in that it is created from an unprecedented collaboration between non-profit philanthropic and for-profit financial industry leaders, who have come together to create an easier path not just to ESG accountability in the private markets, but also to actionable inclusive capitalism. This approach has allowed us to create a solution that moves the private markets from talking about measuring impact, to taking action toward true societal change.

Additionally, the Novata measurement methodology is vetted by a trusted group of GP advisors, but it is not outright owned by any one PE firm, making it independent, unbiased and, most of all, adaptable to the ESG journey for each private company, PE firm, and portfolio company.

What market does Novata target and how big is it? 

Novata is focused on providing a unified methodology to the private markets, a long-neglected category of business that represents the vast majority of the world’s employment, as well as a substantial portion of the world’s GDP. While there are fewer than 100,000 public companies in the world today, there are more than 200 million private companies, including the private equity and venture capital firms that serve as one of Novata’s key audiences.

What’s your business model?

Novata is a privately held public benefit corporation that is majority-controlled by mission-driven organizations and its employees. Novata’s three-pronged open architecture approach to holistic ESG analysis includes a streamlined ESG reporting framework that builds on previous industry initiatives and is currently free for all companies to immediately leverage. Novata will also be launching a fee-based secure platform for objective ESG data capture, analysis, reporting, and benchmarking against private and public company peers. Novata’s goal is to be both mission-driven and commercially sustainable.

Novata is a privately held public benefit corporation that is majority-controlled by mission-driven organizations and its employees. Novata’s three-pronged open architecture approach to holistic ESG analysis includes a streamlined ESG reporting framework that builds on previous industry initiatives and is currently free for all companies to immediately leverage. Novata will also be launching a fee-based secure platform for objective ESG data capture, analysis, reporting, and benchmarking against private and public company peers. Novata’s goal is to be both mission-driven and commercially sustainable.

What are the milestones you plan to achieve in the next six months? 

Over the remainder of 2021, we are focused on providing our beta customers with access to the Novata technology platform Broader access to the Novata ESG platform is planned to be available for all private markets participants in early 2022.

Where do you see the company going now over the near term?

Private company leaders and private equity general partners are facing increased demand from stakeholders of all kinds to demonstrate their societal impact—and the ask is an urgent one. That’s why Novata is focused on rallying the private markets ecosystem around a unified approach to ESG measurement.

The Novata ESG methodology is holistic enough to encompass the critical factors of interest to investors, shareholders, employees, communities, and policymakers, while also being flexible enough to meet each private company on their individual ESG journey. Over the near term, Novata is sharing our methodology, which is free, to ensure that any private company—big or small, regardless of whether they use our fee-based technology services—can leverage it and bring cohesion to the historically opaque and disjointed process of ESG measurement.

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