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‘Surprise’ Success for PE Start-up Novata Rolls on With New Funding

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No one seems more surprised with the speed of success of data and benchmarking start-up Novata than its senior management.

Within just a year, the US-based company has become a leading name in the private equity markets’ burgeoning involvement in sustainable investing, attracting the interest in the largest investors in the sector. That has been underlined with a recent $30 million investment that will enable the company to scale its operations both sides of the Atlantic.

“We have seen a lot more interest than we anticipated in terms of portfolio companies actually using Novata,” said company president and co-founder Scott Kennedy of the interest shown by the companies in which PE firms invest. “It was a positive surprise for us is that many of the larger firms started to use us within four or five months.”

Novata, which was founded in the autumn of 2021, launched an ESG data and benchmarking tool for PE firms last year. The platform was created to bring greater sustainability transparency to an industry whose funds attract almost a quarter of all capital invested by financial institutions.

Purpose Built

The key to Novata’s success, said Kennedy is that the platform was built to meet the specific needs of private markets.

“Our differentiator is very much that we have been able to enlist through our partners and stakeholders, the support of the private markets, and enlist that expertise in terms of defining what the market needs,” Kennedy told ESG Insight. “We were set up to enable ESG adoption in the private markets in a way that worked for the market participants.”

Those partners include S&P Global, one of the biggest names in ESG data, as well as more than a dozen PE firms including big names such as Silverlake, Insight Partners and Hellman & Freidman. They all sit on the public-benefit corporation’s General Partner Advisory Committee, which advised Novata on how to build its data and metrics platform.

Novata provides firms with an ESG benchmarking and data collection, management and storage solution that can help them identify sustainability opportunities within their portfolio companies. Those companies provide the data for the platform and the information is also aggregated and anonymised so that other companies can benchmark their own portfolios.

PE involvement in ESG markets has grown substantially and is expected to widen the amount of sustainability data available on companies that are overlooked by reporting regulations, which tend to focus on large and listed companies. Observers expect such services will enable broader financial-industry compliance with Scope 3 reporting obligations, which will require companies to declare the ESG performances of entire global supply and value chains.

Big Names

Kennedy said Novata won 50 big-name customers in the first nine months of operations. As the platform grows and the benchmarks become richer, PE firms will be better placed to advise their portfolio companies on how to set and reach sustainability targets and add value.

“The number of companies that were submitting their data on the platform at the behest of general partners has progressed much faster than expected,” he said. “That means there’s more data, better benchmarking, better breadth and depth in terms of the number of metrics we can provide and the ability to look at things on broader bases, such as company size or within sub-industries.”

Di Zhao, account executive, said Novata’s focus on the portfolio companies has been a big draw.

“Very few players that we’re aware of in the market are focusing on the portfolio company experience,” Zhao told ESG Insight. “And if you think about where the data that we’re getting actually needs to originate, it’s all from the companies themselves.”

Expanding Functionality

The recent $30m funding round was led by Novata’s founding investors, including asset manager Hamilton Lane, the Ford Foundation and S&P Global. Microsoft also participated through its Climate Innovation Fund.

The proceeds – which take total funding in the past year to $50m – will go towards further developing the platform.

“I think a lot of what we do will be continuing and broadening the path that we’re on,” he said. “In particular larger clients have more complex needs from a technological build-out perspective, so API build-out, iterating on our analytics to make them better and more useful and creating more benefit for the portfolio companies will be our focus.”

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