The formation of Bay Bridge Ventures was both serendipitous and meticulously calculated: It’s the coming together of institutional capital and venture capital.
On Thursday, former California Public Employees’ Retirement System portfolio manager Andrew Karsh announced that he is leaving the $472 billion public pension plan to start his own sustainability-focused venture capital firm. The new firm, which he founded with partners Joe Blair and Kim Kolt, will invest in technology companies with a focus on climate, health, and “inclusive capitalism.” Specifically, the firm is focused on investing in “foundational” technologies, including artificial intelligence, data, advanced computing, sensors and IoT (the Internet of Things), energy storage, robotics, and synthetic biology. Blair is a veteran of venture firms Cota Capital, Obvious Ventures and Chrysalix Venture Capital. Kolt founded For Good Ventures.
The stirrings of the amorphic entity that would become Bay Bridge began two and a half years ago, before the onset of the Covid-19 pandemic. Karsh and Blair, who had known each other for years, began talking about ways to solve the challenges that institutional investors have in meeting fiduciary needs and board-directed mandates of sustainability, diversity, and inclusivity. “We realized that there’s a gap in the market between organizations that are focused on ESG, sustainability, and impact, [and the things that] large institutions are looking for,” Karsh told Institutional Investor.
While the onset of the pandemic delayed the launch for around two years, the momentum continued to build. In the years between, investors’ desire to allocate capital to funds focused on climate change and diversity ramped up. “The timing happened to come to us perfectly,” Karsh said.
Bay Bridge is also a self-proclaimed “diverse-owned” firm, a title that the founders wove into the general corporate philosophy. According to Karsh, Blair, and Kolt, the fund mandates that 30 percent of its investment team is from “underrepresented communities” and 30 percent is made up of women.
Karsh spent over a decade at CalPERS, where he worked with direct investment strategies as a portfolio manager and served as a member of the plan’s absolute return strategies advisory board. Before that, he worked as a portfolio manager in alternative investments at Credit Suisse.
Two months after Karsh, Blair, and Kolt began talking about a future VC firm, long-time ESG professional Anne Simpson, the former managing investment director for CalPERS’ board of governance and sustainability, asked Karsh to represent the pension as a member of the United Nations’ Global Investors for Sustainable Development Alliance. The group aims to increase long-term investments in sustainable development. “I spent the last two years on conference calls with the largest financial institutions in the world — world banks, allocators, sovereign wealth funds — trying to understand what’s needed to get more capital flowing in these areas,” Karsh said.
In January, Simpson left CalPERS for a role as Franklin Templeton’s head of sustainability, a position that will start on February 22. “They’re certainly responding to a demand in the market,” Simpson told II of her former colleague’s new venture. “It’s exciting that it’s designed for institutions, and that it’s venture capital, which is not an area in the private markets that is represented at scale for institutions.”
Simpson also said that the structure of the firm is innovative, because it incorporates its impact values into its mission to make money. “Traditionally, a private equity firm makes its own money out of carried interest,” Simpson said. “What they’re doing is baking this theme of equity and inclusion right into the architecture of the firm by allotting a chunk of this carry — which is where the real money is made — to be recycled into good causes.” While most of Karsh’s experience is in investment management, he said that he’s worked on a number of side ventures over the last decade, including personally investing in and advising startups and helping to develop a technology nonprofit accelerator called Fast Forward.
Blair and Kolt are steeped in the VC space. Blair worked as a venture investor at Cota Capital for two years, and before that, Chrysalix, an early-stage, industrial-tech venture firm. Earlier in his career, he cut his teeth as a summer associate at the Boston-based venture firm The Cue Ball Group.
Since 2017, Kolt has served as the president of For Good Ventures, a VC firm that invests in tech. After receiving her MBA from Wharton, she worked as an investment banker in TMT at Goldman Sachs before diving into multiple venture-related roles, including working as an advisor at Venture Lab. “This is something we’ve all been a part of for a long time,” she said. “What’s new is the framework of coming together to use our combined advantages and bringing in external institutional capital.”
While the prospects for Bay Bridge are promising, Daniel Celeghin, managing director of the asset management consulting firm Indefi North America, said the track record of asset management businesses started by executives at large asset owners has been hit or miss. “I’d say mixed at best,” Celeghin told II.
Typically, the successful examples are ones in which the institution has a direct investment, Celeghin said. For years, for example, the Harvard Management Company invested the large majority of the school’s endowment assets and was structured “basically as a captive money manager.” When the model shifted to that of a more traditional endowment, many of the portfolio managers started their own businesses in the private markets. “Most of them did quite well, and many of them are still around,” Celeghin said.
This isn’t always the case, however. While the expertise that a portfolio manager acquires at a large institution is invaluable in any endeavor, Celeghin said the transition can also pose challenges. For example, in situations where the investor or the allocator is coming from an institution where the emphasis was on manager selection rather than on direct investments, the transition can be more difficult, primarily because the fundraising environment is much tougher than they had expected and they generally have little experience in it.
“In their old life, the money was there. They didn’t have to go out and knock on doors and subject themselves to the scrutiny of investment consultants, other types of intermediaries, and other allocators,” Celeghin said.
