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We are joined today by Ben Prior, CEO of Earthworm Group. Rather than allow me to introduce him, I’m including a very lovely excerpt from the Earthworm website.
“Our founder, Ben, had spent years working in corporate finance. He understood how it all worked, but he didn’t like it. He saw greed trumping responsibility, and he saw exactly why people’s trust in the sector that they worked in had been lost.”
“So he created an investment model to be the antithesis of that. It would absolutely aim to make money for investors, just not by funding anything that wasn’t a force for environmental or social good. Earthworm was born.”
Let’s get started!
Hey Ben, it’s a pleasure to have you here. Could I start by asking about your corporate finance background and how that inspired Earthworm?
Hi Joseph, of course! I left St Andrews University in 1998, with no clue as to what I wanted to do. I had a French degree, but like a lot my mates at the time, I moved down to London and basically fell into a stockbroking job with Barclays in 1999. This was slap bang in the middle of the tech boom. I saw unbelievable amounts of money being made on paper, investors remortgaging properties to be able to invest more in the technology space and basically a huge frenzy of excitement which was driving share prices to stratospheric and totally unjustifiable prices.
You would have thought that might have been incredibly exciting, and it was for a while, but it didn’t last. The idea that I was in charge of someone’s investment portfolio after taking one set of exams made me extremely uncomfortable. I felt out of my depth and out of control as a result of the vagaries of a fickle stock market.
I did two years there and then moved on to an investment bank called Noble & Company. At Noble I learned a lot about tax-advantaged investment products, investing in early-stage businesses and also that I was pretty good at promoting these ideas to financial advisers and wealth managers. I liked the idea of helping businesses at an early stage and being able to influence their direction. It was fun, dynamic, fast moving and I really enjoyed being part of a team.
Unfortunately, it was pretty short-lived, as our team accepted an offer to move across to Brewin Dolphin (another stockbroker!) in 2002 and I spent a mixed 5 years at Brewin.
Here I learned a valuable lesson that as an employee you have little control over your destiny, if you want to get on then you need to take a different route.
I saw a lot of people in positions of responsibility simply as a result of the number of years they had spent in the job rather than their ability to do the job well. The experience I built there cemented my view that the City, and particularly the core values held by the City, were ones I didn’t particularly share. The idea of making a fee whatever the cost made me question whether I was prepared to put my own needs before others.
My final move before Earthworm was to co-found an independent promoter of tax-efficient products called RAM Capital LLP in 2007. This was the first thing I could call my own and I established the business with my colleague from Brewin days, Lenny Norstrand, who I am pleased to say I am still working with today as RAM is Earthworm’s promoter. RAM is now the largest independent promoter of tax-efficient investments in the UK and they are an extremely effective resource for a fledgeling fund management business like ours.
What are some of the projects you’ve helped to finance?
Quite a few now! Our business focuses on three sectors in the environmental space: power, food, and waste.
We have funded some waste management facilities, from composting sites to biomass combined heat and power facilities, wastewater treatment businesses, and our most recent investment, a metal recycling business.
We’ve funded early-stage developmental solar projects, gas-powered reserve power projects and we’re about to invest in an energy storage business.
We’ve also made our first steps into investing in food production businesses. Last year we funded a business which gained planning permission to build a 4,500 m² vertical farm to grow herbs and salads in Lincolnshire.
I can only imagine the challenges and hurdles that you’ve overcome, is there anything you’ve faced that seems like an enormous victory?
All of it! Everyone thought I was nuts to be setting up another business in 2010 after establishing RAM in 2007. The timing was terrible. The world had basically fallen off a cliff in 2008, Sarah (my wife) and I had just had our second child, we’d embarked on a house build which was massively over budget. I’ve never felt pressure like it. I was earning good money at RAM and had ownership of a business, but something was missing. My love went out of promoting other people’s ideas, I wanted to come up with my own. I left RAM in the Spring of 2010 and established Earthworm Capital straight after.
I remember the first project we invested in. It was a composting facility in Northamptonshire where the target was to raise £2m. I’d just made the leap across from ‘sales guy’ to ‘environmental expert’ and all of the funders I went to at the time said, ‘Yeah, nice idea, we’ll invest but we’ll take a majority stake.’ I wasn’t prepared to give up the ownership of the business before we’d started so I put two fingers up to the institutional funding circuit and went back to the financial advisers with whom I’d built up good relationships over the years. It took me 6 months, but I raised the £2m and that really marked the beginning of the journey.
One thing which has always stayed with me is that I absolutely love proving people wrong. For me, running my own business was always part of the plan, it just took me a while to realise what sort of business I wanted to set up.
Have you always been interested in the environment and sustainability, or do you see yourself as a late bloomer with the power to change the world?
Hmm, definite late bloomer. Growing up it just wasn’t on my radar. Even throughout my university years I was probably too caught up in my own world to be able to look beyond that. It’s no coincidence that Earthworm came about after having kids.
It’s also a pretty big statement to say I have the power to change the world. I don’t believe that. What we do have and what Earthworm represents is the opportunity to galvanise an investor base of people who all want to make a difference. I don’t see Earthworm as a business any more, for me, it’s more of a mission which I would love more people to come and join us on.
I read that you redistribute some of your profits to charity, your employees, and further innovations. How does this work?
It took us a while to be profitable but now that we are, we allocate 10% of our profits to charities which mean something to us and are relevant to what we do. For example, our first charity partner is Solar Aid who seek to combat poverty and climate change by providing solar lights in some of Africa’s most remote regions. 10% of our profits also go to our staff and 10% is allocated to supporting the great environmental ideas of tomorrow. These are the kinds of projects which we wouldn’t expect our investor base to support because they are most likely too high risk but they are ideas which we would like to support with our own money.
The first project was a 30,000-tonne composting facility. That must have been a huge project. What can you tell me about it?
This was the first project we embarked upon and it was certainly an interesting journey! The idea to build a composting project came about because we were looking for the lowest capital cost of entry into the environmental space. We felt we needed to have a facility that we could point to and say that it was ours and it would provide the platform for developing other ideas and projects.
I’d basically written the book on how to run a composting facility but as we all know the theory and reality sometimes are quite different. We physically operated the site ourselves in the first year and I remember getting home at night and Sarah refusing to even speak to me until I had had a shower! It was a pretty rude awakening to the industry, especially for someone who had barely had a paper cut in the previous 10 years!
What it actually gave us was a great insight into what it takes to run a waste management facility from day to day. We learned some extremely valuable lessons, some of them quite painful at the time, the experience from which we are implementing in what we do today.
I believe however that this experience has given us a huge advantage. How many fund managers can honestly say that they have operated their own waste management facility? So when developers and operators come and speak to us now about their projects I believe that we are able to speak to them from their perspective and not just from the perspective of a potential investor.
You set up Earthworm Energy to help develop solar projects. Has this been a successful adventure?
We established Earthworm Energy in 2014 to invest in early-stage solar projects. This involved identifying land, a grid connection, gaining planning permission and then looking to sell the project rights to a third party who could build out the project and own it for the long term. We invested £3.34m into Earthworm Energy and delivered a tax-free cash return of £4.34m (30% return) under the EIS (Enterprise Investment Scheme) after a period of just over 3 years.
We were happy with this result as during this time there had been a huge amount of regulatory upheaval brought about by the Government in regard to the tariff system. The one lesson we have learned from this is that we are now reluctant to support any business which relies on a government subsidy in order to succeed.
All of this hard work and investment must have gained you some national recognition. Have you won or been nominated for any awards?
We were nominated last year for a Growth Investor Award but didn’t win. To be frank, I don’t really like the limelight, I would far rather carry on doing what we are doing and staying under the radar. I don’t need recognition to do my job, however, the business is starting to raise its profile as we continue to grow and that’s something I’m just going to have to get over sooner or later!
I’ve been discussing with some fellow sustainability professionals about the ‘big issue’ in waste in 2019, after we’ve made huge strides in removing plastic bags and plastic straws. What kind of waste do you think will end up heavily in the public eye this year?
I don’t think it’s a particular type of waste, I think it’s more the realisation that we are all part of the problem and need to take responsibility for it ourselves. I find it stunning that we think it’s OK to export our waste to other countries for them to deal with. Why do we think that this is acceptable? With Brexit on the horizon, the 4 million tonnes of refuse-derived fuel (RDF) we export to Europe is going to cost us a lot more and is a serious problem that we’re not in a position to address as a country, due to a lack of processing facilities. I actually wrote a blog on this recently on our website.
The mentality that waste becomes someone else’s problem when it leaves our bin has to stop and I believe that this is starting to hit home in the consciousness of all of us. There is a momentum particularly in regard to minimising our plastic waste that I’ve never seen before. We need to keep this up if we are to achieve anything.
The UK’s recycling rate has stagnated at around 45%. What do you think should be done to get this over 50%? Is the Government doing enough?
I’ve given up on the Government, frankly. I’m not seeing any joined-up thinking or progressive policies coming from Westminster. The reason being is that they and their advisers always have some vested interest, whether it’s an upcoming election they need to win or some other influence, politicians always tend to come up with a view which is self-serving and ‘short-termist’. Their mentality never serves the need of the taxpayer in the long run.
Earthworm is a business deliberately established with no political affiliations. If we are to increase our recycling rate over 45% then businesses like ours and the ones we support need to work directly with local authorities to achieve the best balance on returns for investors, while minimising the cost to taxpayers. Businesses with shareholders who only care about investor returns are not the ones local authorities should be dealing with because they are never able to serve the need of ordinary people.
Ben, I’m curious to know where you’d like to see Earthworm in 5 years’ time?
Earthworm is reinventing the way people can invest, from the ground up. Imagine that anybody and everybody can make a real investment in the future of both their finances and their planet, no matter how small that investment might be. Imagine an investment community creating value beyond the sum of its parts, through collaboration on a common vision. Earthworm is bringing sustainable investing to everyone by creating this community of people, all of whom share our vision for a better future and a circular economy. We judge our success on the environmental and social benefits we can make and not just on the financial returns.
Most people do not think of themselves as “investors” - “That’s something that rich people do! Not me!” But Earthworm wants to change that - everyone should have a chance to improve their finances and help their planet. We are “democratising” the world of investing. That’s our 5 year aim.
What advice would you give to other sustainability entrepreneurs who want to start their own business or project?
I stumbled across this quote from Chris Dixon, a US investor and entrepreneur. I think it sums up exactly the type of stuff you’re going to need to set up on your own.
“Youʼve either started a company or you havenʼt."
"Started doesnʼt mean joining as an early employee or investing or advising or helping out. It means starting with no money, no help, no one who believes in you (except perhaps your closest friends and family), and building an organisation from a borrowed cubicle with credit card debt and nowhere to sleep except the office. It almost invariably means being dismissed by arrogant investors who show up a half hour late, totally unprepared, and then instead of saying ‘noʼ give you non-committal rejections like ‘we invest in later stage companies.ʼ It means looking prospective employees in the eyes and convincing them to leave safe jobs, quit everything and throw their lot in with you. It means having pundits in the press and blogs whoʼve never built anything criticise you and armchair quarterback your every mistake. It means lying awake at night worrying about running out of cash and having a constant knot in your stomach during the day fearing youʼll disappoint the few people who believed in you and validate your smug doubters.”
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