Investment Assessment Process

All investments carry risk, particularly direct investment in small enterprises. The purpose of Ethex’s investment assessment process is not to avoid taking risk; to do so would negate the positive social and environmental impact that we and our investors wish to enable. Rather, before we approve an offer to go live on the platform, we want to be confident that the risks involved, whether specific to the industry or company, are fully understood, are acceptable (in terms of their nature and degree) and are clearly articulated to potential investors.

To inspire confidence, such a process needs to be consistent and repeatable. Ethex focuses on well-defined impact sectors with established business models, such as community renewable energy, ethical finance, affordable homes, and sustainable food and farming. At this stage of Ethex’s development, we tend to avoid technological risk, novel business models, and situations where product-market fit is not proven. Offers are typically community shares, community or charity bonds, and sometimes private limited company equity or bonds.

Our Investment Team is led by industry experts Paul Pizzala, Paul Linares, and Jeroen Huysinga who have over 70 years of experience working in public, private, and impact capital markets across various asset classes and security types in the UK and globally. Research takes the form of management interviews, desktop research, and consultation with colleagues and third-party experts.

The process is iterative and takes place typically over 4-6 weeks culminating in an investment recommendation to our investment committee. Ethex maintains a record of all stages of the investment due diligence process, including investment committee minutes to provide an audit trail and ensure consistency.

Ethex receives a large number of enquiries from prospective investees. We also approach organisations proactively as a result of sector research and networking. The majority of enquiries are filtered out due to insufficient fit or investor readiness. Credible potential issuers go through a five-stage formal assessment process:

Stage 1 - Suitability and Screening

Suitability and Screening is a structured interview process where we assess the alignment of potential investees with our investment criteria, including their social and environmental impact, commercial and financial track record, leadership team, and, more recently, whether organisations have EDI policies and standards.

Stage 2 - Investment Due Diligence

Investment due diligence, taking up to 6 weeks, is based on a review of each organisation’s offer document, financial model, accounts, and other material documents. We tailor a standard set of questions to the particular organization and over a series of two to four interviews dig into the detail and assumptions with senior executives. The output is a completed Q&A worksheet which provides the context for our investment scoring.

Stage 3 - Investment Scoring

Our investment scoring uses a CAMELS framework to evaluate investments. This covers capital adequacy, asset quality, management, earnings, liquidity, and security risk. The output is an investment risk rating ranked from 1-5 based on our analysis. Whilst risk assessment is crucial, we also need to see that impact is a genuinely motivating factor for setting up and managing the organisation. For instance, there are times we need to ensure mission lock or understand when an organisation may be ‘green washing’ especially in the private sector.

Stage 4 - Platform Marketability

We assess the likely success of an offer, based on sector, impact, risk, return, financial instrument, and the amount being raised. Other points are considered alongside our marketing team’s assessment of each client’s marketing ability.

Stage 5 - Investment Recommendation and Investment Committee

A formal recommendation, synthesizing the learnings in this iterative process, is made to a multi-disciplinary team including Ethex CEO Lisa Ashford and CFO Chris Butler, which analyses the consistency and comparability of the investment recommendation for approval before any offer goes live. The investment committee meets once a month and ad hoc as necessary.