Funding: Microsoft Invests In ESG Software Startup Novata

Microsoft has invested in Novata, a software startup that assists private equity, private credit, venture capital and limited partner organizations with their Environmental, Social and Corporate Governance (ESG) efforts.

Microsoft's Climate Innovation Fund participated in the Series B funding round, which raised $30 million. Hamilton Lane led the funding round, with participation from multiple existing investors – including Ford Foundation, S&P Global and Novata’s founders. In addition, partners and managing directors from a range of private equity firms participated in the Series B, including Canson Capital Partners, Clearlake Capital, Hellman & Friedman, Kohlberg & Company, Lindsay Goldberg and The Vistria Group.

Novata's software allows private companies and investors to collect, analyze, benchmark & report relevant ESG data. The company, founded in 2021, had 90 employees listed on LinkedIn as of March 1, 2023. Novata's commercial launch arrived in April 2022, and the company's benchmarking capabilities surfaced in November 2022.

As of March 2023, more than 3,500 private companies have contracted with Novata to use the platform. Still, Novata has not disclosed the resulting revenue or EBITDA margins from those customer engagements.

​Novata has an ESG Advisory Council and a General Partner Advisory Committee to help guide the company and its platform expansion priorities.

Microsoft Climate Innovation Fund: Background and Investments

Meanwhile, the Microsoft Climate Innovation Fund has been very active. Microsoft announced the $1 billion fund in January 2020. And Microsoft itself has vowed to be carbon negative by 2030.

On the investment front, Microsoft's recent moves include funding:

• BlocPower, a climate technology company focused on the greening of America's buildings.
• Buoyant Ventures, a climate-focused venture firm.

Novata Series B Funding: Executive Perspectives

In a prepared statement about the Series B funding round, Novata CEO Alex Friedman said: “We are grateful to the broad range of leading investors supporting Novata, including financial institutions, large technology companies, non-profit organizations and private equity firms, which underscores how major facets of global economic activity are coming together to address our most critical common challenges. As sustainability priorities have undisputedly changed over the last decade, Novata is ideally positioned to meet the evolving challenges and to help drive progress on ESG transparency and reliability in the private markets.”

Added Erik Hirsch, vice chairman and head of strategic initiatives at Hamilton Lane: “We consider Novata to be the critical infrastructure needed to accelerate sustainability and strong governance in the private markets. As our industry continues to grow, we all face increasing expectations from investors, regulators, and the broader society to ensure that strong investment performance is delivered alongside responsible business practices. Novata is exactly the kind of neutral intermediary the private markets ecosystem needs to collect the metrics that matter and put them in context.”

Brandon Middaugh, senior director, Climate Innovation Fund at Microsoft, concluded: “Better collection and use of enterprise data will create new opportunities for every organization to achieve progress in addressing the world’s toughest environmental and social problems. Software technologies like Novata offer the capability to record and track sustainability metrics, informing corporate actions to build a more sustainable and inclusive future.”