The Mills Fabrica, a Hong Kong-headquartered venture capital (VC) firm, is embracing impact investing as it expands its technology and lifestyle (techstyle) and agricultural food technology (agrifood tech) portfolio, said Cintia Nunes, general manager and head of Asia.

The VC, fully owned by one of Hong Kong’s largest privately held conglomerate Nan Fung Group, aims to make three to five investments this year. It has already completed an undisclosed investment in UK-based cocoa-free chocolate maker Nukoko last month and is in talks with an agrifood tech startup, Nunes said.

The firm is keen on pursuing early stage techstyle and agrifood tech targets that are at the forefront of accelerating circularity, developing novel materials, processes and manufacturing systems, advancing alternative ingredients, and promoting conscious consumption, she said.

Initial ticket sizes will be in the USD 500,000 to USD 3m range, with subsequent funding depending on the target, Nunes said. It will approach follow-on deals as new opportunities, conducting fresh due diligence to ensure informed decision-making, she emphasized.

The Mills Fabrica positions itself as an “open platform collaborator” and “ecosystem builder”, going beyond financing to offer incubation support and interactive spaces to startups, Nunes said.

For example, unspun, a Hong Kong- and San Francisco-based 3D weaving technology developer, has received not only funding but also extensive support through networking, facilities, and other resources, she explained.

“Our goal is to establish a comprehensive resource pool that supports startups and entrepreneurs in scaling their businesses on a global scale while creating positive environmental and social impacts,” said Nunes.

Nunes pointed out that the textile and food industries are responsible for 44% of global greenhouse gas emissions, highlighting the urgent need for sustainable solutions in these sectors. She added that the firm intends to make a positive impact by strategically investing in innovative ventures within these industries, driving the adoption of sustainable practices and technologies.

Though the VC’s investment strategies lie between philanthropy and impact-driven approaches, it remains focused on targets that possess a clear rationale and offer a solid internal rate of return (IRR) ranging from 5% to 7%, she said.

“The commercial aspect must be robust and financially sound…We are looking for targets that achieve both impactful outcomes and financial returns,” Nunes noted.

The firm has invested in or incubated more than 35 techstyle and agrifood tech startups since its establishment in 2018. Of these, the firm has made direct investments in 20 companies, with techstyle startups making up 70% of its investments, she said.

Despite a strong focus on the techstyle sector, the VC has been closely tracking the agrifood tech landscape for the past three years, and aims to further expand its investments in this sector in the near future, she stated.

Nunes highlighted that Virginia-based polycotton waste-recycled fibres manufacturer Circ and UK-headquartered biological dyeing technology developer Colorifix are among its successful portfolios.

Circ, which launched a first-of-its-kind collection using recycled polycotton blended textile with Inditex[BME:ITX]’s Zara, raised USD 25m in a Series B extension round from Zalando, Avery Dennison and Youngone, together with existing investors 8090 Industries, Circulate Capital, Vodia Capital and City Light Capital last year. Colorifix bagged GBP 18m (USD 22.6m) in a Series B round, led by H&M Co:lab, the investment arm of H&M Group [STO:HM-B] in 2022.

Apart from the above, its investees include Singaporean vegan product review platform operator abillion, New York-based sustainable fashion retailer aday, German cultivated algae-powered fibres and dyes maker Algaeing, Washington-based recycling textiles supplier Evrnu, California-based biodesigning proteins maker Geltor, Hong Kong ecommerce operator Goxip, San Francisco-headquartered microbially produced-based indigo dyes developer Huue, Singaporean smart bicycle helmet developer Lumos, San Francisco-based biodegradable and biobased biopolymer developer Mango Materials, Argentina- and San Francisco-based fungal-based natural ingredients maker Michroma, UK-headquartered resale-as-a-service developer Reflaunt, Chinese women’s jeans and pants brand Simple Pieces, UK-based video commerce software developer Smartzer, as well as UK-headquartered fiber-made sugar maker The Supplant Company.

The usual exit channel will be trade sales to corporate VCs, driven by their strong interest in specific advanced technologies. The Mills Fabrica usually realises techstyle investments in five to seven years, while for agrifood tech investments, it is five years, Nunes said.

Empowering VC funds as LP

The Mills Fabrica has also been actively backing VC funds as a limited partner (LP) in the techstyle and agrifood tech sectors. The sweet spots will be up to USD 5m, according to Nunes.

The firm is happy to conduct co-investments with those VC funds, she said, adding it has partnered with them for incubatee referrals. Such cooperation could help secure more suitable opportunities in various regions, she elaborated.

It made its most recent investment in Germany-based FoodLabs in 2023. Prior to this, it invested in California-based Fall Line Capital in 2022, China-based Bits x Bites in 2021, California-based AgFunder in 2020, as well as Netherlands-based Good Fashion, New York-based Idea Farm Ventures and New Jersey-based SOSV in 2019, she said.

Despite the challenging global economic conditions, The Mills Fabrica remains optimistic about the investment landscapes in the techstyle and agrifood tech sectors. The firm is particularly positive about sub-sectors such as novel materials and ingredients, circularity models, and manufacturing and farming systems, Nunes said.

Recognizing the opportunities presented by these sectors, “we are lucky to be playing as part of this investment world,” Nunes continued.

With offices in Hong Kong and London, The Mills Fabrica has less than 30 staff across five teams, comprising investment, incubation, sustainability, marketing and communication, and spacing, she said.

The firm’s owner Nan Fung has transformed from a Hong Kong textile manufacturer to an international conglomerate with a global presence in property development, financial investments, life sciences, shipping and others since its founding in 1954. The company currently has four major investment arms. Aside from The Mills Fabrica, it owns healthcare investors Pivotal Life Sciences and New Frontier as well as multiple asset manager Nan Fung Trinity.