Adobe Capital's Exit from Natgas

Report: Lasting Impact: The Need for Responsible Exits

Adobe Capital, founded in 2012 and based in Mexico City, creates social and environmental impact by investing in impactful early- and growth-stage enterprises in Latin America.

Background on the Investor

Adobe Capital, founded in 2012 and based in Mexico City, creates social and environmental impact by investing in impactful early- and growth-stage enterprises in Latin America. Adobe first examines potential investments to understand whether impact is centrally embedded in the company’s business model before screening for potential financial return (the fund manager targets risk-adjusted, market-rate returns). Adobe’s business model includes a close partnership with New Ventures, a business accelerator that provides technical assistance to early-stage Mexican enterprises creating positive social and environmental impact.

Adobe Capital raised its first fund, Adobe Mezzanine Fund I, in 2012 with USD 20 million from institutional investors, such as the Inter-American Investment Corporation, the German Development Bank (DEG), and Calvert Investments. Adobe works closely with its limited partners, often providing coinvestment opportunities. Adobe Capital is GIIRS-rated and has so far made eight investments, all in companies with fewer than 50 employees, with less than USD 5 million in sales and in sectors such as education, housing, healthcare, sustainable consumer products, and alternative energy. Fund I began returning capital to investors in 2015 without write-offs or write-downs to date.

Adobe is now raising its second fund, Adobe Mezzanine Fund II, to deploy USD 40 million of quasi-equity financing. The fund will use tailored mezzanine financing structures with pre-defined exits and upside participation, combined with technical assistance from New Ventures. Because Adobe tailors its financing to best support early- and growth-stage entrepreneurs, the fund favors approaches such as royalty-based repayment structures that do not require sale of the company to achieve liquidity. Adobe believes that relieving the pressure to eventually sell the company helps avoid a scenario in which enterprises pursue unsustainable growth rates to attract follow-on investors, potentially challenging their social mission. This practice helps maintain founder control and continuity of impactful processes.

Background on the Investment

Natgas is an alternative energy company, founded in 2012 by Josue Hernandez, that converts public buses and taxicabs from regular gasoline to natural gas and operates a network of natural gas vehicle fueling stations. Vehicular natural gas is considered 40% less harmful to the environment than traditional gasoline, yet the fuel has seen limited use in Mexico’s public transportation network due to a lack of infrastructure to support its use. Responding to this need, Natgas provides an integrated solution for clients that includes servicing stations, vehicle conversion shops, and securing financing support for vehicle conversions. The company’s activities reduce carbon dioxide emissions and provide customers with fuel cost savings of more than 50%.

Seeing a fit with Adobe’s mission to support alternative energy companies, DEG referred Natgas to the fund in 2013. Since the company was at a very early stage, Adobe first referred it to New Ventures’ accelerator program. There, the company received technical assistance and a USD 0.4 million loan, launching operations with its first natural gas fueling station in the city of Queretaro, where it converted 200 taxicabs from traditional gasoline to natural gas.

Toward the end of the accelerator program, Natgas and Adobe Capital discussed a potential investment to fund the construction of five additional fueling stations and 2,200 vehicle conversions over five years. In 2014, alongside co-investment from Auria Ventures (a limited partner in Adobe Mezzanine Fund I) on an 80–20% pro-rata basis, Adobe invested a USD 0.5 million senior convertible loan and USD 0.3 million in equity, amounting to a 6% share.

Adobe’s mezzanine financing matched the type of funding Natgas needed, since it expected its fueling stations to be profitable within three months of operations. Mezzanine capital can be an attractive financing alternative for companies already generating positive cash flows and seeking to avoid equity dilution. By structuring loan repayments as a percentage of revenues, companies can adapt their repayments to the often highly variable cash flows of small and medium-sized enterprises. The self-liquidating nature of its mezzanine convertible loans also allowed Adobe Capital to begin receiving loan repayments early in the life of its investment, mitigating potential loss and reducing the risk of its overall portfolio. As with many of its investments, in the case of financial underperformance, Adobe Capital had the right to convert the unpaid balance of a convertible loan into equity to participate in any future upside. Its preferred shares in Natgas provided Adobe with veto rights over several major categories of decisions, including those pertaining to staff compensation, cash reserves, and debt raises. Adobe also included a put option to sell its shares back to the original shareholders in Natgas’ first equity raise.

As Natgas grew, it required additional capital to finance its expansion to neighboring states. Adobe continued to support this growth through three follow-on equity investments, reaching a total investment of USD 1.2 million from 2014 to 2016. Adobe also sought to play an active role in supporting Natgas, taking a seat on its board of directors and, through its relationship with DEG, helping Natgas to secure a technical assistance grant from DEG to strengthen its corporate governance practices. Adobe is a registered field partner of the microcredit lender Kiva, helping Natgas’ customers to receive over USD 200 million in 0%-interest microloans from Kiva to finance vehicle conversions. Lastly, Adobe assisted Natgas to secure a GIIRS impact rating, which certified its positive social and environmental practices and impact.

Exit Objectives and Considerations

By the time Natgas opened its fifth fueling station, two years into Adobe’s investment, it began to attract the attention of international financial firms for a larger investment that would accelerate its growth to over 25 stations in four years. As Natgas entered this new period of growth, Adobe helped negotiate an investment from the private equity firm Northgate Capital, which had the resources and institutional capital needed to accelerate Natgas’ growth. With Northgate’s investment, Natgas’ existing shareholders sought to consolidate the shareholder structure, so a group of them purchased Adobe’s equity position, while Natgas repaid its outstanding debt at the contractual 2X multiple.

Results and Lessons Learned

Adobe’s investment in Natgas generated a 22% IRR in USD, along with measurable environmental and social impact. Natgas successfully built five stations and exceeded its vehicle conversion goal of 2,200 cars in five years, converting 2,500 cars in two years and reducing carbon dioxide emissions by 136 tons to date. Natural gas also saves drivers over 55% on fuel costs, increasing the share of their incomes available for other expenses. The case also illustrates the potential benefits, for enterprises and investors alike, of creative financing models that provide an alternative to traditional private equity structures. Such approaches offering flexible repayment options can facilitate responsible exits by limiting the pressure to exit on a specific timeframe, which can limit buyer options, lead to unsustainable growth, and force equity dilution.


Key Details

Investor Description

Fund manager


To promote positive impact by supporting socially and environmentally impactful early- and growth-stage entrepreneurs in Mexico


Alternative energy




Combination of a senior convertible loan and preferred equity

Holding Period

Two years

Exit Mechanism and Scope

Full exit, with monthly payments of the convertible loan until full repayment followed by share sale to existing shareholders

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