Greetings ImpactAlpha readers!
#Featured: Returns on Investment Podcast
Is impact investing just ‘bad deals by good people’? The new Rise Fund from TPG Growth had ImpactAlpha’s attention even without the star power of Bono, the U2 legend who is one of the fund’s co-founders. The fund has come fast out of the gates in recent weeks with big-ticket investments, the first in a growth-stage U.S. edtech startup and the second in an Indian dairy that buys from thousands of smallholder farmers.
So why did Bono feel compelled to diss other impact investors — twice? Is it really necessary to kick the hippies out of impact investing? Must investors really check any warm and fuzzy feelings at the door?
We’re talking about you, Bono, on ImpactAlpha’s latest podcast:
Listen (and subscribe) to all of ImpactAlpha’s Returns on Investment podcasts:
#Dealflow: Follow the Money
Obvious Ventures is back with another nine-digit ‘world positive’ fund. OV2 attracted $191,919,191 (and 91 cents?) from a dozen new institutional investors and the same limited partners who backed its $123,456,789 first fund. The venture capital firm, co-founded by Medium and Twitter co-founder, Ev Williams, will follow the same investment themes and “world-positive” strategy as its first fund. Obvious has made 35 investments in sustainable systems, healthy living, and people power. The deals include Diamond Foundry, a cultured, ethical diamond grower; Beyond Meat, which makes plant-based proteins; and small-business benefits provider, ZenPayroll (now Gusto, which, full disclosure, ImpactAlpha also uses). “You can look at where we’ve been as a mirror image of where we’re heading,” writes James Joaquin, a co-founder of Obvious Ventures.
The Australian government is backing a fintech platform to boost farmer wealth… Farmecco aims to boost financial literacy and business planning among Australia’s aging farmers and ranchers. The Department of Agriculture and the Meat and Livestock Australia industry association seeded Farmecco’s launch with $600,000 to go along with $150,000 from founder Jame Walker. The subscription service, developed by farming collaborative Agrihive, helps farmers monitor costs and revenues; it also helps them develop succession plans. Investors are backing a number of online platforms to support farmers with market linkages (like WayCool in India and ProducePay in the U.S.), financing and pricing (Farmers Business Network) and equipment (farMart).
… and a new Australian impact investing fund to target youth homelessness. As many as 44,000 children and young people are homeless in Australia and one report estimates the country could save $626 million per year by investing in homelessness prevention. The government’s new budget makes a small down payment $10.2 million investment over 10 years to test such initiatives. That includes an $8 million “Social Impact Investing Readiness Fund” to prepare organizations and projects for investor backing. The state of South Australia just raised $9 million for a homelessness-focused social impact bond. The national government had already approved $20.2 million to build the impact investing market. “There’s growing demand for impact investment opportunities within the philanthropic sector and beyond, but there aren’t enough investment-ready deals available,” notes Philanthropy Australia CEO Sarah Davies.
New Rome impact accelerator offers Demo Day at the Vatican. “I’m called to respond to His Holiness Pope Francis’ challenge,” writes Stephen Forte, founder of venture capital firm Fresco Capital in Menlo Park, Calif. The Pope has been outspoken in his support for impact investing as a means to supporting the global poor and Forte is backing social startups in Rome with a new accelerator program. “Typically venture capitalists in Silicon Valley frequently balk around mission-driven companies [while] social impact investors rarely pour money into startups that emphasize the ‘for-profit’ portion of the equation,” he writes. The Pope’s message has been reinforced via two Vatican-hosted conferences on impact investing. It has spurred a number of Catholic institutions to move money into impact, including Ascension Investment Management, which manages $29 billion on behalf of other Catholic organizations. Startups accepted int Forte’s accelerator program will receive $100,000 and participate in a December Demo Day at the Vatican.
See all of ImpactAlpha’s recent #dealflow.
#Signals: Ahead of the Curve
Four lessons from a $50 million bet on tech startups in the Middle East. The International Finance Corp. has invested $50 million in the past three years in startups and funds, such as a $70 million Wamda Capital fund, to promote economic inclusion in the Middle East. The lessons: mixed. “If I get two or three companies out of Wamda, that in my mind is a success,” Dimitris Tsitsiragos, IFC’s vice president, told Forbes contributor Elizabeth MacBride. “The failure rate in this space is high.” MacBride’s set of early lessons includes: 1) Tech startups don’t employ many people, but ripple effects can transform industries and create jobs. 2) The impact of venture capital investments are hard to measure. For example, what’s the impact of a successful fintech startup that provides insurance that let’s more women become entrepreneurs? 3) Big exits are possible, but rare. 4) And accelerators can speed growth. The IFC’s investment in Flat6Labs in Cairo has led it to backing accelerators elsewhere.
Agriculture gets another look from investors seeking long-term, inclusive opportunities. Agriculture has been largely left behind as private equity funds have poured into financial services, healthcare and other high-growth sectors in emerging (oops, growth) markets in the last three decade. The obstacles: high risks, uncertain returns and few fund vehicles targeting smallholder farmers, the mainstay of most farm economies. Take another look, says the Initiative for Smallholder Finance, which has identified more than 80 impact-oriented agribusiness funds with roughly $19 billion assets. A variety of fund types for different kinds of investors offer unique strategies to reach small farmers. “Fund managers can make long-term bets around trends and impact goals that will drive market development and pay off over time,” write ISF’s Dan Zook, Martin Slawek, and Duda Cardoso. One tip for smart investors: take advantage of concessionary capital, grants and technical assistance to de-risk investments.
It’s time to go exponential to meet the 2030 global goals. “We need to start chasing goals that will have 10x or 100x the impact on anywhere between a million and a billion people,” says SustainAbility founder John Elkington. He warns that it’s a mistake to assume that simply speeding up on the present course will enable us to meet the ambitious 2030 Sustainable Development Goals. “Incrementalism has its uses, but it is worrying to see even committed business leaders treating the goals as an incremental change agenda.”
Even a subset of the global goals represent $12 trillion in investment opportunities. Elkington is behind a new initiative called “Project Breakthrough,” backed by the U.N. Global Compact, PA Consulting, and advocacy organization Volans. He argues that more business leaders need to shift to an “exponential” problem-solving mindset, while their models need to become “exponentially more social, lean, integrated, and circular. The Lawrence Berkeley National Lab’s research on “breakthrough” projects has identified 50 examples ranging from rural healthcare delivery, to farming fertilizers, to desalinization.
Volans’ Richard Roberts argues that a mindset shift is needed to purge the “bogus dichotomy” between self-interest and altruism, which is based on “a false assumption that thinking about the future isn’t in our self-interest,” he writes. “Unless you’re planning to die tomorrow, this is clearly nonsense.”
Onward! Please send any news and comments to [email protected].