The Brief | April 4, 2022

The Brief: Climate tech VCs, water equity, financial inclusion in Egypt, overlooked founders, mushroom foodtech, bucking buybacks

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Greetings, Agents of Impact!

Featured: Climate Finance

Overlooked innovators with key climate solutions are a sweet spot for early-stage funds. Today’s stark new report from the Intergovernmental Panel on Climate Change calls for both/and to avert a worst-case climate scenario: both an urgent shift away from fossil fuels by 2030 and the rapid scale-up of technology to remove carbon from the atmosphere. The overwhelming scientific, if not political, consensus buttresses investors who have been pouring money into both clean energy and emerging technology to remove greenhouse gasses from the atmosphere. The number of climate tech venture funds has doubled to 177 in the last two years, according to the latest tally by Climate Tech VC. The biggest categories: early-stage and seed funds with $100 million to $499 million to invest. “Some of these early-stage companies that we see could make a radical change,” Peet Denny of U.K.-based Climate VC tells ImpactAlpha. Climate VC launched last week with an initial £10 million ($13 million) to support “climate change innovators that might have been overlooked by other investors.”

  • Deadline debate. The IPCC extended its deadline and worked through the weekend to win approval for the report’s final language. At issue: how fast to ramp down fossil-fuel use, especially in developing countries, and how fast carbon-removal technology can be ramped up. In the background: the global security imperative of reduced reliance on Russia’s huge supply of fossil fuels after Russia’s brutal invasion of Ukraine. Today’s report on climate mitigation is the third of three in the IPCC’s series, after earlier reports on the causes and impacts of climate change (for background, see, “From ‘Atlas of human suffering’ to ‘Roadmap for climate resilience’”).
  • Investment pipeline. Early stage funds play an important role in seeding promising ventures and building a pipeline for later-stage investors. One of Climate VC’s first investments is Global OTEC (for “ocean thermal energy conversion”), which is building floating power plants, initially for island nations, to generate baseload energy from the temperature difference between surface and sea water. Regeneration VC, backed by Leonardo DiCaprio and circular economy guru William McDonough, launched a $45 million climate tech fund. Earthshot Ventures last fall raised $60 million for diverse-led, early-stage startups tackling clean energy, transport, agriculture and industry.
  • Keep reading, “Overlooked innovators with key climate solutions are a sweet spot for early-stage funds” by Amy Cortese on ImpactAlpha.

Dealflow: Investing in Water

WaterEquity secures $153 million for water and sanitation impact. A subsidiary of Matt Damon’s, WaterEquity backs microfinance institutions along with micro-utilities, toilet manufacturers and water kiosks to improve access to clean water in emerging markets. The fund manager’s third Global Access Fund aims to reach five million low-income people in Asia, Africa and Latin America and return 11% to investors. The U.S. International Development Finance Corp. provided $100 million in debt capital for the fund. “The global water crisis is an enormous overlooked market opportunity that can provide true, undiluted impact for investors focused on ESG,” said WaterEquity’s Genevieve Edens.

  • Impact opportunity. WaterEquity’s fund is looking to increase access to microloans so low-income families to install water connections and toilets in their homes. Improving water and sanitation on a global scale by 2030 is a trillion-dollar market opportunity, according to the World Bank.
  • Check it out

Lendable and Quona Capital back Khazna’s lending in Egypt. The Central Bank of Egypt, which aims to accelerate the digitalization of the country’s financial sector, has struggled to reach the 35 million Egyptians without formal financial services and 50 million without smartphones. Cairo-based Khazna is targeting Egypt’s low and middle-income and underbanked earners. Its financial “super app” provides bill payment services, a prepaid debit card, buy now, pay later services for merchants, and it allows employers to offer cash advances to their employees. Khazna has about 150,000 users.

  • Fintech investors. Quona Capital led the company’s $38 million Series A round, with participation from Speedinvest, Accion Venture Lab and Disruptech. Lendable provided debt capital, bringing Khazna’s total raised to $47 million since it launched in 2020.
  • Share.

Dealflow overflow. Other investment news crossing our desks:

  • SDS Supportive Housing invests $10 million to develop permanent supportive housing for individuals experiencing homelessness in Northern California.
  • MycoTechnology raises $85 million in Series E funding to create sustainable food ingredients through mushroom fermentation.
  • Ohio-based Overlooked Ventures secures a commitment from Bank of America to invest in historically overlooked founders.
  • Emitwise, a U.K.-based global carbon management startup, raises $10 million in Series A funding to work with industrial companies.

Signals: Corporate Cash

Build back, don’t buy back, Biden tells corporations in his budget blueprint. Stock buybacks are back. In the early days of the COVID disruption, it looked as if corporations might be shamed into investing excess cash into R&D, worker health and strengthened supply chains, rather than goosing their stock price by buying back their own shares (see, “Stakeholders stake new claims on corporate cash to finance an inclusive recovery”). Many of the corporations that lined up for federal pandemic aid had squandered tens of billions from their Trump-era tax windfall on massive repurchase programs. Instead, buybacks have come roaring back. S&P 500 companies hoovered up a record $882 billion of their own shares in 2021, and buybacks are on track to hit $1 trillion this year. Corporate share repurchases return surplus cash to investors and, by reducing outstanding shares, boost earnings per share. President Biden’s proposed budget seeks to rein in the practice by limiting executive trading after corporate share repurchases.

  • Trading trends. Executives sell an average five-times as many shares in the eight days following a corporate share repurchase, according to SEC research. “Rising buybacks payouts are tied to stagnant wages and lower levels of corporate investment – on top of lower returns,” tweeted the National Economic Council’s Bharat Ramamurti.
  • Surplus cash. Facing a string of unionization drives spurred by working conditions at its warehouses, Amazon last week announced a $10 billion share-buyback, the largest in the retailer’s 25-year history. In Ten ways to put corporate cash to work,” ImpactAlpha gathered alternatives to buybacks, including forging a new social contract, mitigating systemic risks – and paying taxes. Share your own ideas.
  • More.

Agents of Impact: Where to Meet

Don’t miss these ImpactAlpha partner events:

  • AVCA is convening its annual conference, “Private Capital in Africa at a Crossroads,” in Dakar, Apr. 25-29. Register today.
  • Island Innovation is hosting its Island Finance Forum virtually, Apr. 25-29. Register for free.
  • ImpactPHL is convening “Total Impact: Investing for New Economies,” in Philadelphia, May 16-17. ImpactAlpha subscribers get $300 off with code IMPACTALPHA. RSVP today.

Thank you for your impact.

– Apr. 4, 2022