The Week in impact investing: Forward

TGIF, Agents of Impact! 

🗣 Step by step. In an earlier era, it may have felt satisfying to tear down so-called ESG investing as toothless, a half-measure, a fundraising ploy, greenwashing, a distraction from the real revolution required, or all of the above. Predictably, such delegitimization opened the way for attacks from those who want not more transformative change, but business as usual, as Amy Cortese and Dennis Price reported this week. The new critics of “woke capitalism” may try to undermine, say, the S.E.C.’s proposed rules on corporate climate disclosures. They can’t wish away the underlying risks. All that measuring and managing and disclosing ultimately will help corporations and other operators, as well as investors, get on top of those risks, and thus is pro-business, not anti. To borrow from Andrew Yang: not left, not right, but forward.

Such stepwise progress shows up across the impact landscape. Catalytic investors, such as Prime Coalition, that took aim at the funding gap for early-stage climate solutions are moving on to rapid commercialization now that venture capital has warmed to climate tech. Venture capital, however, has not filled the gap in financing for the vast bulk of startups and small businesses. Agents of Impact for decades have tweaked terms and modified structures to get more founders of more types of businesses the capital they need to grow and build wealth, as highlighted in this week’s Call No. 42 (see below). Alternatives to venture capital are needed more than ever to sustain the pandemic-fueled boom in new business starts that has been led by women, immigrants and entrepreneurs of color. Support for small businesses used to be the most Republican of platforms. Now it’s a pillar of inclusive capitalism. Not left. Not right. Forward. – David Bank

🎧 Impact Briefing. ImpactAlpha editor David Bank joins host Monique Aiken to discuss flexible financing for startups and small businesses, and the politics of ESG. Plus, the headlines.

• Listen to this week’s episode, and follow all of ImpactAlpha’s podcasts on Apple, Spotify or wherever you listen.

The Week’s Call

Call No. 42 Recap: Business financing beyond venture capital to fuel the boom in entrepreneurship (video). One defining outcome of the pandemic: a boom in entrepreneurship. A record five million businesses were started in the U.S. last year. Many are sole proprietorships, but many are hiring and more want to bring on employees. Women, immigrants and entrepreneurs of color are leading the wave of new business starts. The kicker: Venture capital and commercial banks back less than 20% of all new businesses. Call No. 42 explored alternative financing structures that are changing the trajectory of entrepreneurship and community wealth. A key question: Is the term “alt-capital” still appropriate when such instruments are designed for as much as 80% of the market?

• Supporting startups. The forms of financing – working capital, inventory finance and factoring, trade finance, even revenue-based lending – have all been around for some time. What’s new is applying the innovations to a very large underserved market. “Seems like the surface area for VC alternatives (narratives, structures and communities) has expanded considerably since we ended Indie.vc,” tweeted OATV’s Bryce Roberts. “I’d bet we see some real breakouts in companies and models in the coming years.”
• Wisdom of crowds. Crowdfunding is changing who invests – and who gets funded. “Power shouldn’t be concentrated in the hands of millionaires and VC funds,” said Jonny Price of WeFunder. “If we’re lowering the barriers to entry, and creating millions and millions of new angel investors who are women of color in Tennessee, where I live, then we should be able to get more capital flowing to founders that look like them.”
  
• Revenues over rounds. Revenue-based financing “looks at the strength of the business and the cash flows associated with that,” said Kim Folsom of Founders First. More than 60% of Founders First’s funding has gone to female founders, and 63% has gone to founders of color. Revenue-based lending “is a much more flexible source of funding that doesn’t rely on the individual’s personal financial credit.”
  
• Alt-governance. “There’s a need for patient and responsive, early and growth stage capital,” said Astrid Schultz of Zebras Unite. One path forward, added Andrea Armeni of Transform Finance, is to match alt-financing structures with alt-governance structures, such as steward ownership, purpose trusts and multi-stakeholder cooperatives.
  
• Read The Call No.42 recap and watch the replay.

The Week’s Dealflow

Deal spotlight: Returns on inclusion. “To increase capital access for Black and Brown entrepreneurs, we need to ensure that capital decision-makers are knowledgeable about the history and root causes of the country’s racial wealth gaps,” said Philip Gaskin of Kauffman Foundation, which anchored Living Cities’ third Catalyst Fund with a $10 million investment. The new fund aims to support fund managers of color in building early track records with seed investments, technical support, and fundraising help.

• Catalytic capital. Living Cities’ first Catalyst Fund made 19 investments and catalyzed more than $1 billion into small businesses, real estate, pay-for-success initiatives and other investment themes. Its second fund was an early backer of Kim Folsom’s Founders First Capital and Melissa Bradley’s 1863 Ventures. By strengthening the ecosystem of fund managers of color, Kauffman’s Kim Wallace Carlson told ImpactAlpha, “we can lower the systemic barriers that entrepreneurs from underrepresented populations face.”
  
• Billion-dollar alternatives. BlackRock secured $800 million from investors, including Costco, Lincoln Financial Group, PayPal, State Farm, W.K. Kellogg Foundation for a planned $1 billion Impact Opportunities Fund. The fund will make investments in housing, financial services, education and healthcare in underserved communities of color, particularly Black, Latinx and Indigenous communities. The fund will take a “flexible, multi-alternatives approach” to meet impact objectives and financial targets, said BlackRock’s Pam Chan.
  
• Capital for the new majority. Also this week: Atlanta-based neobank Greenwood acquired The Gathering Spot to build a community of professionals of color… LISC raised $100 million to expand its Entrepreneurs of Color Loan Fund, which will purchase loans made by partner community development financial institutions… Latina-led Chingona Ventures secured $52 million to invest in overlooked founders of early-stage companies… Northwestern Mutual invested $5 million in two Black-led lenders in Milwaukee. 

Circular economy. Generate Capital acquired Canadian waste-to-energy and biogas company StormFisher, which will be integrated into Generate’s Upcycle platform… White Oak Global Advisors provided a $21.3 million loan to recycling and waste disposal company Omni Recycling to complete its acquisition by Salt Creek Capital… North Sky Capital invested $25 million in battery storage and circular economy projects via its third green infrastructure fund.

Financial inclusion. BRAC International Microfinance taped capital markets for $40 million for households in poverty… Colombian microfinance lender Finamiga scored a $3 million loan from ABC Fund to lend to smallholder farmers… ABN AMRO acquired a stake in Netherlands-based impact crowdfunding site Lendahand.

Investing in health. LeapFrog led Redcliffe’s $61 million raise for health diagnostics in India… HCAP Partners invested in  FleetNurse to connect healthcare workers to facilities that need to fill shifts on short notice… San Francisco-based biotech venture Brightseed secured $68 million in a Series B round to discover nature-based health solutions.

Low-carbon transition. Pachama scored $55 million to verify forest-based carbon credits… Group14 Technologies raked in $400 million to commercialize silicon batteries… Inclusive Prosperity raised $13 million for energy upgrades for underserved communities… American Express issued a $1 billion ESG bond to finance green buildings, energy efficiency, renewable energy and circular economy projects.

Small businesses. Crowdz secured $10 million to provide $1 billion in non-dilutive working capital for 25,000 small businesses worldwide next year… Egyptian fintech Paymob raised $50 million to facilitate digital payments online and in-person for merchants… Equity Group secured $165 million to finance small businesses and climate projects in Africa. 

Agrifood investing. Atlanta-based burger chain Slutty Vegan raised $25 million in Series A funding led by Richelieu Dennis’ New Voices Fund… Tomorrow Farms raised $8.5 million to partner with food science companies to build consumer-friendly and animal-free brands and products.

Climate risk. Amperon Holdings scored $7 million in Series A funding to provide grid forecasts for clean energy companies… The Miller Center for Social Entrepreneurship backed will support social entrepreneurs advancing climate resilience in the Asia-Pacific region.

Community finance. Oakland-based CNote secured $25 million from Apple to invest in community development financial institutions in underserved communities.

Skills and education. Manara scored $3 million to upskill tech workers in North Africa and the Middle East.

The Week’s Talent

Kapor Capital’s Uriridiakoghene “Ulili” Onovakpuri and Brian Dixon become managing partners as Mitch and Freada Kapor step back (“we are not retiring”)… Terry Angelos, who led Visa’s global fintech and crypto divisions, will become CEO of DriveWealth… responsAbility promotes Tara Hesse to chief operating officer and Martin Heimes to head of private debt… Joelle Gamble, formerly of the White House National Economic Council, joins the U.S. Department of Labor as chief economist. 

Casey Bell, ex- of the National Rural Utilities Cooperative Finance Corp., joins Pacific Community Ventures as chief impact officer… Gavin E.R. Wilson, ex- of Goldman Sachs, is named CEO of DAI Capital… Developing World Markets appoints Aditya Kumar, ex- of responsAbility, as head of debt strategy in South and Southeast Asia… Damien Hooper-Campbell, ex- of Uber and Google, joins StockX as chief impact officer… Department of Justice attorney Cynthia Ferguson will lead the department’s newly established Office of Environmental Justice.

The Week’s Jobs

Project Drawdown is recruiting a chief scientist and a team of senior / associate scientists… BlackRock seeks a sustainable investing research and strategy associate / vice president in New York… Vista Equity Partners seeks an associate of ESG data and reporting… Insight is looking for a financial manager in Oakland… Upstart Co-Lab is searching for an impact investment associate… Pachama is hiring a chief of staff and other roles… The Robert Wood Johnson Foundation is recruiting an assistant vice president for strategic communications. 

Quona Capital is hiring a head of fundraising and investor relations in Washington, D.C… The Jeremy Coller Foundation is looking for a policy manager for the foundation and the FAIRR Initiative in London… Borealis Philanthropy is hiring a remote director of finance… The University of Oxford seeks a director of the Smith School of Enterprise and the Environment as well as several research associates. 

Mighty Earth seeks a senior director for its decarbonization campaign… The Rockefeller Foundation is looking for a senior associate for its strategic learning and impact team… Calvert Impact Capital is hiring a strategy officer… Social Nest Foundation is looking for a head of entrepreneurship in Valencia, Spain… Regen Foundation is hiring a director of development… UNDP’s Global Fund is recruiting a communications specialist… ClimateWorks Foundation is recruiting a grants assistant.That’s a wrap. Have a wonderful weekend. 

– May 13, 2022