The Brief | March 30, 2021

The Brief: Restorative-justice capital, collaborative lending in Miami, Brazilian resilience, tech + culture, living kindly, first-time fund managers

ImpactAlpha
Miami, Florida
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ImpactAlpha

Greetings, Agents of Impact! 

Featured: Impact Voices

Five ways that lenders can interrupt racism and provide restorative-justice capital in our communities. Can community development financial institutions be anti-racist? Many CDFIs, with their mission of expanding economic opportunity, have provided a financial lifeline to communities of color that have faced generations of discrimination. But despite good intentions, some practices of CDFIs can perpetuate racial inequity. “CDFIs exist in the larger world of this financial institutional system” with tools and practices that conspire against people of color, writes Joe Neri of IFF, a Chicago-based CDFI that finances schools, health centers, grocery stores, housing and other community real estate. For example: lending based on appraisals that have devalued property in Black communities (see, “Hacking community lending to interrupt racial bias in ‘appraised value’”), and risk-based underwriting that assigns higher rates to vulnerable borrowers. “Being anti-racist means taking an intentionally active role,” says Neri. “Our task is to always ask: Why isn’t there equity here, in this place, in this sector, with this product or service?” 

  • Be non-extractive. Neri advises CDFIs to interrogate their practices, products and services with an equity lens. For example, many CDFIs charge non-refundable loan application fees. “If the application fee is small, why bother?” asks Neri. “If it is large, then you’re asking your customers to reduce their wealth to fulfill your mission and use your product.” For those turned away, “You have actually reduced their equity – walking them back a few steps from the starting line of getting credit in the future.”
  • Align capital with justice. IFF has used project costs, rather than appraisal rates and risk-based pricing, to underwrite $1 billion in loans to community facilities. Performance has matched that of traditional financial institutions. Such practices are spreading: Allies for Community Business (formerly Accion Chicago) recently announced that it is dropping the use of credit scores and collateral value, both of which adversely affect business owners of color, in approving loans.
  • Don’t ask for permission. “As a leader of a CDFI that must raise upwards of $40-50 million of long-term capital each year, I am acutely aware of the pressure to make our investors happy,” Neri writes. “Now is not the time to ask permission to be anti-racist. It is a time to innovate restorative-justice capital and practices that interrupt the legacy of racism in our communities.”
  • Keep reading, “Five ways that lenders can interrupt racism and provide restorative-justice capital in our communities,” by Joe Neri on ImpactAlpha.  

An emergency loan fund for Miami’s small businesses provides a model for collaboration beyond COVID. The Re-Investing in the Small-Business Economy, or RISE fund, disbursed $18 million in low-interest loans to help nearly 1,000 truly small business owners in Miami-Dade county navigate the COVID shutdowns. The kicker: “We stood up the fund and distributed these loans in roughly seven months,” writes Manuel Costa of Self-Help Credit Union in a guest post on ImpactAlpha. Costa recounts the scramble to bring together local CDFIs, credit unions, private funders and the county to leverage federal relief funding. “Collaborations like Miami RISE established during the pandemic provide a model for moving quickly and efficiently to deal with future crises,” he writes.

Dealflow: Follow the Money

BTG Pactual launches $200 million strategy for mid-size businesses in Latin America. The Brazilian investment bank started making environmental, social and governance, or ESG-focused investments six years ago. Now, the bank is launching an impact fund through its private capital division to make equity investments in mid-size businesses across Latin America. The fund’s themes include resilient cities, climate change adaptation and mitigation, and access to basic services. BTG will take minority stakes in eight or so companies each generating revenue of less than 300 million Brazilian reals ($52 million). BTG will commit 5% of the funds from its balance sheet.

  • Capital gap. Small and mid-size businesses in Latin America are underserved by traditional financial institutions, including BTG. In the COVID crisis, large companies secured relief financing while smaller businesses struggled. “We see that as an opportunity for private capital,” BTG’s Patricia Genelhu told ImpactAlpha. Dig in. 

MaC Venture Capital raises $110 million for culture-change startups. The L.A.-based early-stage venture capital firm aims to see women and people of color represented in society, business and culture. MaC’s majority Black founding-partner team includes Marlon Nichols of Cross Culture Ventures, Macro’s Charles King, former Washington, D.C. Mayor Adrian Fenty, and former agent Michael Palank, who together founded M Ventures in 2017. The fund will target tech startups leveraging cultural shifts and behavior change to expand access to opportunity, address climate challenges and build better products.

  • Placing bets. Investors in the fund include Howard University, Mitch and Freada Kapor, Foot Locker, Greenspring Associates, the University of Michigan, and the Libra and Mary Reynolds Babcock foundations, with support from Candide Group. The firm is focused on “solutions that take care of the planet, create better lives for underserved communities, and ensure that capital is flowing to the very best founders irrespective of race and gender,” Candide’s Morgan Simon told ImpactAlpha.
  • Returns on inclusion. MaC has backed dozens of companies, including L.A.-based 70 Million Jobs, which helps people with criminal records gain employment; in-home preschool startup Wonderschool; and BlocPower, a climate tech startup retrofitting city buildings in underserved communities (see, “Brooklyn’s BlocPower raises $63 million to green U.S. buildings”). Read more.

The Rise Fund backs plant-based food company Livekindly’s $355 million round. Switzerland-based Livekindly Collective is a group of plant-based food companies launched last year by impact investment firm Blue Horizon. The VC firm’s mission is to invest in food startups working to phase out animal-based protein consumption. Livekindly, which also includes a media platform, was set up to accelerate such companies’ growth and traction. Rabo Corporate Investments and sustainable agri-food tech investor S2G Ventures joined TPG’s Rise Fund in backing the company. Livekindly has secured $535 million in total.

  • Innovative foods. Livekindly’s meatless ready-meal brands include Sweden’s Oumph, U.K.-based No Meat and Like Meat, and Fry Family Foods, which is available in multiple international markets. Plant-based consumer brands and other innovative foods, like lab-grown meat, raised $2.3 billion last year, representing about 10% of all venture funding for agri-food technologies. Learn more.

Dealflow overflow. Other investment news crossing our desks:

Signals: Ahead of the Curve

How women and VCs of color are finding impact alpha with first-time funds. Shayna Harris and Noramay Cadena of Chicago and L.A.-based Supply Change Capital are backing women and entrepreneurs of color who are charting the way to a more robust and resilient food system. That could be a $100 billion opportunity by 2045 as minority populations collectively become the majority in the U.S. and command greater spending power. Operating at the intersection of impact and diversity provides a unique lens and “is so much who we are and who we are networked with,” Harris told ImpactAlpha. VC Include, which connects diverse general partners with institutional limited partners, awarded fellowships to Supply Change and more than a dozen other emerging managers targeting investments in under-represented tech-focused founders, plant-based food startups, wealth for workers of color, and low-income communities. “These are alpha-focused impact strategies led by diverse managers,” VC Include’s Bahiyah Robinson said (see, “Diverse fund managers are ready to shift capital at scale”).

  • Inclusion alpha. Among the new fellows are Aaron Walker’s Ruthless for Good Fund in New Orleans, Sergio Marrero’s Rebel One fund in Chicago, Monique Idlett-Mosley and Erica Duignan’s Reign VC in New York, Anita Roberts’ Silicon Hills Capital/Narrow The Gap Fund in Austin, and Todd Leverette and Philip Reeves’ Apis & Heritage in Washington, D.C. All the debut funds are raising between $25 and $55 million and already cutting checks.
  • First-time charm. First-time and emerging fund managers attracted only a little over 11% of capital raised last year. Commitments to first-time funds pay off at a greater rate than their more established peers. As of the middle of last year, 17.7% of first-time funds had an internal rate of return of more than 25%, compared with 11.3% of firms’ fourth funds or later, per Pitchbook. Share this post. 

Climate of change. Short takes on the accelerating activity:

  • Green infrastructure teaser. The Biden administration will create a “wind energy area” off the coast of Long Island and New Jersey and speed permitting and loans as part of its goal to build 30 gigawatts of offshore wind by 2030. The plan could spur annual investments of $12 billion and employ more than 44,000 offshore wind workers.
  • Windward. Nearly one terawatt of new wind capacity could be added globally by 2030. China is expected to add 400 gigawatts of wind in that period, or 41% of the total, according to Wood Mackenzie, as well as 800 gigawatts of solar.
  • Welcome, Voltswagen. German automaker Volkswagen is said to be changing the name of its U.S. operations to Voltswagen to reflect its electric vehicle ambitions. USA Today insists the “leak” is not an early April Fools’ Day joke.

Agents of Impact: Follow the Talent

U.S. President Joe Biden will host a Leaders Summit on Climate at the White House with up to 40 world leaders, April 22-23… The Low Income Investment Fund names Carolyn Smith vice president of strategic communications… MCE Social Capital is hiring an impact analyst in San Francisco or the East Coast… ReFED seeks a capital, innovation and engagement director… Visible Hands is accepting applications for its fall accelerator program for underrepresented tech founders.

The Phenix Virtual Impact Summit kicks off today, Mar. 30, through tomorrow. On the agenda: Portfolio Considerations to the Transition to Net-Zero, Mitigating and Adapting to Climate Change and Scaling up Sustainable Investments in Emerging Markets. There’s still time to register. Use code ImpactAlpha2021 for a €200 ($237) discount… The Global Impact Investing Network hosts “Next Normal Now: Re-imagining Capitalism for Our Future,” Tuesday, Apr. 20. The convening targets impact investors looking for practical tools, ideas, and conversations, as well as the impact curious eager to learn how money can do more than just make more money. Register for free.

Thank you for your impact.

– Mar. 30, 2021