Beyond equity, Atlanta’s green impact bond, Root Capital’s social impact incentives, overheard at the FLII



Greetings, Agents of Impact!

Featured: Impact Voices

Beyond Equity: Impact investors can rethink how we invest, not just what we invest in. Investing in early-stage businesses should make a lot of sense for impact investors. Seed, pre-seed and Series A companies are at the frontier of innovation. When a company is young, its leaders are still establishing a revenue model, an impact thesis and a theory of change. Entrepreneurs and investors are likely to be aligned around an impact mission. However, many impact investors, including asset managers, foundations, and high net-worth individuals, avoid such early-stage businesses because of the perceived risks. “My challenge to these investors, and to any limited-partner or asset manager who wants to support impactful companies, is to be open to rethinking when and how they invest, not just what they invest in,” Village Capital CEO Allie Burns writes in a guest post on ImpactAlpha.

Burns’ most fundamental takeaway: “Look beyond equity.” Many businesses in healthcare, education, financial health and sustainable food have high potential for positive impact but don’t have typical software business models, nor clear paths to exit in five to seven years. High growth may take 10 years of market-building, far exceeding the patience of an investor operating a 10-year fund. One alternative to equity, Burns suggests: revenue-share structures in which investor capital is repaid from a share of the revenues of a growing business. Indie.vc has raised a second $30 million fund for such “profit-sharing” investments. Candide Group and RevUp Capital also are exploring ownership structures for a wider range of early-stage businesses. “We should absolutely celebrate the movement of significant capital towards impact investing,” Burns writes. “We should also remember that impact investors have an opportunity to do things differently.”

Read, “Beyond Equity: Impact investors can rethink how we invest, not just what we invest in,” by Village Capital’s Allie Burns on ImpactAlpha.

  • ICYMI: The Kauffman Foundation launched the Capital Access Lab with $3 million to test new investment models – including revenue-based investing, performance-based equity, and employee stock ownership – that increase capital investment to underserved entrepreneurs.

Dealflow: Follow the Money

Atlanta raises $14 million environmental impact bond from public. Cities are increasingly confronting flooding during extreme storms and other weather-related challenges with infrastructure not designed for urban growth or changing weather patterns. Atlanta is one of the first cities to issue an environmental impact bond, which rewards investors in green infrastructure projects that achieve positive environmental outcomes. The city raised $14 million through a 10-year municipal bond offering on Neighborly, an investment platform. The capital will finance six projects in economically disadvantaged and flood-prone neighborhoods. Investors will be repaid at 3.55% interest if the projects capture at least 6.5 million gallons of stormwater. Quantified Ventures, which helped structure similar bonds in Washington D.C. and Baltimore, supported the deal. Dive in.

Root Capital chases ‘social impact incentives’ in loans to Latin America agribusinesses. The Swiss Agency for Development and Cooperation and the Inter-American Development Bank will pay up to $1 million to agriculture financier Root Capital for dispersing loans to 40 early-stage agribusinesses in Latin America that other investors wouldn’t make due to the risks and unattractive returns. Root Capital’s Willy Foote calls the social impact incentives model “a game changer.” Under a new agreement, Root has deployed loans eligible for the payments to farmer organizations in Colombia, Nicaragua, and Honduras. Roots of Impact, the German advisory group that developed the “Siinc” scheme, is tasked with verifying impact. The IDB is kicking in another $550,000 for Root Capital to provide technical support to 30 enterprises. Other SIINC tests are underway with health and agtech ventures in Mexico, Honduras and Peru. Siinc up.

Nuveen invests $10 million in Revolution Foods’ healthy school lunches. Revolution Foods is a women-led company that produces and delivers high-quality natural food to two million schools and communities per week. Chicago-based Nuveen invested $10 million in Revolution Foods to help the company expand operations and add more healthy options to their menus. Revolution has raised nearly $130 million in financing since 2010, according to Crunchbase. Nuveen, the investment manager of TIAA with more than $930 billion in assets under management, has allocated $850 million to its global impact investing private equity strategy since 2012. Eat it up.

Signals: Ahead of the Curve

Overheard at the Latin American Impact Investing Forum. The ninth Foro Latinoamericano de Inversión de Impacto in Mérida, Mexico wraps up today. Some highlights:

  • Spotlight on entrepreneurs. We’ve met the founders of Mexico’s Maya Bacab, which supports Mayan beekeepers; Clínicas del Azúcar, which launched a chain of diabetes treatment clinics; Klik, a furniture maker that uses recycled plastic; Chile’s carpooling app AllRide; Nicaragua’s Estación Vital, which makes health-screening kiosks; and Uruguay’s Glucosee, which makes a device to help diabetes patients manage their disease. “Social impact doesn’t happen without entrepreneurs.” ImpactAlpha’s David Bank said at the outset of a discussion among impact fund managers.
  • Champions of “alternative finance” aren’t so alternative. In 2014, when Uncommon Cacao (then Maya Mountain Cacao) piloted one of the first impact loans structured around seasonal cash-flows, the flexible structure was an outlier. Five years later, proponents of alternative forms of equity and debt financing are popping up all over the impact space (see “Beyond Equity,” above). Salt Lake City-based investment firm Enoch Capital Partners is structuring investments in high-impact companies in Africa and Latin America around revenue-sharing models.
  • Micro is macro. Microfinance institutions were among the original impact investors. Microfinance institutions managed loan portfolios of $114 billion as of 2017. “We’ve been working in microfinancing for 14 years,” said Peter Beez of the Swiss Agency for Development and Cooperation. “In that sense, we’re forerunners to impact investing as it’s currently understood.”
  • Complete coverage. Second wave – and second funds – for Latin America impact fund managers… 50 deals that signal a growing impact investing market in Latin America.

Agents of Impact: Follow the Talent

Jim Schorr, the social entrepreneurship leader and Vanderbilt professor who passed away Feb. 11, was a board member of the Social Enterprise Alliance and the Social Enterprise World Forum, and an advisor to REDF… The Injini education technology incubator is hiring a head of growth and other roles in Cape Town… Community ownership, Opportunity Zones, and full spectrum capital are on the agenda at CO Impact Days in Denver Mar. 11-14.

February 21, 2019.

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