The Brief | May 18, 2018

Climate-finance tipping point, Obvious Ventures goes B Corp, micro-biz lending, historically black colleges back Unusual Ventures

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Greetings, ImpactAlpha readers!

Featured: The Impact Alpha

The climate-finance tipping point is here (and the value of blue-sky thinking). National and international news got you down? Take a break from You-Know-Who and consider that growth in clean-energy generating capacity is blowing through even the most optimistic forecasts of a few years ago. If falling costs and improving technology aren’t enough to convince you the climate finance tipping point is here, another driver may: pension and sovereign wealth funds are increasingly demanding low-carbon investments.

Growing demand from major institutional investors has in turn spurred asset managers and intermediaries to boost the supply of low-carbon investment products that can absorb nine- and even 10-figure checks. Clean-energy infrastructure projects are delivering long-term cash flows and stable, bond-like returns; investment in storage capacity and smart-grid technology is surging. Even the drumbeat of bad climate news – melting Arctic ice, increased desertification, more frequent hurricanes – could be good news for climate finance: The risks of climate change are becoming inescapably clear to “universal” asset owners with portfolios that span the global economy.

As the market shifts, we’ll be writing the story of how global capital blew past the “clean-trillion” goal for annual low-carbon investments, just as renewable energy already is blowing through the best-case scenarios of a few years ago. I know blue-sky thinking can be dangerous. Right now, unwarranted pessimism is the bigger risk.

– David Bank, Editor

Read David Bank’s column, “The Impact Alpha: The climate-finance tipping point is here, and other blue-sky thinking,” on ImpactAlpha. And catch up on all The Impact Alpha columns.  

Signals: Ahead of the Curve

Three takeaways from a long-term study of U.S. microfinance. There are about 30 million small businesses in the U.S. That’s 50% more than 35 years ago. Many small-business owners, especially women and ethnic minorities, lack the collateral, financial documentation or strong credit history to quality for a traditional loan. A new study commissioned by Accion and Opportunity Fund, two long-time U.S. community development financiers, tracked the impact of micro-loans (most under $10,000) to 350 borrowers over three years.

  • Micro-borrowers have a better survival rate than the average business. Ninety-four percent of the borrowers were still in business at the end of the study. (Only 89% of all small businesses survive their first year). After five years, 61% of the micro-borrowers were still in business (vs. 50% on average).
  • Access to credit helps small firms grow. More than half of the firms studied reported rising profits and 60.2% reported sales growth by the end of the study. The proportion of small business owners that reported having a business credit card rose seven percentage points to 65.2%.
  • Micro-loan borrowers create better jobs. The cohort created 335 new full-time jobs during the study period. Businesses offering no benefits to employees fell by more than half, from 48% to 22%. About half of those who already offered at least one benefit added one or more a year later.

Still, many small businesses, as revealed in the study, struggle to manage business cash flow. For these business owners, say the authors of the study, “a financing structure that allows for greater repayment amounts in months with higher revenue and smaller repayment amounts in slower months may be beneficial.”

Agents of Impact: Follow the Talent

Obvious Ventures, the VC firm founded by Twitter co-founder Ev Williams, is now B Corp-certified (Obvious seeks “world positive” ventures, but does not require portfolio companies to measure their impact)… African Business Angels Network and EBAN’s Impact Investment Committee co-host a webinar May 28 on impact investing in Africa… Agriculture Capital is hiring a senior associate in Portland… Cool: 40% of MicroVest’s staff speaks three or more languages.

Dealflow: Follow the Money

A recap of this morning’s deals…

Bharat Inclusion Initiative launches to foster inclusive entrepreneurship in India. The Gates Foundation pledged $12.5 million and was joined by the Michael and Susan Dell Foundation, Tata Trusts and Omidyar Network. Learn more.

New $160 million seed fund taps historically black universities. Unusual Ventures raised capital from Hampton and Spelman colleges, the United Negro College Fund and other investors. Dig in.

Villgro and Dell foundation back three Indian edtech startups. The startups target education-related challenge in India, where people need better access to reliable, high-quality education and training. Get the details.

Proparco backs Tunisian and Ugandan enterprises. The French development finance institution backed Tunisian microlender Enda Tamweel and Ugandan sugar-maker SCOUL. Learn more.