Dealflow | May 5, 2023

Deal spotlight: Impact fundraising defies market headwinds

Jessica Pothering
ImpactAlpha Editor

Jessica Pothering

ImpactAlpha, May 5 – What fundraising slump? The parade of new impact (and especially climate) funds continues despite economic warning signs. A first-time fund manager might have a very different take on the fundraising environment than a principal at a private equity powerhouse, like Apollo, which is out with a new $4 billion climate fund, or a corporate-backed manager like Marunouchi Innovation Partners, which raised $400 million for its climate tech fund with capital from Mitsubishi. But the ImpactAlpha news desk is seeing impact funds of all shapes, sizes and angles hitting first and final closes, despite a steep drop in overall VC fundraising and a dampened outlook for private equity this year. 

Early stage

“There are still over-subscribed deals happening frequently,” said Will Poole of Capria Ventures, which scored funding from Gates Ventures and others for its second emerging markets tech fund.

Poole said early-stage investors like Capria are not facing the same headwinds in fundraising or dealmaking that later-stage managers are. Valuations have declined less in the early-stage segment, and investors are showing interest in emerging market opportunities, particularly in India and other parts of Asia.

 “I’m confident that our revised strategy will sell well in this market, but it may take a little longer given overall market uncertainty,” said Poole.

Second funds

Four of the six funds on this month’s Liist of active raises are managers’ second funds (including Capria). Many fund managers say it doesn’t always feel easier the second time around. Data from Pitchbook predicts that first-time managers have it harder: fundraising halved from 2021 levels last year and is expected to drop even more this year. 

In the current environment, having a track record helps a lot, said Brendan Mullen of Secha Capital, which is raising its second fund to invest in small and growing businesses in Southern Africa.

“We can point to our thesis in action, our ability to drive pipeline, our ability to create value for portfolio companies, jobs, find women that we can invest in,” he said.

Financial inclusion investor Anthemis is finding corporate backers to support a new strategy: a women-focused fintech fund.

Niche investors

Institutional investors have become slower to cut checks, but family offices are eager to put capital to work, according to both Poole and Mullen. So are niche investors, observed Gina Foote of Conservation Law Foundation, which scored backing from healthcare provider UnitedHealth Group for its second Healthy Neighborhoods Equity Fund with Massachusetts Housing Investment Corp.

“Impact investors, and especially healthcare investors, really grasped the power of investing not just in affordable housing,” Foote said, but in “breaking down silos and tackling these complex social challenges more holistically.”