Looking Ahead to 2023 | December 30, 2022

Holiday List No. 3: Seven dealflow trends to keep an eye (or two) out for in 2023

Roodgally Senatus

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ImpactAlpha Editor

Roodgally Senatus

ImpactAlpha, Dec 30 — Impact fund managers showed surprising resilience in a tough year for fundraising. That gives them dry powder to deploy across strategies next year, from small-business support in emerging markets to inclusive growth in the U.S. 

Here are some of the investment trends we’ve spotlighted this year: 

Small businesses are drivers of jobs and inclusive economic growth

In Africa, where more than half of small businesses are led by women, catalytic capital is helping bridge yawning capital gaps.

The Africa Growth Fund, Mastercard Foundation’s new $200 million fund of funds launched earlier this month, is targeting women-led and owned funds investing in early-stage, growth small and mid-sized businesses in Africa. A $75 million partnership between the U.K.’s British International Investment and Nairobi-based African Guarantee Fund will guarantee loans from partner financial institutions to women-led small businesses focused on climate solutions in Africa (more).

Clean energy financing in developing countries

Emerging economies are attracting private investment to larger-scale renewable energy projects. Sun King, one of the earliest makers of solar-powered lanterns and home systems for Africa and Asia, last week secured a $70 million investment from LeapFrog Investments. The raise follows the company’s $260 million Series D round led by General Atlantic’s BeyondNetZero unit, to expand affordable off-grid solar financing in sub-Saharan Africa. Earlier in the year, U.N. climate envoy Michael Bloomberg committed $242 million to support clean energy efforts “in developing countries that have contributed the least to the climate crisis but are facing the most severe effects” (more).

Inclusive fund managers

First-time impact fund managers tend to outperform more experienced peers, but struggle to attract capital from LPs. RareBreed Ventures, Rogue Women’s Fund and VitalizeVC joined forces to raise a collective $10 million for their funds through a special purpose vehicle, or SPV. Raven Indigenous Capital Partners, an Indigenous and owned venture capital firm, secured $46 million in a first close of its second fund, mainly from corporates (more).

Jobs of the future

The U.S. economy will add nearly 12 million jobs by 2030. New talent development solutions, inclusive workforce strategies and worker ownership models, could help determine how those jobs will look. KKR is expanding its worker ownership strategy from manufacturing companies to the rest of its portfolio. When KKR this year completed the $950 million sale of Minnesota Rubber & Plastics to Swedish engineering firm Trelleborg Group, all 1,450 employees received cash payouts – equivalent to a year or two of salary (more).

Mega climate deals

 Mega climate funds – General Atlantic’s BeyondNetZero climate fund closed at $3.5 billion this week – are hunting mega climate deals. Brookfield’s $15 billion Global Transition Fund, the largest energy transition fund, put down around $2 billion for U.S. renewable energy platforms Scout Clean Energy and Standard Solar. Other multi-billion dollar funds from private equity giants like TPG Rise and Brookfield are deploying big slugs to seize the trillion-dollar opportunities presented by the energy transition (more).

More impact M&A?

Mirova purchased SunFunder to expand clean energy in emerging markets, M&G acquired responsAbility to meet demand for climate finance in developing countries. Common Future acquired Community Credit Lab to advance community wealth-building (more).

Oversubscribed impact funds

Impact funds are bucking fundraising trends and continuing to raise capital. Washington, D.C.-based impact fund manager Quona Capital raised $332 million for its third financial inclusion fund, exceeding its $250 million target. San Diego-based private equity impact investor HCAP Partners in September raised $353 million for a good jobs fund, exceeding its initial fundraising target by more than 40% (more).