The Brief | August 23, 2018

Impact lenses and investment edges, Nigeria’s Allpro gains Microtraction, new demand for demand dividend

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Featured: The Impact Alpha

Strategic lenses give impact investors an edge on the future. Investment lens are proliferating beyond gender and climate, to refugees and migrants, forced labor and modern-day slavery, oceans and the caring economy, creativity and the arts. Inclusive economic development may not be possible without applying an explicitly racial lens. Advocates are recasting issues not as problems to solve but as investment trends to ride, ImpactAlpha’s David Bank writes in his weekly column. That’s a service to investors, for whom such lenses can be a way to spot early opportunities. “We coined the term ‘creativity lens’ to help art-loving impact investors see opportunities that have been hiding in plain sight,” Upstart Co-Lab’s Laura Callanan wrote recently.

Take mass incarceration. About $14 billion is spent every year on pre-trial detention for those charged with mostly non-violent misdemeanors; as many as 450,000 innocent-until-proven-guilty people are behind bars every day. Promise, based in Oakland, Calif., contracts with local governments to make sure defendants appear at court dates and meet other obligations in order to stay out of jail, charging about $17 per person per day, versus $85 or more per day for jail time. A 5X cost advantage in a large addressable market attracted Y-Combinator and investors such as Jay Z’s Roc Nation; two other “decarceration-lens” startups have recently closed venture financing rounds as well. Just as the era of mass incarceration created a prison-industrial complex, the gathering movement toward decarceration is creating investment opportunities for those looking through the right lens.

Grab a coffee and read David Bank’s latest column, “Strategic lenses give impact investors an edge on the future,” on ImpactAlpha. Catch up on all of David’s columns here.

Dealflow: Follow the Money

Lagos-based Microtraction backs school-finance startup Allpro. Microtraction launched last year in Nigeria to fill a pre-seed funding gap it said is “stifling the growth of the African technology ecosystem.” Allpro, its fourth investment, helps schools manage their finances and connects them to lenders. Microtraction generally invests in two stages: $15,000 for a 7.5% share, and a $50,000 convertible note when a company’s valuation reaches $1 million. Read on.

Amazon-backed Capital Float acquires India-based personal finance company. In April,  Amazon invested $22 million in Indian small-business lender Capital Float. Now, the lender has itself acquired personal finance company Walnut Management for $30 million. The move is part of Capital Float’s bid to expand into consumer lending. Here’s more.

Trocafone in Brazil raises $3 million to find buyers for used electronics. The Brazil-based startup is seeking to divert some of the 50 million tons of electronic waste that ends up in landfills each year. Trocafone says its online marketplace for used cell phones has diverted 65 tons of electronic waste. Investors include Mexico-based Pedralbes Partners and the Chinese electronics recycling company Aihuishou. Dig in.

Signals: Ahead of the Curve

‘Demand dividend’ emerges as alternative to venture capital financing. The artist-activist community Creative Action Network had completed an accelerator program and struggled to find a fit with traditional venture capital funding. Then it discovered the “demand dividend.” The investment terms called for investors to be repaid from company profits only after the firm hits a certain revenue threshold, up to a cap. The structure solves a variety of challenges associated with VC funding, including exits for investors, who are able earn a solid return without the firm being sold.

  • Early use. The structure, popularized by John Kohler at Santa Clara University’s Miller Center for Social Entrepreneurship, has gained traction since its early use to facilitate an investment into a unit of Uncommon Cacao in Belize.
  • Market test. The demand dividend, also called a variable-payment obligation, is being tested by Agora Partnerships in Nicaragua as a way to extend financing to women entrepreneurs based on cash flow rather than collateral.
  • Plugging the missing middle. Adobe Capital has used the demand dividend as the primary investment structure for two funds aimed at the “missing middle” financing gap in Mexico.
  • Alternative Capital Summit. Investors and entrepreneurs will explore, “financial instruments for the 80% of businesses that are underserved by traditional debt and venture capital,” in Denver, Colo., Sept. 27-29. Pre-register.

Agents of Impact: Follow the Talent

Alice Mann, Don Armstrong, Richard Kobor and Tom Tomlinson joined Blue Wolf Capital Partners as operating partners… Sunwealth’s Ryan Dings is one of the Boston Business Journal’s “40 under 40”Nike is hiring a supply chain innovation and sustainability manager.

— August 23, 2018.