ImpactAlpha’s Big 9: Returns on inclusion, resistance meets revival, catalytic capital, retail investors, Agent of Impact: Bitwise’s Irma Olguin Jr.



TGIF, Agents of Impact!

Returns on inclusion. Explicit discrimination in the financial system – think redlining – may be easier to spot than subtler and even unintentional bias. Implicit bias is pervasive and debilitating nonetheless. Fund managers of color lose bids to white peers. Banks embed historic racism in routine underwriting practices. Investors prefer pitches from men over women – for the identical startup. Job candidates with white-sounding names get the call back. “Implicit biases predict how we’ll behave more accurately than our conscious values,” the Perception Institute has found.

The story of Bitwise’s Irma Olguin Jr. (this week’s Agent of Impact, see No. 4 below) demonstrates how talent can be unleashed when such biases are challenged and overcome. Olguin found her own way from farmworker to tech veteran; with Bitwise she is opening opportunities for hundreds of other entrepreneurs and tech workers in Fresno, Calif., and soon, Bakersfield and other underdog cities. The company’s $27 million Series A financing this week is one of the largest-ever rounds for a Latina-founded company.

The lead investors in Bitwise were Oakland’s Kapor Capital and New York’s New Voices Fund (led by Richelieu Dennis, himself an Agent of Impact last November). They are among the investment shops calling out the value-destruction of racial biases and the value-creation of overcoming them. ImpactAlpha has been digging in to their strategies and performance. The W.K. Kellogg Foundation (see No. 2, below) is applying a racial lens to all of its mission-driven investments and placing funds with minority and female investment managers. Living Cities (No. 3) backs lenders using alternative underwriting methods to get more capital to entrepreneurs of color and create jobs. Only a handful of investors so far are directing explicit attention to implicit bias, but early returns on inclusion appear strong.

Dennis Price, editorial director

Featured: ImpactAlpha’s Big 9

1. Resistance meets revival (podcast). Green jobs, shared prosperity, healthy environment, thriving communities. New revivalists (like Bitwise’s Irma Olguin Jr.) are tackling challenges and offering an antidote to division and despair. “Why is that not the best political platform on the planet?” asks ImpactAlpha’s David Bank in the latest Returns on Investment podcast. The roundtable regulars agreed that a popular mobilization, fueled by impact capital, could shift momentum and markets. “Popular” is the keyword, and elites must tread lightly. “Impact investing came from a position of wealth and it’s still driven by the rich kids of impact land,” says roundtable regular Imogen Rose-Smith of the University of California. “There is a level of discourse that is alienating to the very people impact investing industry is trying to help.” Leaders who can turn the tide on legacy business and investment practices and rally support for the new way forward stand to move vast pools of capital, Bank says. “Once you flip the momentum, it shifts very rapidly.” Read on and listen in.

2. Building the business case for racial inclusion. The $7.3 billion Kellogg Foundation is making a business, as well as moral, case for racial equity. “If you are not looking at this, you are actually taking risk,” says Kellogg’s Cynthia Muller. Kellogg is applying a racial equity lens to its $218 million in mission investments and has carved out a $205 million pool to invest in minority and female fund managers. Research is bringing the extent of implicit bias in financial markets into focus. Women and people of color-owned investment firms manage only fraction of the $70 trillion in U.S. assets under management. Minority startup founders raise only a fraction of venture capital. In “Biased,” Stanford’s Jennifer Eberhardt previews research that found Black-led teams were viewed more negatively than White-led teams with identical qualifications by asset owners with capital to allocate. “It’s not something we can ignore,” Muller says. Implicit racial bias can cause investors to lose out on deals, overlook savvy fund managers and entrepreneurs, and miss opportunities in communities of color. Kellogg’s new message: Reducing bias is aligned with the interests of investors. Interrupting bias.

3. Capital for the new majority. Deploying a racial-equity investing strategy means “aggressively building a portfolio that has our capital land in places that we care about, puts people of color in decision-making positions, and begins to challenge definitions of creditworthiness and other norms, including the idea that the system as it exists now is how it has to be,” write Living Cities’ Ben Hecht and Brinda Ganguly. The latest entry in ImpactAlpha’s Investing for Racial Equity series explores how Living Cities is managing about $80 million on behalf of foundations and financial institutions. At $37 million, Living Cities’ Blended Catalyst Fund is one of the largest funds in the market explicitly investing to overcome racial inequities. “If we really want to re-invigorate the American economy and grow jobs, we need to understand why America’s fastest-growing populations, people of color, aren’t starting and growing companies,” say Hecht and Ganguly. Banks, private equity and venture funds and other providers of capital and technical assistance, they say, have a poor track record of serving people of color and women. New-majority capital.

4. Agent of Impact: Bitwise’s Irma Olguin Jr. In California, “the Valley” meant the agricultural Central Valley long before it meant Silicon Valley. But towns like Fresno and Bakersfield have long been underdogs when it comes to tech’s promise of high growth and high pay. With Bitwise, Olguin and co-founder Jake Soberal have found a way to even the playing field. Bitwise has trained more than 1,000 software developers, provided facilities for more than 200 tech companies and renovated 250,000 square feet of building space in Fresno’s downtown. With $27 million in new financing, Bitwise is taking its model to other underdog cities, starting with nearby Bakersfield. “We’re creating our own critical mass,” says Olguin, who grew up in a farmworker family in Fresno before leaving for college and then work in the Bay Area, Chicago, North Carolina and other tech hubs.

An engineer and entrepreneur, Olguin realized Fresno was being left behind when a family tragedy brought her back to her hometown. Starting in 2010, she launched a software competition, then a nonprofit co-working space for designers and developers. That illuminated the intertwined problems of talent that left town even as employers couldn’t hire. Bitwise tackles the problem from all directions, training developers, attracting companies and providing attractive and functional tech workspaces previously unknown in Fresno. New Voices Fund’s Richelieu Dennis said he invested in Bitwise “as one of the only private entities approaching the realities of the economy, technology and marginalized communities with a successful, repeatable business model.” Kapor Capital’s Mitch Kapor said Bitwise’s combination of training, software development and common workspaces “has proven to revitalize communities while also successfully addressing the growing skills gap in the tech industry.” The Series A raise is one of the largest ever for a Latina-led tech company or, for that matter, any tech company in the Central Valley. “It was a matter of finding folks who were making the same kind of bet we are making,” Olguin said of the fundraising, “about human potential in places largely forgotten by tech.” Follow ImpactAlpha on Instagram.

  • Follow the talent with ImpactAlpha’s weekly report on career moves, job openings, events and opportunities.

5. Deals of the week. Stay on top of the dealflow all week long on ImpactAlpha.com. A few that stand out:

  • Impact exits. Lok exits as affordable eyecare company Disha raises $4 million… Twiga raises $5 million and gives early investors a partial exit.
  • Basic services. Taz Technologies raises early capital for Kenyan postal service MPost… Aunt Bertha raises $16 million to help people connect to community services… NeedsList raises $1 million for nonprofit crowdfunding platform.
  • Financing food. Misfits Market raises $16.5 million to expand ‘ugly produce’ delivery.
  • Impact tech. Valo Ventures rolls out $175 million “tech for good” fund… Half of Harvard’s summer i-Lab teams are impact entrepreneurs.
  • Personal finance. Morgan Stanley expands sustainable investment options for smaller investors.

6. Catalying capital for plastic-waste prevention… Plastic waste is a global crisis. Some corporate culprits, including PepsiCo, Procter & Gamble, Unilever and Coca-Cola, also are backers of a new venture fund that sees plastic-waste prevention as an investment opportunity. “For many of our investors, too much of their packaging is polluting the environment,” says Rob Kaplan of Circulate Capital, a spin-off of recycling investment fund Closed Loop Partners. “They lack access to the recycled content to put back into their products. They are constantly getting accused of being bad actors and face a huge ‘license to operate’ risk.” To attract investors, USAID provided a $35 million guarantee to help overcome perceptions of risk for loans in Indonesia, The Philippines, Vietnam and Sri Lanka. In a conversation on ImpactAlpha, Kaplan and USAID’s J.P. Gibbons talk blended capital and sustainability at scale. Says Gibbons, “We strive to reach the parts of the economy that are often considered too risky for investment, like the recycling value chain in the developing world.” Upcycled opportunity.

7. …And for global health innovation. The investment gap to meet global health goals in low- and middle-income countries is $134 billion a year and rising. The takeaways from USAID’s Center for Innovation and Impact and UBS Optimus Foundation convening of investors and health innovators: Health innovators need early- and growth-stage capital, including patient and concessionary capital in the “archetype” stage. Support facilities for both innovators and investors could “crowd-in’ a wider array of private investors. Read on.

8. Impact commitments at the Entrepreneurs Impact Summit. Taking a page from the playbook of the defunct Clinton Global Initiative, the first Entrepreneurs Impact Summit last week encouraged participants to publicly commit to measurable impact goals. Trevor Neilson of i(x) investments, the event’s organizer, tee’d off with a commitment to raise and invest more than $100 million to address the global climate emergency. Investment firm FullCycle likewise promised to invest $100 million in the next year “to accelerate and scale the deployment of climate-restoring technologies.” Startup banking platform Good Money committed to move $5 billion out of traditional banks, while 70 Million Jobs pledged to help one million formerly incarcerated people find jobs. Catch up.

9. Retail investors want to see real impact. The emerging battle for smaller-dollar retail impact investors will be fought on auspicious grounds: authenticity. A new report on retail impact investing from the Rockefeller Foundation finds that retail investors are concerned about whether “sustainable” exchange-traded funds or “ESG” mutual funds, are real-good or feel-good. Skepticism is hampering products’ uptake. A common language, accepted definitions and standard measures of impact will help. The prize: a new generation of retail investors looking to align their portfolios with impact as soon as possible. “The next frontier for impact investing lies with retail investors,” writes Rockefeller’s Saadia Madsbjerg. Democratizing impact.

June 21, 2019. 

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