The Brief | November 15, 2018

Income-share agreements for economic mobility, Sweetgreen’s fast-casual unicorn, sustainable-clothing-as-a-service, building the handworker economy

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Income-share funds expand college-finance options for low-income students. Income-share agreements provide students with upfront funding for college tuition, fees, books, and other living expenses. In exchange, students agree to pay a portion of their future income for a fixed period of time. Experiments with ‘ISAs’ as a complement and alternative to traditional student loans are proliferating at universities, coding bootcamps and college alternatives in the U.S. and worldwide. But few have had an explicit focus on building educational pathways for lower-income students. Now, the nonprofit Better Future Forward has launched a pair of funds to test the viability of ISAs with more than 200 low-income students in the city of Chicago and states of Minnesota and Wisconsin.

In effect, ISAs function more like equity than debt, transferring risk from students to investors. The design ties investors returns to student success in a way regular student loans don’t. In underwriting agreements, for example, forward-looking indicators like enrollment at a university with a high mobility ranking, rather than a student’s credit score, are a better indicator of future success. Key to the Better FuturesForward model are partnerships with college success and coaching programs to increase the likelihood of student success. “Risk transfer is central to the model,” says Better Future’s Kevin James.

Read, “Income-share funds expand college-finance options for low-income students,” by Dennis Price on ImpactAlpha.

Dealflow: Follow the Money

Sweet! Healthy fast-casual chain Sweetgreen raises $200 million. The Washington, D.C.-based restaurant chain known for its salads and local ingredients has put an exclamation point on the healthy restaurant trend with a valuation of more than $1 billion. Sweetgreen, with 90 stores in eight states, is aiming to “replace McDonald’s as the global iconic food brand.” The financing, led by Fidelity, will help Sweetgreen double its locations over the next three years. Dig in.

PayJoy secures debt to advance economic inclusion through smartphones. San Francisco-based PayJoy is expanding access to financial services by helping unbanked customers buy a smartphone. PayJoy offers upfront smartphone financing, using its own credit underwriting tool. After customers pay off their phone, they become eligible for a $100 loan, collateralized by the device. PayJoy’s financing and follow-on lending helps customers build their credit score and get approved for other financial products, like credit cards. Arc Labs, an early-stage credit fund, issued $20 million in debt financing to expand PayJoy’s financing and customer lending in Mexico. Ring it up.

For Days’ sustainable-clothing subscription service clinches $2.8 million. As much as 85% of the U.S.’s annual production of 16 million tons of clothing, footwear, and other textiles ends up in a landfill. For Days is trying to divert from landfills frequently replaced wardrobe items like T-shifts by allowing members to trade in old shirts for new ones. The $2.8 million seed round was led by Rosecliff Ventures and Collaborative Fund, and joined by Congruent Ventures, Third Prime Capital, Closed Loop Ventures, Bleu Capital, Gramercy Fund, and Ride Ventures, TechCrunch reports. Try it on.

Donor-advised fund assets grow to $110 billion. Assets in the tax-advantaged philanthropic vehicles increased 27% from $85 billion last year, according to the National Philanthropic Trust. See “Five ways to boost the flow of donor-advised fund capital to impact investments.

Signals: Ahead of the Curve

Building the handworker economy. Work done with hands is the second-largest employer of women in developing economies. The “handworker economy” accounts for 300 million jobs globally, says Nest, a New York nonprofit. The majority female community of artisans is key to supply chains in clothing, jewelry, sculptures and furnitures. The handworker economy is still largely underinvested in says Nest’s Rebecca van Bergen. “People think of artisan work as niche, unscalable and highly localized,” she says. “People don’t see it as a scalable sector.” The group’s Handworker Economy Convening attracted corporates including J. Crew and Target, impact fund managers including Humanity United and philanthropic investors including the Cordes Foundation.

  • Handworker pipeline. The nonprofit’s Nest Connect program supports over 450 global artisan businesses, giving them access to the digital learning tools and consulting they need to grow and scale their businesses. The handworker economy can bring artisans businesses into the formal economy as well as, “bring visibility, dignity, voice, and power to artisans that might live at the end of a very long complex supply chain,” van Bergen says.
  • Labor lens. A growing number of “labor-lens” investors are betting on strategies for ending exploitative working practices. Humanity United has raised $25 million and made three investments including in QuizRR’s digital tools to teach employers and workers about worker rights and responsibilities. “Our investments are intended to strengthen the tools that multinationals and other employers can use to solve labor rights problems in their supply chains,” Humanity United’s Dan Viederman told ImpactAlpha.
  • Creative lens. A growing number of creative-lens investors are recasting artists as innovators and a source of business and social value. Upstart Co-Lab has identified 107 funds investing in creative sectors, including ethical fashion.
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Agents of Impact: Follow the Talent

Capria is recruiting up to five emerging- or frontier-market fund managers for capital and network support (see, “Capria Fund raises $33 million to invest in early-stage emerging-market funds”)… The Global Innovation Lab for Climate Finance is calling for innovative ideas to unlock capital for climate action and sustainable development… The Global Impact Investment Network is looking for a research manager.

November 15, 2018.