The Brief | October 11, 2018

Institutional hot seat, Lambda’s coding school, financial solutions for workers, alternative capital structures

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Greetings, ImpactAlpha readers!

Connect with other Agents of Impact in Paris and London. When the panels are done, the real conversations begin. ImpactAlpha’s exclusive events will bring together Agents of Impact (that’s you) at a dinner and salon in Paris Oct. 30, alongside the GIIN Investor Forum. A few days later, we’ll gather at the Conduit for drinks in London Nov. 2, in collaboration with the first Gender Smart Investing Summit. We’d love to see you. Sign up here for more information.

Featured: Returns on Investment podcast

Institutional Shift: Impact investing on the hot seat at global pension funds (podcast). Last week’s board election at the $362-billion California Public Employees Retirement System, or CalPERS, was a wake-up call that the “institutional shift” toward sustainable investing is neither ordained nor inevitable. An incumbent board member who had championed ESG investing (for environmental, social and governance factors) was defeated by a challenger who argued that such priorities could “put retirement security at risk.” An op-ed in Responsible Investor called the results “a direct challenge to the current strategy and structure of responsible investment in the U.S., and probably globally, as well.”

The latest episode of ImpactAlpha’s Returns on Investment podcast takes stock of the state of impact investing at such pension funds and other institutional investors. “They have obligations to a million teachers, or a million public employees, to whom they’re obligated for 30 or 40 years. That hasn’t stopped,” said Equilibrium Capital’s Dave Chen, a guide for the podcast’s “Institutional Shift” series. “At the end of the day, they have to preserve the capital and generate a set of returns.” The onus is on impact-oriented asset managers to develop repeatable, large-scale investment opportunities with risk-return profiles that fit institutional portfolios. “There are a million schools,  a million wells, a million waste-treatment plants, a million microgrids that are needed,” he said. “Can you integrate a business model that allows for a cash flow, a profit, a return — and navigate that fine line between a fair risk-adjusted return and a predatory return?”

Read on and listen in to “Institutional Shift: Impact investing on the hot seat at global pension funds.” Catch up on all of ImpactAlpha’s Returns on Investment podcasts.

Dealflow: Follow the Money

Google’s venture arm joins financing for Lambda School. The school made a name for itself with a $20,000 curriculum that teaches coding and software engineering to students of all backgrounds – and lets them defer repayment until they get a job paying more than $50,000. Eight months after raising a $4 million seed round, Lambda School has secured $14 million for its Series A round. Financing came from GV, the venture of arm of Google’s parent Alphabet, and the online payment processing company Stripe. Learn more.

Centaur Analytics lands $3 million for food waste-cutting sensors. The California-based venture tracks and monitor post-harvest storage conditions for crops using sensors and data science. Centaur is aiming to improve global food quality and reduce waste. Its funding round was led by Marathon Venture Capital, a seed-stage tech investor in Athens, Greece that specializes in early-stage investments in “Internet of Things” companies. Dig in.

Financial Solutions Lab zeros in on to U.S. workers’ financial health. More than half of all employees report being “financially stressed”; student loans and healthcare are major factors. A partnership between the Center for Financial Services Innovation and JPMorgan Chase is targeting the financial health of American workers. The FinLab’s fifth fintech challenge is seeking solutions for low- and middle-income workers. Winners get $125,000 in seed capital and professional support. Applications are due Nov. 9. Read on.

Signals: Ahead of the Curve

Re-plumbing the business financing system with alternative capital structures. As many as four out five young U.S. businesses feel they’re “falling through the cracks” as they struggle to access venture capital or bank financing. Last month’s Alternative Capital Summit in Denver collected “a whole roomful of people ready to roll up their proverbial sleeves and go to work figuring out the why, what and how of alternative capital structures,” report Sphaera Solutions’ Astrid Scholz and Candide Group’s Aner Ben-Ami. Some of the emerging solutions:

  • Financing based on revenue or profit-sharing can be suitable for companies earning  enough in profits to sustain growth and cover distributions to investors. These deals can be structured with revenue-based dividends, royalties, or share buybacks.
  • Recapitalization schemes can allow companies to buy out their investors, using either cash or debt.

Both approaches prioritize profits over growth and reflect a different way of thinking about early-stage funding than typical venture capital approaches. For some of the participants, “alternative structures such as revenue-based finance are just one small part of a broader agenda of alternative ownership and governance, which would support mission-first businesses,” say Scholz and Ben-Ami. For example, Organically Grown Co., a Pacific Northwest produce distributor is working on a trust ownership structure that repays investors via dividends and profit shares. The Kauffman Foundation’s Victor Hwang told the summit that capitalism is like a 100-year-old house with plumbing that’s not fit for 21st century needs. “When you replace the plumbing in an old house,” say Scholz and Ben-Ami, “you need to do everything.” Share this post.

Agents of Impact: Follow the Talent

Rockefeller Brothers Fund’s Stephen Heintz will receive the Distinguished Service Award from the Council on Foundations… Underrepresented founders in Detroit, London, Los Angeles and Philadelphia can apply to the Backstage Accelerator through October 15… Echoing Green is seeking applications for 2019 fellowships… Align17 is seeking an investment associate in Europe.

October 11, 2018.