The Brief | October 8, 2018

Investing in impact hardware, financing small-biz in Southeast Asia and Africa, GE’s green turnaround

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Hardware is hard: Impact investors overcome obstacles to back a new crop of makers. Connectivity, digitization, and data can accelerate social progress and economic prosperity only so far. People’s lives still rely on physical things: infrastructure for shelter and movement, for delivering energy and recycling waste and much more. Yet building and launching a new product can take years in the best of circumstances. In places where the culture of entrepreneurship is new, or networks are fragmented, or infrastructure is patchy, costs and timelines can easily grow. The result: hardware has long been neglected by impact investors. There are few dedicated hardware venture funds of any kind and even fewer that back products targeted at low-income customers or frontier markets.

Some impact investors are finding ways to bridge the gap. Menterra Impact Fund in Bangalore, invests early in companies in India that may have received government grants for innovation in agriculture, healthcare and energy, and gets them ready for impact investors looking for businesses with demonstrated success. SYSTEMIQ, a London-based advisory firm, and FINCA Ventures, the investment arm of the microfinance lender, find industry partners who can help with the technical heavy lifting. PRIME Coalition has leveraged philanthropic program-related investments to kickstart early-stage climate hardware companies, while AmpHealth in India has used grant-funding from Pfizer to launch medical-device startups. “The DNA of hardware investors is different,” says Menterra’s Mukesh Sharma. “The load we carry is much heavier.”

Keep reading, “Hardware is hard: Impact investors overcome obstacles to back a new crop of makers, by Jessica Pothering on ImpactAlpha.

Update: President Trump did indeed sign the Build Act into law, reshaping OPIC into the new U.S. International Development Finance Corp, with new investment tools and an expanded mandate. The backstory.

Dealflow: Follow the Money

First Circle raises $26 million for online small-business lending in Southeast Asia. Small and medium-sized businesses create four out of five jobs in emerging markets and are key to delivering many of the U.N.’s Sustainable Development Goals. Still, SMEs have a hard time accessing capital to operate and grow. Philippines-based First Circle, which is seeking to close the small business lending gap in Southeast Asia, has raised $26 million in a Series A round led Venturra Capital. Since the beginning of the year First Circle has lent $75 million, with a default rate of around 1%. Dig in.

Investisseurs & Partenaires raises $25 million to launch impact funds in Africa. With its second fund, the French impact investment firm is looking to launch and seed 10 impact funds focusing on small businesses in Africa. Five funds have already been launched in Senegal, Cote d’Ivoire, Burkina Faso, Madagascar, and Niger. These funds have raised an additional €19 million from 37 other investors on the continent. Read more.

Signals: Ahead of the Curve

Impact investors join forces to call on GE to lead the clean-energy transition. Investors representing tens of billions in assets gave incoming General Electric Co. CEO Lawrence Culp a piece of their mind. The show of force was signed by more than a dozen investors from Capricorn Capital, Encourage Capital, RS Group, McKnight Foundation, Rockefeller Brothers Fund, Children’s Investment Fund Foundation, Affirmative Investment Management, Renewable Resources Group, EverWatch Financial, Kepos Capital, Ecofin and Generate Capital.

Culp replaced ousted CEO John Flannery last week as GE’s board grew frustrated with the slow pace of change. GE has lost a half-trillion dollars in market value since 2000, in part due to GE’s ailing power business, which has made ill-timed bets on fossil fuels. GE Power invested heavily in manufacturing and selling turbines to gas and coal-fired power plants, for example, just as utilities began ramping up construction of solar and wind farms. Last week the firm wrote down $23 billion in goodwill associated with its power business.

  • Divest-invest. “For GE to become a leader again, the company must further scale back investment in and deployment of fossil fuel technologies and focus on clean technologies,” states the Open Letter to GE CEO Lawrence Culp. “Will GE continue fighting to protect decelerating fossil fuel businesses or lead the world into a more profitable and sustainable future?”
  • The impact alpha. The investors say GE should focus on its successful wind turbine business, which had revenues of $9 billion last year, and draw on its deep technical expertise in energy storage and batteries to position the company “at the center of the electric vehicle transition.” GE has not yet jumped significantly into the solar market; the letter-writers say “new solar technologies offer a chance for GE to leapfrog into a $150 billion market.”
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Agents of Impact: Follow the Talent

Lavastian Glenn joins the Nathan Cummings Foundation as director of racial and economic justice… FINCA and USAID launched a platform to connect early-stage financial technology firms with microfinance institutions serving the poor… Applications are open for the Miller Center’s 2019 Global Social Benefit Institute accelerator programs.

October 8, 2018.