Lessons in early-stage investing, entrepreneurs of color in Detroit, aim healthy, tax-bill hurt



Greetings, ImpactAlpha readers!

#Featured: ImpactAlpha Original

Ten lessons from a decade of early-stage impact investing. Sky Lance and his partners at SustainVC bet on a provocative investment thesis: Early-stage companies solving big problems that are overlooked by Silicon Valley investors could yield positive returns and high impact. In the decade since then, SustainVC has invested $12 million in U.S. companies working on solutions to climate and sustainability, equality and empowerment, and health and education.

The firm, with offices in Boston, Philadelphia and Durham, N.C., has made investments in Buffalo, where UltraCell is building a plant to make low-cost home insulation from recycled cardboard; in Chicago, where Edovo aims to reduce recidivism by providing lessons for the incarcerated, delivered via tablets; and in Austin, Tex., where Aunt Bertha connects people in need with services provided by local non-profits. Ten years ago, the SustainVC partners had lots of untested questions. Now, Lance shares some answers, exclusively on ImpactAlpha. Spoiler alert: “Our portfolio of 32 early-stage companies has validated our original belief in the power of for-profit investing to solve social and environmental issues facing the world,” he writes.

Learn from doers: Read “Ten lessons from ten years of early-stage impact investing” by Sky Lance, on ImpactAlpha.

SustainVC: Ten lessons from ten years of early-stage impact investing

#Dealflow: Follow the Money

Palatine Impact backs e-days as part of health and wellness strategy. Tracking absences can help companies understand and support employees who repeatedly miss work. U.K.-based e-days provides software that can log sick days and also track trends over time. “It’s all about how you support employees,” Palatine Impact’s Beth Houghton, told ImpactAlpha. The £100 million ($134 million) impact fund, which closed in August, targets U.K businesses in high-growth sectors like health and wellness, senior care and workforce skills and training. Palatine’s undisclosed investment in e-days is the fund’s second; in September, it backed workforce-development company Trade Skills 4 U. Houghton calls Palatine Impact a “returns-first” fund and says it is aimed at first-time impact investors concerned that impact would compromise financial returns.

Detroit-based Entrepreneurs of Color Fund nearly triples to $18 million. The loan fund has backed more than 40 minority-owned businesses in the Motor City since 2015. To ensure borrowers’ success, it provides support to entrepreneurs before and after lending and avoids standard measures of creditworthiness, like FICO scores. “It’s a model that works,” JPMorgan Chase’s Peter Scher, told Crain’s. The Ralph C. Wilson Jr. Foundation, Fifth Third Bank and the Kresge Foundation joined existing investors JPMorgan Chase and the W.K. Kellogg Foundation to push the fund from $6.5 million to $18 million. The fund was created in 2014 as part of JPMorgan Chase’s $100 million commitment to Detroit (since raised to $150 million); it is managed by Detroit Development Fund, a community development financial institution. JPMorgan plans to replicate the fund in San Francisco and New York next year. “I think it just shows there’s a real market for these kind of resources,” Scher said.

Nonprofit Finance Fund introduces loan fund for California nonprofits. The $13 million Aim Healthy Fund provides a new source of financing for the state’s community health organizations, including those focused on behavioral health, homelessness, food as medicine and other social determinants of health. Organizations can use funds to expand programs, pilot new care and payment models, upgrade systems and facilities and hire staff, with the goal of reducing health disparities and improving outcomes in low-income communities. The fund is backed by Blue Shield of California Foundation, the California Community Foundation, the California Endowment, Dignity Health, and the Kresge Foundation. “Nonprofits have a critical role to play in advancing better health outcomes in America’s underserved communities,” said Antony Bugg-Levine, CEO of NFF.

Halcyon selects 11 fellows for its latest incubator group. The Washington, D.C.-based incubator offers a highly competitive 18-month fellowship for social entrepreneurs. Members of the 2018 class, which starts in the spring with a five-month residency program, are tackling issues in the headlines. Ryan Soscia founded JDoe for anonymously reporting sexual harassment and assault. Yossuf Albanawi and Gautam Chebrolu developed Pilleve, a sensor-based pill bottle for tracking opioid consumption. “I can now look at the news headlines with a sense of optimism, knowing there are incredible founders solving for these problems as we speak,” says Ryan Ross, Program Director for the Halcyon Incubator. The 11 fellows represent 3% of total applicants. Halcyon’s program has supported 55 ventures in raising over $24 million.

See all of ImpactAlpha’s recent #dealflow. Send deal tips and news to thebrief@impactalpha.com.

#Signals: Ahead of the Curve

Four ways the tax bill would hurt low-income Americans. Sen. Marco Rubio’s 11th-hour demand for a bigger child tax credit, along with other last-minute changes, makes clear that the U.S. tax bill is still far from a done deal. Given how razor-close the final vote will be, a single senator may have the power to force changes. Last week, ImpactAlpha asked why impact investors haven’t been more vocal about the tax bill’s negative impact on income inequality. Now, the Kresge Foundation’s Kimberlee Cornett, in a three-minute video, breaks down four areas in which the House or Senate versions of the tax bill would do real damage to funding mechanisms that have financed affordable housing and economic development, especially in low-income communities. The House version (though not the Senate version) of the tax bill would eliminate the New Markets Tax Credit. In 2015, Congress extended the program through 2019, with the intent of catalyzing $18.5 billion in impact investing opportunities in quality jobs, quality healthcare and education, access to healthy food and other positive outcomes for distressed communities. Says Cornett: “We’re not going to make those investments today because of this tax bill, and we’re going to pay for it in the future.” Read (and watch), “Four ways the tax bill would hurt low-income Americans,” on ImpactAlpha.

Four ways the tax bill would hurt low-income Americans

Onward! Please send news and comments to TheBrief@impactalpha.com

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