The Brief | July 30, 2018

“Missing middle” still missing, Zola’s off-grid financing, remembering Jeremy Nowak

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Emerging-markets impact investors are turning away from small businesses, at their peril. The “missing middle” is still missing. More capital than ever is being raised by emerging-market private equity and venture capital funds. But less of it is going to small and growing businesses. The annual state of the small and growing business sector report from the Aspen Network of Development Entrepreneurs found last year’s fundraising for both emerging market private equity and venture capital funds set records at $61 billion and $11 billion, respectively. But investment in deals under $2 million fell to $217 million, down 13% from $249 million in 2016. Technical assistance and other business support also fell.

The flat-to-down support for a segment considered crucial to both economic inclusion and to impact goals belied some of the hype of recent years. “The numbers that we see do not align with the amount of talk around impact investing and social enterprise,” ANDE’s Randall Kempner told ImpactAlpha. The gap could choke off the pipeline for larger, later-stage impact investments in emerging markets, as well as a key source of innovation needed to meet the Sustainable Development Goals. The low levels of funding are “not enough to take advantage of the opportunity small and growing businesses represent in supporting the SDGs,” Kempner said. “The support is stagnant.”

Read, “Emerging-markets impact investors are turning away from small businesses, at their peril,” by Dennis Price on ImpactAlpha.

Dealflow: Follow the Money

Student scholarship startup RaiseMe raises $15 million. The San Francisco-based startup partners with colleges and universities to offer high school students micro-scholarships for good grades and developmental extracurricular activities. A third of its 1.2 million beneficiaries are minority students and first-generation college students. Its Series B funding round was backed by Teamworthy Ventures, the Chan Zuckerberg Initiative, Salesforce Ventures, and Strada Education Network. Read on.

Zola secures $20 million in debt for off-grid solar expansion. Tanzania-based Zola Electric (formerly Off Grid Electric) secured $5 million from solar-business lender SunFunder, while an unnamed family office committed the rest. The funding, will help deliver off-grid energy to 25,000 new customers and improve energy access for 500,000 households. Here’s more.

Sokowatch gets backing to connect informal retailers to suppliers. The Nairobi-based startup raised $2 million to pair informal retail vendors in Africa with large consumer goods suppliers like Unilever and Procter & Gamble as well as with local companies. More than one-third of Kenya’s GDP and three-quarters of its employment depends on informal business. The details.

Agents of Impact: Follow the Talent

Remembering Jeremy Nowak, pioneer of social finance and champion of “the New Localism.” The future, Jeremy Nowak liked to say, “belongs to the problem-solvers.” The Philadelphia civic leader and social financier died Saturday after a heart attack. He was a towering local figure in his hometown, where he founded the Reinvestment Fund in 1985. The organization has grown into one of the nation’s top community development financial institutions, deploying billions of dollars into low-income neighborhoods across the country.

ImpactAlpha had only recently met Nowak, at this spring’s Total Impact conference in Philadelphia. But we have been inspired by The New Localism: How Cities Can Thrive in the Age of Populism, which Nowak co-authored last year with the Brookings Institution’s Bruce Katz. The new localism, he wrote, is “the 21st century’s means of solving problems characteristic of modern life: global economic competition, poverty, the challenges of social diversity, and the imperatives of environmental sustainability.”

Nowak co-founded the Philadelphia Citizen, a local news publication, to lift up solutions and write a new narrative for the city. “He had more sui generis ideas, knew more about the plight and potential of the American city, and saw deeper connections between policy and people than anyone on our public stage,” his co-founder, Larry Platt, wrote in a tribute, “He Will Not Rest.” Here are Nowak’s columns for the Philadelphia Citizen.

Testimonials poured in from across the worlds of community development and social finance. “We lost an extraordinary social entrepreneur,” tweeted ImpactPHL Ventures’ Margaret Bradley, who worked with Nowak at Reinvestment Fund for 14 years. Don Hinkle-Brown, who succeeded Nowak as CEO of The Reinvestment Fund in 2011, wrote, “Jeremy organized people, then he organized money, then came local capacity, and all along the way he organized how we think about problems and their solutions.” Village Capital’s Ross Baird tweeted, “Jeremy was a giant in the world of how to build a community.”

— July 30, 2018.