Greetings, Agents of Impact!
Agents of Impact Call No. 7: Optimizing for impact with data-driven management. The same research that can help investors calculate expected impact pre-investment can help drive that impact forward post-investment. TPG Growth’s Rise Fund (and its recent spinoff, Y Analytics) underwrites an ‘impact multiple of money’ for each investment based on research on the effectiveness of social and environmental solutions. Such research may be even more valuable to investors and companies after the deal is done, as they tweak strategies and structure operations to maximize positive outcomes and minimize negative consequences, argues Wharton Social Impact’s Maoz (Michael) Brown.
What works? Join Wharton’s Michael Brown, Y Analytics’ Maryanne Hancock and Impact Management Project’s Clara Barby on ImpactAlpha’s Agents of Impact Call No. 7. It’s Thursday, Feb. 7 at 9 am PT / noon ET / 5 pm GMT. Register for The Call.
Dealflow: Follow the Money
Equilibrium invests more than $100 million to grow greenhouse food production. The future of food is… indoors. Cost-reduction, year-round availability and food-system resilience are driving demand for food produced in ‘controlled environments,’ aka greenhouses with high-tech features. “Every time a hurricane sweeps through Florida, you wipe out crops,” Equilibrium Capital’s Dave Chen told ImpactAlpha. Portland, Ore.-based Equilibrium has invested $100 million in three large-scale greenhouse operations in California, Utah, and Minnesota and plans to commit $2 billion to indoor food production over the next five years. The three facilities together cover about 200 acres (an American football field is roughly one acre). “This is economically driven sustainability,” Chen says. “It is a practical, at-scale, and closed-loop use of our natural resources.”
- Large-scale, high-tech. The firm has taken equity stakes in California-based Houweling Group’s greenhouse facilities in California and Utah (tomatoes, peppers and cucumbers) and Minnesota-based Revol Greens (lettuce and greens). It has also invested in a large hydroponic berry producer that Chen decline to name. Equilibrium’s investments will help Houweling and Revol double the size of their facilities over the next 12 to 24 months, and will support the berry producer’s expansion by more than 350 acres.
- Sunlight. One advantage over “vertical” farming: natural sunlight that reduces energy costs. Houweling’s Utah greenhouse uses waste heat and carbon dioxide from a nearby natural-gas power plant. Improved working conditions can attract workers in a tight labor market, Chen says. “Those are now permanent, year-round jobs.”
- Institutional shift. Equilibrium filed with the SEC last March to raise $250 million for its Controlled Environment Foods Fund; one institutional investor already onboard is LGIASuper, the Australian retirement fund manager.
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Canadian engineers help FarmDrive expand smallholder farmer lending in Africa. The Kenyan startup has provided small loans of $5 to $500 to more than 53,000 smallholder farmers since 2014. The digital loans help farmers build financial profiles that help them gain access to loans and insurance from other providers. The Toronto-based arm of Engineers Without Borders invested an undisclosed amount to help FarmDrive reach three million farmers over five years. About 60% of Africa’s 43 million small farmers are women; many lack access to financial services. Engineers Without Borders Canada’s investment in FarmDrive doubles down on its $50,000 commitment several years ago. Read on.
Impact Voices: Pass the Mic
Private capital falls short in ‘blended finance.’ In theory, blended finance should leverage limited public financing to “crowd in” many times that amount in private capital. In practice, such leverage has been limited, according to a Dalberg review of 117 such blended financing deals. Overall, each dollar of public funding generated only about 79 cents of private investment. For all the hype, “blended finance is not (yet) realizing its full promise,” write Dalberg’s Paul Callan and Hafsa Anouar in a guest post on ImpactAlpha. The Dalberg team’s research shows only 43 out of the 117 deals drew more than half their funding from private sources. The findings challenge rosy predictions that blended finance can help close the funding gap to achieve the U.N.’s Sustainable Development Goals in developing countries.
- Risk reduction. Intended to reduce risks for private investors, blended finance uses mechanisms such as co-financing of equity and debt, guarantees and insurance, grants and technical assistance. The deals involved multilateral development banks, development finance institutions, government agencies and funds and philanthropic and non-profit organizations. “Blended finance is still in its early days and it is reasonable to expect that the share of capital from private sources will increase over time,” the researchers say.
- Among Dalberg’s prescriptions: Base more deals on project revenues rather than repayments from governments. “In the ideal scenario, blended finance should introduce private investors to new markets, and those investors should eventually continue to invest on their own. In other words, the greatest leverage should come from the pattern of investments over time rather than from the ratio of private to public finance in individual deals.”
Read, “Private capital falls short in ‘blended finance’” by Dalberg’s Paul Callan and Hafsa Anouar, on ImpactAlpha.
Agents of Impact: Follow the Talent
Follow the talent. Stavros Koutsantonis, ex- of Brookfield Asset Management, joins Conservation Resource Partners as managing director of conservation farming… Anna West is now institutional investment consultant Callan’s first ESG practice lead… Rahul Rai, ex- of Rabo Equity Advisors, joins Incofin Investment Management as a partner in India.
Seize the opportunity. The International Committee of the Red Cross seeks an innovative finance adviser… Elevar Equity’s Latin America team is hiring an investment professional and investment analyst in Bogotá or Mexico City… The Global Development Incubator is looking for an associate director of its China portfolio in Guangzhou, Shenzhen or Hong Kong.
Apply, respond, submit. Techstars and the Nature Conservancy are recruiting teams working on food and water sustainability, and solutions for climate change. ICYMI: Applications are also open for Techstars Impact’s 2019 program for tech teams solving social and environmental challenges.
— February 5, 2018.