The Brief | July 17, 2018

Paul Brest’s critique, Oprah’s food kitchen, carbon-capture tech, development impact bond outcomes in Rajasthan

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Paul Brest: Are impact investors settling for too little impact? Many impact investors are concerned about whether their capital will generate financial returns. Stanford’s Paul Brest cautions that such investors might better ask whether it’s having any impact. “Impact investors—encouraged by fund managers—can readily delude themselves into thinking they’re actually having impact on these issues when their investments are not moving the needle at all,” says Brest, former dean of Stanford Law School and former president of the Hewlett Foundation.

Brest, along with Hal Harvey, are out with a second edition of “Money Well Spent,” their 2008 guide to what they call “strategic philanthropy.” The two worked together at the Hewlett Foundation; Harvey now leads Energy Innovation, a San Francisco consultancy. Impact investing is the single biggest change in philanthropy since the first edition, Brest told ImpactAlpha, and the new edition devotes an entire chapter to it. “We are neither cheerleaders nor antagonists, but critical friends,” Bonus: Brest’s and Harvey’s eight cautions for impact investors.

Read, “Paul Brest: Are impact investors settling for too little impact?” by David Bank, on ImpactAlpha.

Dealflow: Follow the Money

Oprah jumps into healthy restaurants with True Food Kitchen. Oprah Winfrey joins a wave of investors from Kimbal Musk to Bain Capital who are backing healthier restaurant options. Winfrey invested an undisclosed sum in True Food Kitchen, a Phoenix-based restaurant chain built around Dr. Andrew Weil’s modified food pyramid that emphasizes fruits, vegetables and whole grains over meats and processed foods. Dig in.

Gray Matters backs Ghanaian health tech firm RedBird. The Atlanta-based impact investor invested an undisclosed amount in RedBird Health Tech through its women-focused $5 million coLABS fund. RedBird partners with Ghanaian pharmacies to offer diagnostic services, including neonatal testing. Gray Matters says its mission is to improve the lives of 100 million women. Here’s more.

Carbon capture venture Inventys raises $11 million. Leading climate scientists are warning that reducing carbon emissions are not enough: We need technologies that remove carbon dioxide from the atmosphere. Vancouver-based Inventys is developing modular carbon capture systems for high-emission industries and low-emission gas plants. Its Series C round is backed by Oil and Gas Climate Initiative’s Climate Investments, The Roda Group – and the venture arm of oil giant Chevron. Read on.

Signal: Ahead of the Curve

Small bet, big outcome for UBS’ girls education impact bond. In 2015, the UBS Optimus Foundation placed a small bet on a big idea: that nonprofit development organizations could tap private investors for working capital. Such a “development impact bond” would be repaid by a third-party payer, with interest, if the organization achieved target educational goals. The foundation made a $270,000 loan to Educate Girls, an Indian charity tackling inequality in India’s education system, to improve enrollment rates and improve education for girls in Rajasthan, India. The charitable arm of the Swiss Bank now says the bet paid off.

  • The results: Educate Girls enrolled 768 girls between six through 15 years old (or 92% of eligible out-of-school girls in the region), That was 116% of its enrollment target. Educate Girls helped students increase learning levels by 79% more than their peers, or 160% of the target.
  • Because impact targets were hit, UBS Optimus Foundation will earn a pre-determined return of $144,085, a 15% internal rate of return over the three-year investment. That principal and return will be paid by Children’s Investment Fund Foundation, the charitable arm of former hedge fund manager Chris Hohn and his wife, Jamie Cooper. Educate Girls will receive about one-third of the return; the rest will be used for programs at the foundation.
  • Innovation stage. More than 100 social impact bonds have raised more than $400 million in total and touched more than 700,000 lives in two dozen countries. (SIBs are similar to DIBs except the payer is generally a government). Ten projects have returned investors’ capital, with a return, and another eight have begun making payments. About 30 development impact bonds (in which the payer is a philanthropy or aid agency) are active or in development, including a UBS-backed maternal health impact bond in India.

Agents of Impact: Follow the Talent

SOCAP 365 will host “Pay for Success: What’s Brilliant & What’s Broken” in Seattle, July 19… The first episode of the “Money + Meaning” podcast revisits SOCAP 365’s panel, “Building a successful investor ecosystem for 21st century Philadelphia,” featuring Ben Franklin Tech’s Margaret Bradley, Sidney Hargro of Philanthropy Network of Greater Philadelphia, Reinvestment Fund’s Andy Rachlin, Investors Circle’s Tom Bolderson and ImpactAlpha contributor Megan McFadden.

July 17, 2018.