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#Featured: ImpactAlpha Original
Unlocking seed-stage investment for climate innovation. With high capital costs and long product-development cycles, early-stage climate solutions have had a hard time securing funding from venture capitalists. The PRIME Coalition, a non-profit cleantech intermediary, lines up deals for philanthropic partners who can deploy flexible grants and program-related investments. Such flexible capital can de-risk early stage technologies, and help startups get ready to take on more traditional institutional investors. PRIME is looking to secure $20 million to $40 million by the end of next year.
PRIME’s sixth investment is its first in water technology. Two billion people depend on drinking water sources that are contaminated. By 2025, half the world’s population will live in water-stressed areas. Anfiro, a Cambridge, Mass. startup, has created an energy efficient, low-cost method of purifying and desalinating water. Anfiro’s water desalination tech “was interesting because it’s not an expensive process and it’s commercially practical to fabricate,” PRIME’s Matthew Nordan told ImpactAlpha. PRIME’s syndicate of donor-advised funds, foundations, and family offices led the water startup’s $1.1 million seed financing.
Climate solutions already represent a $1 trillion market globally. But that could be scaled up six-fold with smart policy solutions and blended finance mechanisms that level the playing field for climate-smart investments. As world leaders gather for the COP23 climate talks in Bonn, Germany, models and mechanisms for mobilizing private capital for climate solutions are high on the agenda.
Read, “PRIME unlocks seed investment for Anfiro’s water desalination tech,” by Jessica Pothering, on ImpactAlpha.
#Dealflow: Follow the Money
The Builders Fund takes stake in solar-lantern maker MPOWERD. Private-equity funds are a growing source of growth capital and buyouts for impact-oriented companies. The San Francisco-based Builders Fund, which recently closed on $45 million from more than 40 limited partners, has taken a “significant” stake in MPOWERD Inc., which makes “Luci” solar lanterns for both developed-market adventurers and low-resource off-grid communities in developing countries. The company sells the same products in all markets, but at different price-points, striving for an attractive blended profit-margin. The company claims to have positively affected 1.6 million lives so far. With corporate and NGO funding, MPOWERD has provided tens of thousands of lanterns for relief efforts this year in Puerto Rico, Mexico, southeast Asia and elsewhere. “These guys fit perfectly,” Trip Baird, managing partner of The Builders Fund, told ImpactAlpha, citing MPOWERD growth rates and margins. “Irrespective of purpose, it would be an attractive investment for a private-equity fund with no mandate.” The Builders Fund has made four investments so far and expects to make four to six more, generally in the range of $5 to $15 million.
Aquam raises $26 million to improve water infrastructure resiliency.NewWorld Capital, an environmentally-focused private equity firm, led the financing for the U.K.-based company, which works with water utilities worldwide to inspect, maintain, repair and monitor water infrastructure. Nearly a quarter of the U.K.’s piped water supply is lost through leakages. In the U.S., many water pipes are close to or over 100 years old and in need of upgrade or replacement. New York-based NewWorld has primarily backed solar ventures, like home solar installer PosiGen. “This investment enables us to remedy toxic lead levels in drinking water, rehabilitate natural gas and water lines, and expand to address other systemic issues emerging around the world,” Aquam’s Dan Squiller said.
LunaCap Ventures’ second fund will back veteran entrepreneurs. Less than 5% of post-9/11 veterans have started their own businesses, compared with nearly half of World War II veterans. Limited access to capital is the major deterrent, write Jules Miller of LunaCap, a New York-based firm that invests in small businesses run by veteran, women, and minority entrepreneurs. LunaCap, started in 2014 by Paul Capon, himself a U.S. Air Force veteran, islooking to raise $30 million second fund. The portfolio from its first fund includes Down the Road Beer Company in Everett, Mass. and Paul Evans shoe company, which are both veteran-run. LunaCap provides three-to-five-year debt funding of between $500,000 and $3 million to early-stage companies. While it focuses on underserved entrepreneur demographics, LunaCap does not otherwise screen for high-impact startups.
#Signals: Ahead of the Curve
The impact opportunity in edtech. U.S. education-tech startups are set to raise $2.9 billion this year from investors including Mark Zuckerberg, TPG’s The Rise Fund and Owl Ventures. Whether the startups and tools these dollars are backing serve the students who need them most is a matter of debate. Now, early-stage venture fund Impact Engine has identified three edtech sub-sectors with both investment opportunities and potential for impact.
- Teacher empowerment and personalized learning: The key is finding tools that support teachers in delivering more personalized learning, Impact Engine writes, pointing to “Edtech solutions that empower teachers rather than replace them.” Impact Engine invested in ThinkCERCA, a literacy platform that develops critical thinking skills at each student’s reading level.
- Student persistence: Nearly half of all post-secondary students and two-thirds of minority post-secondary students don’t finish their degrees. Startups like ReUp Education aim to help students re-enroll and stay enrolled. (Upswing, CampusLogic and Examity are on affordability and time-management.)
- Lifelong learning: Viridis, for example, connects community college students to prospective employers, and in turn, helps community colleges understand where the employment opportunities are so they can tailor their programs.
Falling storage costs drive growth of off-grid solar. The dramatic drop in the price of solar panels and lithium-ion batteries, other advances in energy storage, and new business models are driving surging market demand. The number of off-grid solar systems around the world grew by 41 percent from 2015 and 2016, according to the International Finance Corp.’s Creating Markets for Climate Business report. Bloomberg New Energy Finance predicts that fully one in three households globally will use off-grid solar by the end of this decade.
Investment in micro- and mini-grids has accelerated, with the global market expected to reach $200 billion by 2025. That counts as exponential growth. In 2015–2016, mini-grids accounted for $68 million of equity, debt, and grants raised. Pay-as-you-go solar business models raised $223 million in 2016.
The key to such off-grid growth are battery and other storage technologies that make mini-grids increasingly reliable and cost-effective. Annual investments in storage in emerging markets are expected to grow tenfold over the next decade, from about $2.5 billion in 2016 to $23 billion in 2025. About half of that growth is expected in China, with $7 billion in India, $4 billion in South Asia, $3 billion in North Africa and the Middle East, $2.5 billion in Sub-Saharan Africa, and $2 billion in Latin America and the Caribbean.
Countries are packing promises into their national plans. Sub-Saharan Africa has the greatest growth potential for off-grid solutions, as only 35% of households have grid connections. Tremendous opportunities also exist in Bangladesh, India, Indonesia, and Pakistan, home to many of the estimated 1.6 billion people globally who still lack access to reliable electricity.
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