Dealflow | July 10, 2024

Rockefeller’s Zero Gap Fund helps mobilize $1 billion-plus while realizing multiple exits

Jessica Pothering
ImpactAlpha Editor

Jessica Pothering

The Rockefeller Foundation teamed up with the MacArthur Foundation in 2019 to get capital moving toward hard-to-finance sustainable development challenges. Their $30 million Zero Gap Fund, now fully deployed, has helped mobilize more than $1 billion into new funds and investment strategies by using derisking mechanisms both creative and common.

Two of the 11 Zero Gap investments have fully returned invested capital, with interest. For its second Women’s Livelihood Bond, IIX in Singapore secured $1.5 million in first-loss capital from the fund in 2020 to expand access to finance for low-income women in Asia. Coupled with a 50% loan portfolio guarantee from the US International Development Finance Corp., the publicly-traded Women’s Livelihood Bond raised a total of $12 million and helped more than 100,000 women in Cambodia, Indonesia, Philippines and Sri Lanka access capital for their businesses and more than 14,000 female farmers integrate into formal agri supply chains. The bond repaid both principal and interest when it matured in January.

Singapore-based IIX has issued its sixth bond in the Women’s Livelihood series, raising nearly $230 million.

California-based Blue Forest raised a total of $4 million for its first Forest Resilience Bond by leveraging $1 million from the Zero Gap Fund. The debt facility provided capital for forest restoration projects in communities in the western US threatened by wildfires.

The bond’s portfolio of projects restored nearly 2,700 acres of forestland and protected more than 8,000 acres. It has since returned all investor capital “plus interest in line with expectations,” the Zero Gap Fund noted in its latest portfolio report.

Blue Forest launched a second bond in 2021, followed by a revolving loan fund, the FRB Catalyst Facility, to support 10 projects in Oregon, California and Washington. Zero Gap Fund seeded the new facility with $2 million; Blue Forest has since raised an additional $5.2 million.

Novel funds

Most of Zero Gap’s portfolio is still deploying capital. The fund invested $4 million in Lightsmith Group’s Climate Resilience and Adaptation Finance and Technology, or CRAFT fund, to make growth equity investments in tech firms focused on climate adaptation. CRAFT went on to raise an additional $182 million despite the shortage of capital for climate adaptation solutions.

Zero Gap also anchored Apis & Heritage’s first Legacy Fund to acquire small and medium-sized businesses with mostly Black and Brown workforces and transition them to employee ownership. A&H raised an additional $55 million and has completed three deals.

In 2022, Zero Gap Fund was the first non-development finance investor in Ukraine-based Horizon Capital’s fourth growth fund, which invests in Ukrainian tech businesses to ensure long-term economic opportunities in the country. 

Waiting on returns

LeapFrog Investments’ third Emerging Consumer Fund benefited from $3 million from Zero Gap for a complex insurance mechanism. It went on to raise $700 million and was fully deployed in 2022.

For Sixup, which provided higher education loans to low-income students in the US, Zero Gap Fund provided $4 million in a mix of equity and debt for on-lending to students. It raised an additional $26 million in venture equity and debt, but underwrote only about 325 loans totaling $3 million.

The model didn’t stick: The company is no longer lending, though its outstanding loans are still being serviced.

Disclosure: the Rockefeller and MacArthur foundations are part of the Catalytic Capital Consortium, which support ImpactAlpha’s coverage of catalytic capital.