Catalytic Capital | June 27, 2024

Roots of Impact inks impact-linked investment… for itself

Jessica Pothering
ImpactAlpha Editor

Jessica Pothering

Roots of Impact, the German catalytic capital manager known for designing financial structures that tie compensation to impact performance, has raised its first round of growth capital from several mission-aligned investors. Roots secured the kind of capital it advocates for: Embedded in the terms are financial incentives for the firm to continue growing the market of impact-linked finance.

The Delta Fund, European Social Innovation and Impact Fund, and BMH, a German public investment group, are supporting Roots’ growth with profit-share agreements and subordinated debt. Roots will get a reduction on the share of profits it repays based on how many new impact-linked finance practitioners it brings into the market and the effectiveness of transactions it supports.

“I am glad that we were able to show how impact-linked finance can easily be applied to ourselves, even though we are anything but a standard case,” Roots of Impact’s Bjoern Struewer told ImpactAlpha. “Rewards for impact can be built into any type of financing.”

Roots did not reveal how much capital it had raised.

Social impact incentives

Roots of Impact recently released learnings from impact-linked finance since its first “social impact incentive,” or SIINC, deal eight years ago with Mexican healthcare provider Clinicas del Azucar. SIINCs use “bonus payments” as a way of incentivizing companies to deepen and broaden their impact as they grow or their business environments change. The Swiss Agency for Development and Cooperation, an early supporter of SIINCs, provided Roots of Impact with a results-based grant to build out new impact-linked finance services.

“We position ourselves as a market enabler and will only focus our growth in areas that we consider strategically essential,” said Struewer.