The Brief | August 21, 2018

Scaling stakeholder capitalism, Rise Fund’s alt-credit play, growing pipeline of black and Latino-founded firms

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Corporations don’t need Elizabeth Warren to ‘benefit’ from stakeholder capitalism. Last week, U.S. Sen. Elizabeth Warren dropped bombshell legislation to require companies with more than $1 billion in revenue or 5,000 employees to become “benefit corporations.” Some called the legislation brilliant; others labeled it Marxist. In a guest post on ImpactAlpha, B Labs’ Rick Alexander notes how closely the ideas in her bill tracks legislation supported by Republicans around the country. These benefit-corporation laws allow companies to give directors and managers greater discretion to create long-term value for all stakeholders, not just shareholders. Benefit corporations account for all of their impact, not just financial return.

Warren would impose a mandatory, federal system on all corporations, while the state laws rely on market forces for adoption. The strength of those forces is apparent in the 7,000 benefit corporations already established in the U.S. Last year saw the first IPO of a benefit corporation, Laureate Education. This February, Ripple Foods, a dairy-free manufacturer joined AltSchool (K-12 education) and Lemonade (insurance brokerage) as benefit corporations that have raised more than $100 million in venture capital. In March, Gap’s subsidiary, Athleta, became a benefit corporation, following other public companies like Campbell’s, Procter & Gamble and United Therapeutics with benefit corporation subsidiaries. Danone created the world’s largest benefit corporation to run its North American operations.

Warren’s bill is unlikely to be enacted any time soon. So voluntary uptake is the only current option. “This isn’t a matter of being forced to choose from a list of poor compliance options,” Alexander writes. “Joining the ‘B Economy’ is better for the world, and it can be plain good business as well.”

Read, “Corporations don’t need Elizabeth Warren to ‘benefit’ from stakeholder capitalism,” by B Lab’s Rick Alexander.

Dealflow: Follow the Money

Brac and Osiris Group launch impact fund for Bangladesh and other markets. International development organization Brac and private equity impact firm Osiris Group are looking for emerging-market investment opportunities in education, healthcare, the digital economy, and improving access to goods and services. “A new model for social change is emerging which challenges conventional development models that solely depend on philanthropic donations and charity,” said Brac’s Asif Saleh. Here’s what we know.

TPG Growth’s Rise Fund backs inclusive fintech startup Mines. Mines uses “alternative credit-scoring” data from phone records, bank account and payment transactions to help underserved consumers gain access to credit. TPG Growth’s $2 billion Rise Fund led the $13 million Series A funding round for the San Mateo, Calif., and Lagos-based startup. It is the Rise Fund’s fourth announced fintech investment. Read on.

Tennessee impact fund’s first investment aims to ease traffic congestion. LaunchTN has made its first investment from its $1.7 million seed-stage impact fund. The organization, which supports Tennessee-based startups and was profiled in our New Revivalists series, is backing a Nashville-based ride sharing app called Hytch. Hytch is testing rewards for urban commuters for carpooling and taking public transportation. Learn more.

Signals: Ahead of the Curve

Investors are putting serious cash into black and Latino-run businesses. Partners at minority-focused investment firm Harlem Capital were told “there aren’t enough black and Latino companies raising significant capital.” A search turned up 105 U.S.-based startups with black and Latino founders that have raised $1 million or more – $2.7 billion in total – for software, e-commerce, media and entertainment, healthcare and other industries. More than half of the 117 founders were women (yet their startups attracted only 32% of the capital). Thirteen have been acquired or gone public.

  • Racial-lens investors. Ten of the 140 investors, including Harlem Capital, Backstage Capital and Kapor Capital, backed nearly one-third of the firms. Six of the 10 investment firms are led by diverse general partners. Still, less than 3% of all VC funds employ black and Latino professionals.
  • Pattern-breaking. Like most venture-backed firms, two-thirds of the companies Harlem Capital turned up are in New York and San Francisco. Melissa Bradley’s Project 500 is planning a $100 million ‘opportunity fund’ to back entrepreneurs of color in low-income communities in 10 cities and regions.
  • Racial-lens funds. In July, New Voices Fund, focused on female entrepreneurs of color, invested its first $30 million in eight companies. In June, Backstage Capital backed its 100th diverse founder and is raising a $36 million fund for women entrepreneurs of color. Last year, Babel Ventures and LEAP Partners made their first investments from funds targeting Latino-owned businesses.
  • The impact alpha. The Harlem Capital data show a growing capital market for black and Latino run businesses. “We’re going to see a company with a diverse set of founders solving a problem that hasn’t been solved before because of their particular lens,” Kapor Capital’s Brian Dixon told ImpactAlpha in an earlier interview. “That is the opportunity that, as investors, you’re always looking for.”

Agents of Impact: Follow the Talent

Matthew McCarthy was named CEO of Ben & Jerry’s… Ford Foundation’s Don Chen is the new president of the Surdna Foundation… Ayisha Osori is the new executive director of Open Society Initiative for West Africa… Smart city venture firm Urban Us is recruiting candidates for a venture fellowship in Brooklyn.

August 21, 2018.