Welcome to #Shifts, ImpactAlpha’s monthly roundup of the ideas and trends driving impact investing. In this edition: New funds are targeting access to water and sustainable supply chains; India’s large, fragmented tailor industry and the U.S.’s insufficiently diverse supply chains are attracting investor capital; and why financial inclusion and well-being are inextricably linked. #Shifts happen.
THESES: Provocative investment propositions
New technologies and business model innovations can bring water and toilets to billions of people who still lack basic sanitation. More than 660 million people still lack access to safe water and 2.4 billion don’t have access to a toilet. A growing number of WASH (water, sanitation and hygiene) enterprises are leveraging new technologies and distribution systems to lower the cost of serving this market. WaterCapital, a new business unit of Matt Damon’s water charity Water.org, has raised $10 million for a $50 million seed fund to back water- and sanitation-focused enterprises. Bonus: they’re hiring a portfolio manager.
There’s a new model for private equity: Upgrade and de-risk supply chains. Buy, break up, outsource. That’s the old private equity model. The Double Impact Fund from Bain Capital, launched by former Massachusetts Gov. Deval Patrick, promises a new model: Buy, enhance sustainability and deepen community impact. Bain officially launched the long-awaited fund, according to a new SEC filing. “Sustainable products and operations that minimize environmental impact and promote ecologically beneficial water, energy and agriculture practices,” is one of the fund’s targets. “Expanding economic opportunities in distressed communities,” is another. Other private equity groups, like Tau Investments, see opportunities for efficiency and risk reduction in transforming and upgrading global supply chains.
The capital gap for startups serving customers at the base of the economic pyramid creates opportunities for early-stage investors. Capital is scarce for the early-stages of businesses focused on education, energy, health, rural livelihoods, sanitation and water for the poor. But impact investors are hungry to invest at later stages in companies that have proven themselves. That creates an opportunity to fill this “pioneer” capital gap and stock the impact investing pipeline. Global Partnerships absorbed the Eleos Foundation and launched a $5 million Social Venture Fund to back 12 new firms and impact the lives of 5 million people in East Africa. The fund has $2.7 million in commitments from GP itself, Sorenson Impact Foundation, Linked Foundation and other individual investors. (more)
MARKETS: Attractive sectors
Producer livelihoods in India. Indians like tailored clothes — to the tune of $9.2 billion in revenue annually. But for India’s tailors, mostly independent and mostly poor, meeting this demand is inefficient and generating a stable income, uncertain. Urban Tailor, an online eCommerce hub that connects customers and tailors, helps smooth tailor incomes and improve service quality in this highly fragmented market. The firm just raised an undisclosed amount from Unitus Seed Fund to expand to 20 cities by 2019. (more)
Renewable energy in Africa. More than two-thirds of people in sub-Saharan Africa have no regular access to electricity. Mainstream Renewable Power Ltd., which designs, develops, builds and operates onshore wind and solar PV projects in emerging markets, raised $117.5 million to build over 1.3GW of wind and solar plants in Africa by 2018. The Rockefeller Brothers Fund took a stake, it’s first in a renewable energy company, as did the IFC and other investors. (more)
Diversified supply chains in the U.S. Minority- and women-owned businesses are more than 50 percent of all U.S. businesses, but account for only six percent of the $30 trillion in total annual revenue generated. ConnXus, an online platform that helps grow women-, veteran-, and minority-owned businesses by connecting them to Fortune 2000 corporate buyers, closed a $5 million Series A round from investors including Techstars Ventures, Serious Change and Impact America Fund. (more)
SIGNALS: Emerging trends and ideas
Financial inclusion improves well-being. A report from Boston Consulting Group found a clear, quantifiable and positive connection between a nation’s percent of people over age 15 with a bank account and its overall standard of living. Though global financial accounts rose from 2.5 billion to 3.5 billion between 2011 to 2014, roughly 40 percent of the world’s adults remain unbanked. (more)
Minority businesses could boost the U.S. economy by up to $300 billion. Discrimination deprives the U.S. of more than one million minority-owned businesses that could produce up to 9 million new jobs. So says a new report from Center for Global Policy Solutions. A slew of new funds are trying to tap that potential: Intel has a $125 million Diversity Fund; 500 Startups’ $25 million microfund targets 200 black- and Latino-run tech startups; Impact America backs minority-owned businesses like Mayvenn and ConnXus, which in turn support minority entrepreneurs. The report suggests tax credits to promote venture capital investments in minority businesses (less than one percent of startup funding goes to black-led startups, for example) The Movement for Black Lives wants to redirect funds from fossil fuel industries and military expenditures to local economies and black-owned cooperatives.
Reducing the consequence of failure increases entrepreneurship. You wouldn’t know it from the hype around Silicon Valley, but entrepreneurship is in decline across the U.S. Evidence suggests that public policies that reduce the risks to those who start new business can increase startup rates. Researchers studying a Canadian reform that guaranteed women a job at the end of a year-long maternity leave found a 35 percent spike in new businesses. (more)
Photo by Martin Ezequiel Sanchez.
#Shifts happen. More from our series.