The Brief | October 25, 2018

SOCAP scene, accelerating refugee investing, missing middles, leaner development evaluation, PepsiCo circulates some capital

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Greetings, ImpactAlpha readers!

Overheard at SOCAP. It’s the halfway mark of the annual impact festival known as SOCAP18. ImpactAlpha has fellows Emma Kulow and Tiago Gomes, digital producer Roodgally Senatus, marketing director Tracy Barba and editor David Bank in San Francisco to capture a slice of the activity. Here’s a snapshot.

Featured: ImpactAlpha Original

A growing community of investors steer capital to solutions that benefit refugees. The 70 million forcibly displaced people around the world represent a growing global challenge. But behind the images of border conflicts and crowded camps, a new narrative is emerging: Refugees as resilient, employable, credit-worthy and, increasingly, investable. That shift is driving a new field of “refugee investing.” Investors are deploying capital to back refugee-owned and -led companies and companies that deliver benefits to refugees. The growing number of refugee-lens products includes bonds, loan facilities and funds targeting refugee solutions.

“Paradigm Shift,” a report from the new Refugee Investment Network, rounds up more than 100 philanthropic funders, impact investors, institutional investors, networks, angels, market-return investors, and government partners making “active” investments in or in support of refugees. The Network, founded by Alight Fund’s John Kluge and Andrew Stern at the Global Development Incubator, aims to accelerate the flow of capital to solutions that benefit refugees and their host communities.

As more investors rally around the why of refugee investing, the urgency is in cracking the how. “You can’t tell capital what to do, but you can count on capital to move toward opportunity,” Warren Valdmanis of Bain Capital Double Impact and Anne-Marie Grey of USA for UNHCR write in the forward to Paradigm Shift.

Read, “A growing community of investors steer capital to solutions that benefit refugees,” by Dennis Price on ImpactAlpha.

  • Refugee investing at SOCAP18: Watch for new commitments to refugee investing from John Kluge of the Refugee Investment Network and others; Workaround’s Wafaa Arbash, 734 Coffee’s Manyang Reath and other entrepreneurs will join the Miller Center, Open Society Foundation, KOIS and Omidyar Network for “Pioneering social enterprise solutions for refugees and trafficking survivors.”

ImpactAlpha Series: Measure Better

Evaluating global development can be fast and innovative. Global agricultural development doesn’t have the long trail of evidence-based practice that, let’s say, health policy does. The world’s largest foundation wanted to know: What impact was its agricultural funding having on smallholder incomes, women’s empowerment and diversity of diets? The Bill & Melinda Gates Foundation turned to Acumen’s Lean Data approach and other creative tools “to get innovative with the metrics and the measurement,” said Chiara Kovarik, a program officer on the foundation’s agricultural development team. “These are quick surveys, both to administer and analyze.” ImpactAlpha caught up with Kovarik and her colleague Laura Birx, to hear how the Gates Foundation is using Lean Data to evaluate global development grants.

Dealflow: Follow the Money

PepsiCo Foundation anchors Circulate Capital initiative to fight ocean plastic. The philanthropic arm of PepsiCo committed $15 million to Circulate Capital, an investment firm that launched in July to combat the global ocean plastic problem (see, “Circulate Capital brings corporate customers to sustainable-oceans investing”). Circulate Capital is a spin-off of Closed Loop Partners, which invests in U.S.-based recycling initiatives and technologies. The firm, which is anticipating $90 million in funding from corporate backers, is looking to make debt, equity and quasi-equity investments in recycling and waste management ventures in Asia. “It’s as much about risk mitigation as environmental protection,” PepsiCo’s Roberta Barbieri says of PepsiCo’s commitment. “Never have I seen an environmental topic explode onto the public mainstream psyche like the plastic waste crisis has in the last 18 months.” Dive in.

Moringa backs Ghanan agribusiness company B-BOVID. European impact investment firm Moringa made its first investment in Ghana with $5 million for agribusiness company B-BOVID. B-BOVID works with small farmers to teach sustainable farming practices, particularly for palm oil production. Farming palm fruits, which are harvested and processed into oil for a wide range of consumer products, is a culprit in global deforestation. B-BOVID has provided sustainable farming training to more than 2,000 small farmers, who then provide it with product for processing into oil. Moringa’s investment will help B-BOVID’s expand its training program and upgrade manufacturing and production. Read on.

Signals: Ahead of the Curve

The four “missing middles” among small and growing businesses. The financing gap for small businesses around the world is a yawning $940 billion. A new Collaborative for Frontier Finance is trying to tackle the problem by breaking it into segments. The collaborative’s early work is to identify breakthrough financing strategies for high-growth and niche ventures as well as “dynamic” enterprises in bread-and-butter industries and livelihood-sustaining enterprises in the formal or informal economies, including family-run businesses. “We’re not making progress fast enough,” Omidyar Network’s Chris Jurgens said in announcing the effort at SOCAP18. “Millions of businesses are not making impact and billions of dollars is sitting on the sidelines.”

  • Small-and-growing businesses are defined as business seeking between $20,000 and $2 million in working capital, capital improvements or growth capital. They fall into the “missing middle” because they are too big for microfinance but too small for private equity, too staid for venture capital and too risky for banks (see, “Emerging-markets impact investors turn away from small businesses, at their peril”).
  • The consortium, founded by the Dutch Good Growth Fund and the infoDev unit of the World Bank, along with Omidyar, will convene practitioners to explore alternative capital structures (think quasi-equity and revenue-sharing) and lending products (mezzanine debt) and new financial technology to evaluate risk and lower transaction costs. Other backers of the consortium include Australia’s DFAT and the Argidius, MacArthur and Small foundations. The collaborative is being incubated at the Global Development Incubator.
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Agents of Impact: Follow the Talent

Hilary Irby moves over to Soros Fund Management from Morgan Stanley as head of impact strategy (Irby will be at the Gender Smart Investing Summit in London in November)… Kirsty Jenkinson, ex- of Wespath Benefits and Investments, joins CalSTRS as director of corporate governance… Margret Trilli is the new president and chief investment officer at ImpactAssets. Founder Tim Freundlich steps up as ImpactAssets’ CEO and Gabe DiClerico as chief financial officer.

October 25, 2018.