Hello ImpactAlpha readers!
#Featured: ImpactAlpha Original
Summer of Impact. Has anybody else noticed that both deal ticket sizes and fund raises in impact investing have stepped up a whole order of magnitude? ImpactAlpha posed that question across social media last week in the wake of Bain Capital’s $390 million raise for its Double Impact Fund, which follows TPG Growth’s ambition to raise $2 billion for its Rise Fund. For impact companies, funding rounds are topping $40 or $50 or even $100 million. Matthew Weatherley-White of the Caprock Group called the rise of impact investing “in aggregate, a massive, collective, disaggregated experiment” that “will shape the future of the capital markets.” Trevor Neilson of i(x) Investments said, “We are all just getting started.” Imogen Rose-Smith of Institutional Investor and the resident curmudgeon on ImpactAlpha’s Returns on Investment podcasts, pushed back, “Is that really true or is it for one or two specific funds?” she asked. “Oooooh, I feel a podcast coming on.”
Whether or not this is “the” tipping point, there’s something happening here. Capital markets are rotating toward social and environmental value. People are no longer just interested. They’re investing. The world is hungry for a new narrative for the future, and awash in capital to finance it. When we look back on this moment, will we see it as the point the marginal went mainstream and the mainstream became “legacy”? — David Bank
#Dealflow: Follow the Money
Philadelphia leaders commit $15 million to one-stop investor for social startups. Rather than approach investors separately, social startups in Philadelphia can go directly to ImpactPHL Ventures, a new initiative from ImpactPHL, the year-old impact investing advocacy collective of investors, business leaders and non-profits. The new funding will be used to back Philadelphia-based startups focusing on social, environmental and health issues with about $300,000 each. Spring Point Partners, Investors’ Circle, Safeguard Scientifics, Independence Health Group, Drexel and Temple universities and the Bucks County Retirement Board put up the funds. The funds will be managed by Ben Franklin Technology Partners, a state-backed early-stage capital provider for Pennsylvania’s tech sector. Each investor can still opt in or out of each investment, said Margaret Bradley, Ben Franklin’s director of investment partnerships. “It is both about efficiency and about communicating that Philadelphia is the place to be” for impact investing, she said. ImpactAlpha’s editorial director, Dennis Price, agrees. He and his family have just moved to Philly’s Northern Liberties neighborhood.
Edtech startup PlayAble aims at English skills for Indian youth. Seed funding for the Bangalore-based edtech startup came from ABI-Showatech, an automotive manufacturer, that invested to bolster the skills of primary school students and prepare them for the workforce. PlayAble develops English-learning games for youth-skills classes and primary students in India’s second- and third-tier cities. Nearly all children are enrolled in school in India, but the majority read below grade-level. Only about 30% can read in English, and less than 30% can do basic arithmetic, raising concerns that India will be unable to keep pace with economic development. Funding for edtech startups in India grew to $250 million last year, but nearly half that amount came in the two rounds of financing by Chan Zuckerberg Initiative, Sequoia Capital, and others for Byju’s K-12 learning app.
A community model for dementia care gets backing from Australian pension fund. The Korongee village community in Tasmania will have 15 homes, a supermarket, cinema, and public spaces where residents can move freely and safely. The new model of care attracted $19 million from HESTA, Australia’s largest “superannuation,” or pension, fund, from its $30 million Social Impact Investment Trust. Australia has a shortage of facilities and services for an aging population. HESTA’s Debby Blakey said both capital and new care models are necessary. “This investment will help provide a world-class facility for the local community and benefits our members by earning a return, while also piloting a model for investing in aged care that could attract other large investors to this space.”
See all of ImpactAlpha’s recent #dealflow.
#Signals: Ahead of the Curve
A reef off of Mexico is getting it’s own insurance policy. Climate risks are a business opportunity. Swiss Re, the $215 billion Swiss reinsurer, has underwritten the Mesoamerican Reef off Mexico’s Mayan Riviera around Cancun. Hotels that get storm protection from the reef have taken out the policy to pay for damage caused by hurricanes. After storms, the reinsurer will make quick payouts for repairs to the reef and beaches. The healthier the hotel owners keep the reef, the lower their insurance costs. “Instead of taxpayers and citizens absorbing the cost of all kinds of natural disasters, including climate events,” Swiss Re’s Alex Kaplan told Bloomberg, figure out a way to quantify the risk “and then push it out into the private market.” Climate risks are increasingly quantifiable. For every meter of height the reef loses, potential economic damage from hurricanes triples, according to The Nature Conservancy, which helped design the scheme. More than two dozen countries are protected by and dependent on coral reefs, and the model could also be used for mangrove forests and coastal wetlands, says The Nature Conservancy’s Kathy Baughman McLeod. Such climate adaptation financing figures to be a major business in the decades ahead. But, she warns, “none of this works until this money gets spent in the right way and the reef is repaired and protected.”
Will robots’ first language be Chinese? The “Sputnik” moment for China came a year ago when a Google computer program, AlphaGo, beat the world’s top master of the ancient board game of Go. Now, China is racing to become the world leader in artificial-intelligence, or AI. Last week, China’s State Council laid out its intent to own the AI market in 2030. China is investing heavily with multibillion-dollar investment initiatives for “moonshot” programs, start-ups and academic research in A.I. Local governments are laying plans and building research centers devoted to AI. The Chinese AI-enabled market is expected to be worth as much as $150 billion by 2030.
China recently beat Microsoft to the punch in giving computers the ability to match human skills in understanding speech. The Chinese software came months before Microsoft did the same with their own version of speech-recognition software. Many Chinese firms have quietly become significant investors in U.S. AI startups as well. “China’s ambitions mingle the most far-out sci-fi ideas with the needs of an authoritarian state: Philip K. Dick meets George Orwell,” Paul Mozur and John Markoff wrote in The New York Times. “There are plans to use it to predict crimes, lend money, track people on the country’s ubiquitous closed-circuit cameras, alleviate traffic jams, create self-guided missiles and censor the internet.”
The new plan states that China should match the rest of the world by 2020 and achieve “major breakthroughs” by 2025. By 2030, the plan says, AI should lay the foundation for China’s economic dominance, Will Knight writes in MIT’s Technology Review. The potential military applications has some alarm bells ringing in Washington, but the lost economic opportunities may be a bigger threat. The U.S. is slashing funding that has traditionally supported A.I. research. President Trump’s proposed budget to cut the National Science Foundation’s spending on “intelligent systems” to about $175 million.
Google and Facebook, along with Microsoft and every major tech player, all are investing heavily, and have the lead, for now. This spring, Google’s AlphaGo won again, beating the best player in the world, 19-year-old Ke Jie. “Last year, it was still quite humanlike when it played,” said Mr. Ke, a Chinese national. “This year, it became like a god of Go.”
Onward! Please send any news and comments to TheBrief@impactalpha.com.