The Brief: Billion-dollar blended-finance transactions

Greetings Agents of Impact!

In today’s Brief:

• Learning from billion-dollar blended finance deals
• Lending in rural India
• Expanding farm labor in the US
• The Puerto Rico opportunity 

Featured: 2030 Finance

Blending billions: Lessons from more than three dozen big blended finance transactions. Deal structures that leverage development or philanthropic funding to mobilize private capital for emerging markets can close financing gaps for the UN Sustainable Development Goals. But “blended finance” is still struggling to catch on; little is known about what it takes to get large blended deals off the ground. Dalberg’s Kusi Hornberger and Marcos Paya analyzed the 39 blended transactions of over $1 billion in Convergence’s deal database (such large deals represent less than 3% of more than 1,100 deals). With an average deal size of $2.1 billion, the transactions totaled $86 billion. “Such scale can not only draw substantial institutional investments but also demonstrate that the deployment of concessional financing can be done with greater efficiency,” Hornberger and Paya write in ImpactAlpha’s exclusive look at the analysis.

• Among the insights: Africa and climate projects attract the largest shares of billion-dollar transactions. Transactions structured with technical assistance or concessional capital are more likely to achieve their impact targets than those with guarantees. And companies, facilities and funds more often hit their impact targets than projects. “We should continue to double down on efforts to get more of these ‘needle-movers’ off the ground,” say Hornberger and Paya. 

• Leverage ratios. The average proportion of concessional capital in $1 billion+ transactions was 15% of the total, “significantly lower than what many may consider necessary to catalyze large-scale blended transactions,” say the Dalberg consultants. The $1.1 billion SDG Loan Fund from Allianz Global Investors, for example, had a 10% catalytic equity tranche from Dutch development bank FMO and a $25 million guarantee from the MacArthur Foundation. Average leverage ratios of commercial capital per dollar of concessional funding increase with transaction size; deals over $1 billion leveraged an average of $7.60 for every dollar of concessional capital. Convergence reviewed and validated the insights.

• Call to action. While nine out of every 10 deals reviewed by Dalberg hit their fundraising target, just seven out of 10 achieved their impact targets. Nearly one in four are not reporting data publicly. Hornberger and Paya suggest practitioners aim not just for billions but for “meaningful transformation” that can be measured and replicated. “Only with robust data and transparent sharing of results can we understand the true effectiveness of these investments and encourage broader participation from the private sector,” they say. “It’s time for all stakeholders to commit, not just to the amount of capital, but to the value this capital can raise.”

• Keep reading, “Blending Billions: Lessons from more than three dozen big blended finance transactions,” by Dalberg’s Kusi Hornberger and Marcos Paya.

Sponsored by BlueMark

Seven red flags for institutional investors when evaluating impact fund managers. As impact firms proliferate, it is increasingly difficult for institutional allocators to select managers. “Most allocators know what to look for when evaluating the financial risks and opportunities associated with a firm and its investment strategies,” writes Sarah Gelfand of the impact verification firm Bluemark. “Evaluating a manager’s potential to achieve impact results requires a different toolkit.” To bridge this knowledge gap, BlueMark and CASE at Duke University have developed a guide that allocators can use to shore up their due diligence and management of impact fund managers.

• Pre- and post-diligence. BlueMark and CASE developed the toolkit based on interviews with more than 50 LPs and GPs. Gelfand and her co-authors identified red flags to watch for before and after an investment is made. In the pre-investment stage, allocators should be wary of managers with a “weak or vague impact thesis,” and “lack of a structured impact management approach.” After the initial investment, red flags include managers who rely on “marketing over substance when reporting on impact performance,” or display “a defensive attitude or fixed mindset.”
  
• Keep reading, “Seven red flags institutional investors when evaluating impact fund managers,” by BlueMark’s Sarah Gelfand. Check out the full toolkit.

Dealflow: Financial Inclusion

Gawa Capital and OikoCredit invest in Sindhuja Microcredit for rural lending in India. Sindhuja Microcredit launched in 2018 in India’s mostly rural state of Uttar Pradesh to provide access to capital to traders, shopkeepers and farmers lacking access to affordable, formal financial services. The microfinance institution focuses on women, lending to more than 400,000 female borrowers through a network of 235 local branches in nine states. Sindhuja secured $14.5 million in an equity round led by impact investors OikoCredit and Gawa Capital to support its goal of reaching 2.5 million borrowers by next year.

• Financing farmers. Spanish impact investor Gawa Capital invested in Sindhuja via its Huruma Fund, a blended-finance fund meant to catalyze investments for farmers and agri-businesses in emerging markets (see, “A case study in blending finance for farmers’ financial inclusion“). Gawa’s Tomás Ribé noted Sindhuja’s role in providing “necessary access to agricultural financing for smallholder farmers, a highly underserved segment in India.”
  
• Check it out.

Seso inks $26 million to address US farm labor shortages. Difficulty finding and hiring farm workers, particularly migrant workers, is hurting production on American farms. Seso, based in San Francisco and Monterrey, Mexico, offers online worker recruitment and documentation to help farms find workers and secure their visas. The company provides a payment app and swipe cards to digitize payments to workers and help them to send remittances home. Seso raised its Series B round with backing from venture capitalist Mary Meeker, Index Ventures, NFX and SV Angels, as well as from some of Seso’s agricultural customers.

• Quality jobs. Seso’s founder Michael Guirguis told TechCrunch he was inspired to start the company after hearing his cousin, an organic farm owner, grumble about the effect of labor shortages on her growth prospects. Seso says it now works with more than a quarter of the top 100 farm employers in the US. It is a partner of the US Department of Agriculture’s “Farm Labor Stabilization and Protection Pilot Program,” which aims to improve labor standards and promote healthy working conditions for permanent and seasonal farm workers.
  
• Farmhand investments. Separately, woman-led Farmhand Ventures is addressing agricultural labor shortages in the US with a venture fund for technologies that “enhance the efficiency of farm operations while also improving the livelihoods of farm workers” (see, “The Liist, March 2024”).
  
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Dealflow overflow. Investment news crossing our desks:

• Brazil’s Izi raised $800,000 to provide credit for rural producers and agribusiness associations that supply supermarket chains. (LatamList)
  
• Citi extended loans to Banco Popular Dominicano and Banco Santa Cruz, to expand working capital lending to small businesses in the Dominican Republic. (Citi)
  
• Onego Bio raised $40 million in Series A equity for its fungi-based egg-white alternative. (TechCrunch)
  
• Sparxell, a UK-based developer of plant-based pigments, raised $3.2 million in seed funding from the Circular Innovation Fund and other funders. (AZo Cleantech) 

Signals: Latin America and the Caribbean

Blending finance for social infrastructure in Puerto Rico. The Caribbean island and US territory sits at a crossroads, with an unprecedented opportunity for reconstruction. Done right, the effort could propel economic mobility for a majority of Puerto Ricans. Next week in San Juan, NEXA: Jobs Summit will convene social innovators, investors and civic leaders to explore workforce development and job creation solutions to catalyze private investment with the tens of billions of dollars in federal aid that is available. ImpactAlpha’s Dennis Price will join Edgar Gomez Cintron of Center for Habitat Reconstruction and Ramphis Castro of Platform for Social Impact to showcase the OASIS Initiative in San Juan’s Villa Prades public housing community as a model of innovative financing for habitat reconstruction and community development after natural disasters. ImpactAlpha is NEXA’s media partner.

• On the agenda. Joan Larrea of Convergence and Natasha Müller of NM Impact will discuss the role of blended finance in catalyzing investments in Puerto Rico’s vital sectors. JFFLabs’ Kristina Francis and Gayle Peterson of PFC Social Impact Advisors will explore aligning capital with impact outcomes. Cristina Shapiro of the UNICEF Bridge Fund will highlight opportunities to invest with a child-focused lens.
  
• Help shape the future of Puerto Rico. Email [email protected] to request an invite to NEXA: Jobs Summit, April 10-11 in San Juan.

Agents of Impact: Follow the Talent

The IFC promotes Maiko Miyake to country advisory and economics manager for North, West and Central Africa… The AGRI3 Fund appoints Deniz Harut, a former executive director at Pollination Group, as CEO and managing director… The Tennessee Center for Employee Ownership names Ashley Allen, former community impact director for the Nashville Kats, as program director. 

Lafayette Square is hiring a remote data analytics and policy associate… B Lab is looking for a climate justice senior associate in Philadelphia… Also in Philly, Madison Energy Infrastructure seeks an energy solutions analyst… Emerson Collective is hiring a climate migration analyst in Washington, DC… Also in DC, the Aspen Institute is recruiting a senior impact associate. 

Wilmington Trust has an opening for a head of sustainable investing… Nexus for Development is on the hunt for a head of impact investing in Cambodia… Finance in Motion is looking for a manager in fund management in Frankfurt… The Investment Integration Project will host its 3rd Annual System-level Investing Symposium next week on Wednesday, April 10 in New York.

👉 View (or post) impact investing jobs on ImpactAlpha’s Career Hub.

Thank you for your impact!

– April 3, 2024