Greetings, Agents of Impact!
Double Feature: Impact Voices
Your pipeline of impact deals in emerging markets is at risk. Three things you can do about it. A quick intervention by Agora Partnerships helped a Nicaraguan nursery turn a COVID-induced market disruption into a new business opportunity. Capacity-development organizations, like Agora, which have sprung up over the last two decades to get social enterprises investment-ready, are playing an even more impactful role helping growth-oriented ventures survive (see, “Emerging market fund managers scramble to keep enterprises and entrepreneurs afloat”). More than 40% of emerging market enterprises supported by members of the Aspen Network of Development Entrepreneurs say they face a high likelihood of near-term failure due to the COVID crisis. Capital providers have started stepping up to address the flexible capital needs of social entrepreneurs. But technical assistance, or TA providers have few or no new options for support (see, “Needed: Responsive, aggregated and accessible capital for (once-) growing businesses in emerging markets“). “If these TA providers are left without a lifeline, then the nascent entrepreneurs that represent the future of high-potential deals for impact investors are less likely to survive the crisis and emerge poised for growth,” write ANDE’s Matthew Guttentag and Dalberg’s Mark Pedersen in a guest post on ImpactAlpha. Guttentag and Pedersen offer up three actions investors can take:
- Blend capital. Programs like the USAID PACE initiative demonstrate how to bring together return-seeking impact capital and grant-supported technical assistance.
- Partner for the long-term. A small chunk of an overall portfolio dedicated to funding technical assistance could have a large long-term payoff in a robust deal pipeline.
- Use your voice. Impact investors can make the case to policymakers and donors to provide relief and support to capacity development organizations.
- Share this post.
Helping circular economy startups in emerging markets scale their impact. Small and mid-sized enterprises in emerging markets hold potential to tackle pressing environmental and social issues. Circulate Capital recently completed the first two investments from its $106 million fund targeting the waste, recycling and circular economy sectors in South and Southeast Asia, which are responsible for more than 50% of ocean plastic waste (see, “Circulate Capital invests in plastic recyclers in India and Indonesia“). “You can find terrific companies in emerging markets that are EBITDA-positive with incredibly smart management teams,” writes Circulate’s Rob Kaplan in a guest post on ImpactAlpha. Yet “they need hands-on support from a number of actors along the way to generate the impact at scale.” Kaplan’s three lessons for scaling circular economy startups:
- Focus on growth. Circulate worked with its two portfolio companies on media training and marketing support to help them move from bootstrapping to scale.
- Partner strategically. Circulate’s investors like PepsiCo, Procter & Gamble, Dow, Danone and Unilever are making strategic supply chain connections to help fledgling startups grow.
- Seek knowledge partners. Circulate Capital partnered with LeapFrog Investments to provide six months of free crisis training and support to its portfolio company management teams.
- Share this post.
Dealflow: Follow the Money
Education lender Varthana secures $15 million loan from DFC. Tens of millions of students in India attend low-cost private primary and secondary schools. The quality of education these schools provide varies significantly. Bangalore-based Varthana offers schools financing to boost education quality by rehabilitating facilities, training teachers and securing resources for students. Since 2013, it has supported nearly 4,500 schools teaching three million students. The U.S. International Development Finance Corp., or DFC, extended a $15 million loan to help Varthana support schools amid the COVID crisis, including help transitioning to online learning.
- Renewed commitment. DFC first backed Varthana in 2016, when the U.S. development financial institution was called OPIC. Varthana’s portfolio has since grown four-fold. Varthana raised a $55 million equity round in 2018.
- Learn more.
Alt-battery startup ZAF Energy Systems secures $22 million. The Joplin, Mo.-based company is developing nickel-zinc batteries for use in data storage, telecommunications, healthcare and other sectors with high energy demands. The technology is more environmentally-friendly than lead-acid batteries, the most common alternative. Élevage Capital Management, Catalus Capital, Holt Ventures and Coventry Asset Management backed the round.
Community Capital Management launches $100 million effort to finance community COVID relief. The investment adviser will invest in market-rate bonds supporting COVID relief efforts, including economic recovery programs, small businesses and affordable housing.
Agents of Impact: Follow the Talent
Jane Bulnes-Fowles, ex- of Veris Wealth Partners, joins US SIF as chief operating officer… Melissa Radic, previously with BlackRock, was named director of investor relations and capital markets at IMPACT Community Capital… Roberts Enterprise Development Fund is hiring a director of development in San Francisco… Partners Group seeks a private equity investment manager in London… Boston Ujima Project is looking for research and general management interns… Impact Investing South Africa and the Bertha Centre at UCT Graduate School of Business are hosting a webinar May 14 on applying impact investing strategies to the COVID-19 crisis.
Thank you for reading.
–May 6, 2020