The Brief | September 25, 2023

The Brief: Call Preview: Financing worker ownership, agri-marketplace in Ghana, insurance tech in Singapore, policy headwinds and tailwinds

ImpactAlpha
Photo credit: Clegg Auto
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ImpactAlpha

Greetings, Agents of Impact! 

Featured: Ownership Economy

Financing transitions to employee ownership to deliver wins for workers and investors. It’s the age-old struggle: labor and capital are often at odds in the workplace and the financial markets. Case in point: the strike against the Big Three American automakers, which has raised anxiety in political and financial circles. Conversely, the alignment can be powerful when empowered workers have a meaningful stake in their companies’ long-term success. This week’s Agents of Impact Call features investors who are betting that worker ownership is not only good for labor, it’s good for capital, too. “Mosaic’s exclusive focus on employee ownership provides an attractive differentiation in a crowded lower middle market,” says Ian Mohler of Charlotte-based Mosaic Capital Partners, which helps companies transition to employee stock ownership plans, or ESOPs, a time-tested method of employee ownership. As many as three in five businesses in the US will seek a sale in the coming decade, driven by a “silver tsunami” of older owners in search of succession plans. Featured on this week’s Call: 

  • Perpetual purpose trusts. Utah body shop Clegg Auto has doubled its profits after making all 55 employees owners last year through an employee ownership trust, an inexpensive and flexible purpose trust (see “Pathway to worker ownership via a perpetual purpose trust”). Common Trust, which financed the conversion, raised $2.6 million this month. Employee ownership buyouts are popular among family-owned businesses, “but we’re increasingly working with a number of private equity-owned businesses interested in this pathway as well,” said Common Trust’s Zoe Schlag.
  • Employee-led buyouts. Apis & Heritage Capital Partners raised a $58 million fund to help employee buyout deals compete head-on with offers from traditional private equity funds. The theory of change: Creating pathways to equity ownership for workers of color can help bridge the racial wealth gap, while giving retiring owners an exit. “To support that claim, we have to come in with a similar, if not better value proposition than private equity buyers,” Apis & Heritage’s Todd Leverette tells ImpactAlpha. Its first two employee-led buyouts, or ELBOs, include Denver-based Apex Plumbing and El Paso, Texas-based Accent Landscaping Contractors. The vast majority of the companies’ combined 165 employees identify as low- and middle-income workers of color.
  • Ownership pyramid. World Education Services has built a portfolio around “the ownership pyramid,” which includes home, business and financial asset ownership, as well as worker ownership (see, “‘Participatory investing’ to share power as well as capital”). That reflects the multiple paths to wealth creation for immigrants and refugees, the historical focus of WES’s business. It also provides financial diversification for investors, says WES’s Smitha Das. WES’s Mariam Assefa Fund, seeded with $30 million in 2019, has invested in Apis & Heritage, Project Equity and other worker-ownership transition funds. 
  • Private-equity edge. KKR helped launch nonprofit Ownership Works two years ago, enlisting Apollo and dozens of other private equity investors to transfer at least some equity shares to workers. The organization has helped implement 79 broad-based employee ownership programs that have paid out more than $359 million to over 100,000 workers. “It’s been an entire ecosystem of stakeholders across the private, public and nonprofit sectors coming together to try to come up with solutions,” Anna-Lisa Miller, who leads Ownership Works, said earlier this month. Nearly half was paid out to workers of color, but only $26 million has gone to Black workers, with average payouts of $46,000. 
  • Join The Call. Join Mosaic’s Ian Mohler, World Education Services’ Smitha Das, Apis & Heritage’s Todd Leverette, Common Trust’s Zoe Schlag, Ownership Works’ Anna-Lisa Miller, and other Agents of Impact, on “The employee-ownership edge,” this Wednesday, Sept. 27, at 10am PT / 1pm ET / 6pm London. RSVP today.  

Dealflow: Financing Farmers

Complete Farmer nets $10 million to connect Ghana’s farmers. Complete Farmer started as a “crowdfarming” platform to connect Ghana’s smallholder farmers to funders. It has grown into an agri marketplace so farmers also gain access to inputs, advice and markets. Its pre-Series A equity round included $7 million from Acumen’s Resilient Agriculture Fund, or AFAF, Alitheia Capital, Proparco, VestedWorld and DP World. Sahel Capital, AlphaJiri Investment Fund and Global Social Impact Investments provided $3.4 million in debt.

  • Climate adaptation. The growth of Africa’s agriculture sector, which supports the majority of livelihoods on the continent, has been stymied by fragmented supply chains, lack of access to financing and technology, and waste. Climate change is weakening an already fragile system; about 12% of Africans now face food insecurity. ARAF backed Complete Farmer as part of its mission to invest in companies supporting farmers’ adaptation to climate change. Other portfolio companies include Farmerline and Farm Works, which share similar approaches to Complete Farmer, and solar irrigation provider SunCulture.
  • Check it out. 

LeapFrog joins insurance tech venture Bolttech’s $246 million equity round. Singapore-based Bolttech’s insurance exchange connects businesses to more than 6,000 insurance products from 230 companies in North America, Europe and Asia. End users of the products include roughly 2,000 emerging market consumers seeking mobile phone protection and other small coverage products. LeapFrog invested $50 million in Bolttech’s Series B round to help the company deepen its customer base of lower-income and emerging consumers. “There is so much to be done to close the protection gap, particularly in emerging Asia, Latin America and Africa,” said LeapFrog’s Fernanda Lima, who is joining bolttech’s board. Share. 

Dealflow overflow. Other deals crossing our desks:

  • Former President Bill Clinton and Ziv Aviram, billionaire founder of Israeli autonomous vehicle company Mobileye, launched EcoBridge Impact. The fund is targeting $1 billion to invest in late-stage climate tech ventures. (Bloomberg)
  • Canada’s SVX helped launch an early-stage venture fund, with backing from the Canadian government, to invest in women and non-binary founders. (SVX) 
  • EV battery recycler Smartville, battery management software maker ReJoule, and Italian energy storage venture Energy Dome are among nine companies to receive funds from the US Department of Energy, which wants to see the cost of energy storage fall by 90% by 2030. (Canary Media)

Impact Voices: Policy Corner

Policy tailwinds can buoy investments, but impact relies on business innovation. Venture firm Impact Engine has seen the positive and negative impacts of regulation on its portfolio this year. “Government policy can act as a headwind or a tailwind to impact investments, and this is even more noticeable at times when the capital markets themselves are challenging,” Impact Engine’s Roger Liew writes in a guest post on ImpactAlpha (listen to Impact Engine’s Priya Parrish podcast conversation, “Scaling purpose-built impact”). For example: Workit Health helps people recover from addictions, including by prescribing medication via its online portal. During the Covid pandemic, the Drug Enforcement Administration loosened restrictions on prescriptions via telemedicine. That policy was reversed in February. Liew says the move hurts rural populations and people in crisis, as well as Workit’s business. On the flip side, solar subsidies in the Inflation Reduction Act benefit PosiGen, a developer of affordable solar power. “As with Workit, we invested in PosiGen before the legislation, because we believed in the economics of the business,” says Liew.

  • Business fundamentals. It’s easy to look brilliant in favorable environments, as legions of fallen unicorns can attest. Government policies such as low interest rates and generous subsidies can provide tailwinds that propel companies – until those incentives vanish. Republicans have vowed to roll back historic federal funding for climate tech manufacturing and infrastructure, even as higher interest rates are slowing offshore wind and other sectors. That makes it time to “step up more than ever to invest in the most impactful solutions that can be scaled,” Liew says, “with or without government intervention.”

Agents of Impact: Follow the Talent

Don’t miss these upcoming ImpactAlpha partner events:

Anuj Shah, ex- of Close Group Consulting, joins Stax as managing director and ESG and impact practice leader… Impact Investing Kenya is recruiting a program manager in Nairobi… New York’s Department of Civil Service seeks a senior lead of ESG and sustainable investments… The Nature Conservancy is hiring a sustainable debt associate in Washington, DC, or New York… The International Rescue Committee has an opening for an innovation fund lead in Oakland, Calif… Obvious Ventures is hiring a principal in San Francisco. 

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

Thank you for your impact!

– Sept. 20, 2023