Greetings, Agents of Impact!
Signals: Ahead of the Curve
Funders pool $33 million in credit guarantees to catalyze community investments. Philanthropic commitments to cover loan losses could catalyze hundreds of millions in financing for affordable housing, small business and climate action at almost no cost – as long as there are no calls on the guarantees. Nine foundations, a health care system and a nonprofit lender committed more than $33 million from their balance sheets to the Community Investment Guarantee Pool, a new clearinghouse to demonstrate the utility of such guarantees. No capital changes hands unless a guarantee is triggered; in most cases, no capital need even be set aside. “Socially motivated investors can leverage their balance sheets without requiring current liquidity to create a backstop and help minimize risk, allowing more traditional capital to feel comfortable putting their dollars into community investments,” said Locus Impact Investing’s Teri Lovelace. Locus, part of Virginia Community Capital, will manage the guarantee pool.
- Use cases. Locus will select and underwrite the guarantees and track metrics including units of new and preserved affordable housing, living-wage jobs created and megawatts of solar power produced. For example: first-loss protection for a portfolio of affordable housing loans and an additional loan-loss reserve for a pool of small-business loans to female entrepreneurs of color. The Kresge Foundation, which spearheaded the initiative, has its own portfolio of nearly $100 million in guarantees across 30 deals, including a recent $3.3 million first-loss guarantee on loans for solar power and battery storage systems to help low-income residents save on energy bills.
- Shared risk. Kresge, which committed $10 million to the pool, was joined by Annie E. Casey Foundation, California Endowment, Chan Zuckerberg Initiative, CommonSpirit Health, Gary Community Investments, Jessie Ball duPont Fund, Phillips Foundation, Seattle Foundation, Virginia Community Capital and Weingart Foundation. Rockefeller Foundation provided grant support. The funders will share equally in the risk of each guarantee.
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An impact option for directing idle cash to community banks. Cash sitting idle in impact investors’ portfolios may total tens of billions of dollars. That capital is not actively doing any good – and, depending on where it is held, may even be doing harm. Tiedemann Advisors worked with StoneCastle Cash Management to create an impact-oriented version of its Federally Insured Cash Account, or FICA, which allocates cash balances across more than 800 financial institutions. FICA Impact screens for banks with less than $10 billion in assets, are located outside of the wealthiest metro areas, and have strong Community Reinvestment Act ratings, so that the capital goes to “community banks that are serving the markets that need capital the most,” Tiedemann’s Brad Harrison told ImpactAlpha.
- Outsize role. Community banks hold just 17% of banking assets but are responsible for nearly half of all small business loans. More than a third of all U.S counties rely on community banks as their sole financial provider, according to the Small Business Administration.
- Cash distribution. FICA Impact cash balances are held in deposit accounts at community banks to qualify for FDIC insurance. The current yield is around 1.6%, in line with institutional money market accounts; funds are available the next day. Tiedemann has enlisted clients such as the Russell Family Foundation and Jessie Smith Noyes Foundation that are looking for “total impact activation,” Harrison says. “I used to think about cash as the last allocation I would make into impact when onboarding a new client. Now it’s probably the first allocation I would recommend.”
- New products. To date, cash options have “sacrificed either impact or returns, or not delivered true cash-like liquidity,“ writes CNote’s Cat Berman in our What’s Next series (see, “More Agents of Impact answer the call for new tools to reshape finance”). CNote’s product directs idle cash to community development financial institutions. Cash is impact’s “final frontier,” Berman says.
Dealflow: Follow the Money
Bamboo Capital scores first-loss funding for SDG500 investment platform. There’s a $2.5 trillion annual funding gap to meet the Sustainable Development Goals – and a $5 trillion funding gap for small businesses in emerging and frontier markets. Luxembourg-based Bamboo Capital is fundraising for a series of six global funds that will make early-stage investments in businesses addressing the SDGs through agriculture, finance, energy, education and healthcare. Bamboo’s Jean-Philippe de Schrevel said the goal is to bridge the gap that’s “suffocating early stage enterprises, which have the potential to transform some of the world’s poorest and most underdeveloped regions.” Bamboo will manage the funds.
- Series of funds. The funds include: ABC Fund, focusing on smallholder farmers and agribusinesses; BUILD, which will make fixed-income investments in frontier markets; CARE SheTrades Fund for women-focused investments in Asia; BLOC SmartAfrica and BLOC Latin America, regionally-focused impact tech funds; and HEAL, a VC fund targeting emerging markets healthtech startups.
- Catalytic investors. The European Union; the African, Caribbean and Pacific Group of States; the governments of Luxembourg, Togo and Tunisia; CARE; and the Alliance for a Green Revolution in Africa have committed first-loss capital to try to crowd in other investors (see, “Bamboo Finance, Moeda and the government of Togo launch a tech-driven impact fund for tech-driven companies”).
Skills and workforce startups stand out in Techstars’ impact cohort. Five of the 10 startups in Techstars’ Atlanta-based social impact accelerator are focused on skills development, academic success and workplace wellbeing.
- Impact cohort. Make Music Count teaches kids math lessons through music. Blue Studios offers digital STEM classes for kids. BestFit helps students identify suitable colleges. ACT House is a co-living space for aspiring entrepreneurs. And Forefront helps companies prepare for the future of work and workforce diversity. Other startups in the cohort, hosted with Cox Enterprises, are involved in energy, health, and civic engagement. The demo day for the three-month program is in late April.
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General Motors’ all-electric future includes Detroit plant. The $2.2 billion investment will convert GM’s Detroit-Hamtramck plant to an electric vehicle production facility that will employ 2,200 people at full capacity.
SteadyPay raises £2.9 million to help gig workers weather variable wages. Hambro Perks and Fair By Designbacked the company, which makes automatic deposits when users’ earnings are low. Users repay the funds in no-interest installments.
Agents of Impact: Follow the Talent
Triodos Investment Management namesWilliam de Vries as director of impact equities and bonds… Carolyn Farley, ex- of Omidyar Network, joins Arborview Capital as a principal… Susan Davis, ex- of JOYN Advisors, joins Brighter Investing as senior vice president… Valerie Shen, ex- of the Green Growth Fund at Kleiner Perkins, joins its spinoff, G2VP… Lighter Capital appoints Joe Silver chief financial officer (see, “As unicorns stumble, investors warm to revenue-based financing for ‘zebras’ and ‘Clydesdales’”)… Rafael Espinal was selected as executive director of the Freelancers Union.
UBS is looking for an impact strategy engagement specialist in New York… Sistema.bio seeks a business development associate in Mexico City… Boundless Impact Investing is hiring several part-time interns in New York… The Bertha Centre for Social Innovation and Entrepreneurship is hosting Alternative Early Stage Investment Structure workshops in Cape Town Feb. 21 and in Johannesburg Feb. 22.
Thank you for reading.
–Jan. 28, 2020