Greetings, Agents of Impact!
Featured: Looking Ahead
Catalytic investors sharpen their tools for deep impact in 2021. Catalytic capital is always “impact on.” That intention has rarely been more important than this year, when investors able to accept higher risks or lower returns in order to realize positive social impact were called on to help quickly structure private capital for public good. And it will rarely be more important than next year, as the world rallies to recover from COVID-19, takes the fight to climate change, and gets serious about overcoming the legacy of systemic racism. Their flexibility and foresight is winning catalytic investors new respect. Instead of being disparaged for “concessionary” or “below-market” investments, catalytic investors are being courted as the essential linchpins of many deals. Next up in our series of thematic guides to impact investing in the year ahead: Catalytic capital.
- New deals to close old gaps. Investors of catalytic capital are anchoring first-time funds and fund managers, providing smart subsidies for high-risk lending, and extending affordable funding to social ventures. MacArthur Foundation anchored a series of funds targeting structural racism, social ventures in Latin America, and early climate technologies. (Disclosure: MacArthur, as part of the Catalytic Capital Consortium, is a sponsor of ImpactAlpha’s catalytic capital coverage).
- Flexible, rapid COVID responses. Impact investors from RSF Social Finance to JFF to the Kellogg Foundation and the California Endowment stood by their portfolio companies with flexible terms, quick action and emergency capital. Family offices Ceniarth, Candide Group and Money in Motion extended zero-interest loans and deposits for rural community development financial institutions. Open Road Alliance’s short-term bridge loans to dependable social enterprises were essential to plugging gaps created by the pandemic (see Impact Voices, below).
- Proof points. Several catalytic investment strategies decades in the making became proof points in 2020, from off-grid solar in sub-Saharan Africa to community development finance in the U.S. to the mRNA biotech platforms used in multiple COVID vaccine efforts (see, “Gates Foundation’s role in Pfizer’s promising COVID vaccine is part of a strategy, not a conspiracy”).
- What we’re watching: the growing movement of investors driving flexible, responsive capital to marginalized communities and underappreciated sectors and clamoring to outperform – on impact. Take a spin through the rest of ImpactAlpha’s 2020 catalytic capital coverage.
Keep reading, “Catalytic investors sharpen their tools for deep impact in 2021,” by Dennis Price on ImpactAlpha.
Impact Voices: Pass the Mic
Resilience is the new ROI. Entrepreneurs around the world have pivoted and adapted in the face the COVID pandemic. What about funders? In a guest post on ImpactAlpha, Open Road Alliance’s Maya Winkelstein says impact investors should take a cue from entrepreneurs and “embed resilience and adaptation into our process now.” Hear her out.
The ABCs (and SDGs) of classification for impact investing strategies. More rigorous ways to classify intentions and performance around impact will become ubiquitous in 2021, predict Tideline’s Ben Thornley and Duke University’s Cathy Clark. “At that point, the field will stop asking, ‘Is that an impact investment?’ and start asking, ‘How well did it do?’ and, ‘What do we need to change to do better?’” Get their take.
- The year of classification. Thornley and Clark host “2021 in impact investing,” today at 11am ET / 4pm London. Zoom in.
Dealflow: Follow the Money
CNote snags $3 million to support COVID-impacted underserved communities. The Oakland-based fintech company secured equity funding to meet the increased capital needs from community development financial institutions, or CDFIs. CNote’s round was led by ManchesterStory with additional funding from Artemis Fund, SixThirty Ventures, H/L Ventures, Clearstone Capital and Lateral Capital. “Our technology can help speed the flow of capital into these communities to support a faster recovery,” said CNote’s Cat Berman.
- Savings accounts. There are hundreds of billions of dollars sitting in low- or no-interest savings accounts. CNote launched in 2017 with a high-yield alternative savings product that facilitates lending to small businesses and underserved communities.
- Accredited investors. CNote’s Promise product, launched this year for accredited investors, secured a $20 million commitment from Mastercard in October to back its COVID-response efforts (see, “CNote launches fund to boost lending to women business owners”).
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ClearTrace raises $4 million to help real estate and energy companies track carbon emissions. The Austin-based company’s software connects to buildings’ and energy assets’ metering systems to let operators and company users track carbon output. The platform allows users to “verify, validate, and account for their overall environmental and carbon footprint,” said Daniel Goldman of Clean Energy Ventures, a ClearTrace investor.
- Climate tech investors. Clean Energy Ventures and its affiliated network of early stage investors backed ClearTrace’s Series A round, joined by Brookfield Renewable Partners.
Arya closes $21 million to expand warehousing and financing for India’s farmers. Delhi-based Arya helps India’s smallholder farmers transport and store their goods post-harvest, and provides them with working capital for the period between harvest and sale. The company aims to boost farmer incomes by curbing food waste and enabling them to sell their grain when prices are high. It has installed 1,500 storage facilities in villages across 20 Indian states.
- Mixed funding. The company’s latest funding round includes a mix of debt and equity. Quona Capital led the Series B equity portion. Existing investors Omnivore and LGT Lightstone Aspada reupped in the round after an earlier commitment of $6 million.
- Check it out.
Dealflow overflow. Short takes on a few of the transactions crossing our desks:
- Annie E. Casey Foundation backs REDF Impact Investing Fund. The Baltimore-based foundation extended a $2 million loan to enable REDF to expand a lending program for social enterprises that create good jobs for the formerly incarcerated and homeless, disconnected youth and individuals confronting mental illness.
- Kenya’s SunCulture secures $14 million for solar irrigation tech. The Nairobi-based startup makes pay-as-you-go solar-powered irrigation pumps for smallholder farmers in East and West Africa. Energy Access Ventures led the Series A round.
Signals: Ahead of the Curve
Impact investors are wonking out on policy. The spate of recommendations greeting the incoming Biden administration is the fruit of years of work in the fields of public policy. “There’s so much pent up excitement around public policy,” said Fran Seegull of the U.S. Impact Investing Alliance, which is out today with recommendations on how to bolster community investing to tackle inequality and how to advance stakeholder capitalism to restore American economic leadership. The Alliance also manages the Tipping Point Fund, a $14 million donor collaborative, which last summer awarded eight small grants to pursue policy recommendations for the winner of the 2020 election (see, “Preparing an impact investing policy agenda for the next administration”). Some of those efforts are now bearing fruit. Pacific Community Ventures, for example, has focused its work on how to get capital to flow more intentionally to communities of color that have suffered disproportionately during the pandemic. Tipping Point founders, including Blue Haven Initiative, Omidyar Network, and the Ford, MacArthur and Visa foundations, see policy as “public goods” required for a robust impact investing marketplace. The goal, Seegull told ImpactAlpha, is building “a stronger and more muscular policy capability” that will last beyond the excitement of a new administration.
- Strengthen community finance. The Alliance’s paper, “Private capital, public good” updates a 2014 effort by its predecessor, the U.S. National Advisory Board. The paper supports efforts to shore up CDFIs and minority depository institutions with federal equity-like backstops. The model is being tested in New York, California and elsewhere. Other recommendations: Expand the CDFI Fund to at least $1 billion, and modernize the Community Reinvestment Act in a way that is beneficial for communities.
- Domestic development bank. Like the U.S. International Development Finance Corp., which primarily works overseas, a domestic development bank could marshal public and private investment for rebuilding small businesses, supply chains and economic competitiveness at home. The bank could deploy debt and equity, as well as loan guarantees and first-loss positions, to help drive capital to disinvested communities and for infrastructure rebuilding. A key priority: climate action (see, “Bumper crop of green policy proposals await Biden administration”).
- ESG clarity. It may take years to unwind Trump administration rulemaking intended to curb impact investing and support oil and gas producers (see, “How far will the pendulum of ESG guidance swing back in a Biden administration?”). A quicker fix: interpretive bulletins that assure managers and sponsors that strictures on ESG investing won’t be enforced while rulemaking unfolds, says the Alliance’s John Cochrane. Also on the table: global, mandatory climate risk reporting by companies, as urged by Michael Bloomberg and others.
- Wonk out.
Agents of Impact: Follow the Talent
Mindy Lubber of CERES was recognized by the U.N. Environment Programme as one of six Champions of the Earth, along with Fiji Prime Minister Frank Bainimarama, Fabian Leendertz of Germany, Ecuadorian indigenous activist Nemonte Nenquimo, and nature-based farmer and educator Yacouba Sawadogo of Burkina Faso. Robert Bullard received the Champion of the Earth Lifetime Achievement award… Will Martindale, ex- of U.N. Principles for Responsible Investment will join Cardano as head of sustainability… Predistribution Initiative, Preventable Surprises, and the Interfaith Center on Corporate Responsibility are hosting “Human rights as a bargaining chip in U.S. stimulus – what investors can do,” Wednesday, Dec. 16.
Thank you for reading.
– Dec. 15, 2020