The Brief | August 18, 2020

The Brief: Closing capital gaps in Latin America, expanding Fig Tech’s lending capacity, workforce investing, forming a fund with impact integrity

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Greetings, Agents of Impact! 

Featured: ImpactAlpha Original

Catalytic capital helps Acumen’s ALIVE bridge the financing gap for social ventures in Peru and Colombia. Entrepreneurs in Latin America are weathering the pandemic to create sales channels for small farmers, online education for students, and clean, accessible energy for rural households. But early-stage companies delivering essential services to low-income communities in the region are struggling to access the kind of capital, with the right terms, that they need to grow. Many conventional investors need to cut checks that are too large for early-stage social ventures; too few impact funds can supply growth capital for enterprises ready to scale. Bogota-based Acumen LatAm Impact Ventures, or ALIVE, has raised $28 million for the Acumen Latin America Early Growth Fund to invest in up to a dozen early-stage social ventures, primarily in Colombia and Peru. Acumen, the global impact investing organization, is a minority owner of ALIVE and a limited partner in its first fund. The fund provides equity and quasi-equity products, including revenue-based financing, to meet the needs of early-stage ventures. A $5 million investment by the MacArthur Foundation that helped the fund get to close is one of a series of investments that the foundation has made in emerging fund managers as part of the Catalytic Capital Consortium, which also includes Omidyar Network and the Rockefeller Foundation. 

ALIVE’s early agribusiness and education technology investments are proving resilient, if not prescient, during the COVID crisis. The fund backed Phoenix Foods, a Peruvian agribusiness that sources and commercializes fruits and vegetables from more than 700 farmers. Lima-based Crehana Education provides affordable online training in creative industries to more than two million people. Levee is a Brazillian jobs platform for blue-collar workers that helps corporations eliminate hiring biases against women and minority candidates. It’s critical “to prove the thesis for the region that these companies are able to achieve both financial returns and social impact,” says ALIVE’s Santiago Alvarez, who co-founded the firm with Virgilio Barco. “Without a track record, most conventional investors are just not able to invest no matter what the returns look like,” says MacArthur’s Lori Scott. “We’re hoping by demonstrating the power of this, and demonstrating success, it will encourage other investors to follow on and invest in the future.” 

Keep reading, “Catalytic capital helps Acumen’s ALIVE bridge financing gap for social ventures in Peru and Colombia,” by Dennis Price on ImpactAlpha. The Catalytic Capital Consortium is a sponsor of ImpactAlpha’s ongoing coverage of catalytic capital strategies

Dealflow: Follow the Money

Fig Tech clinches $23 million to expand nonprofits’ lending capacity. The Houston-based fintech startup launched in 2015 to help nonprofit organizations combat predatory payday loans for low-income Americans, and has scaled its impact by helping nonprofits expand their own financial services. Fig’s original product provides $300 to $750 in flexible emergency credit (see, “Fig Tech gets backing for lending platform aimed at community organizations). The new round of debt and equity funding, led by alternative credit provider Upper90, positions the B Corp. and community development financial institution to expand services to more nonprofit partners. “It’s a stepping stone to working with community banks,” Fig’s Jeff Zhou told ImpactAlpha. Techstars Ventures and PurposeBuilt Ventures also backed the round.

  • Structural issues. “Payday lenders and many more traditional financial institutions’ bottom lines are dependent on day-to-day nickel-and-diming, which makes everything much more expensive for low-income households,” said Zhou. Nonprofits like Fig’s first partner, United Way of Greater Houston, are positioned to provide better financial alternatives alongside other basic services and relief, he added. Fig supports 40,000 organizations in six states. 
  • COVID shift. Zhou said Fig has seen increased interest from nonprofits in shifting to online products and services amid the pandemic. “Nonprofits offer almost all of their services in-person. That’s less efficient than going digital, and it’s also a health risk right now.”
  • Dive in

Two Sigma’s impact fund aims to give workers a boost amid automation. The $60 billion hedge fund made its name using artificial intelligence and machine learning in its investment operations. Its Two Sigma Impact fund will make direct investments in companies in education, healthcare and services that support workforce development, Bloomberg reports

Finnfund originates $10 million loan to First National Bank Ghana. The capital from the Finnish development finance institution will be used to support lending for Ghana’s small business sector and affordable housing mortgages amid the COVID crisis.

Impact Voices: Pass the Mic

Getting the three pillars of impact and integrity right, right at a fund’s formation. If 99% of impact investors say the impact of their investments have met their expectations, as a recent survey suggests, there’s only one way to go: down. The place to start in safeguarding the integrity and impact performance of future investments is right at the formation of a fund, “where a clear market opportunity meets a great team and a receptive investor base (at least in theory),” argues Tideline’s Ben Thornley in a guest post on ImpactAlpha. The three pillars: the impact characteristics of the fund’s target market; the capabilities of the investor to deliver impact; and the positioning of the fund. “When all three pillars are aligned, investors have hit the impact integrity sweet spot,” Thornley writes. 

  • Target market. “Investors will be constrained in how much impact they and their investees can realistically deliver, whether they like it or not,” Thornley writes. The Impact Management Project’s five dimensions can help investors make such an assessment.
  • Capabilities. An investor’s skills in managing for positive outcomes includes “an ability to articulate a robust impact thesis, and to screen, diligence, plan, optimize, monitor, and report against transparent impact objectives.”
  • Positioning. Truth in labeling requires clarity and precision about the fund’s “ABCs” (h/t The Impact Management Project). Does a fund Avoid harm, Benefit stakeholders or Contribute to solutions? “When an investor knows the limitations of their own target market (check), and has the capabilities to deliver on the market’s modest impact potential (check), yet mislabels a fund, by characterizing it as more deeply impactful than it actually is (fail)…” Thornley writes, “there will be an increased risk of impact-washing.”
  • Get it right.

Agents of Impact: Follow the Talent

Palladium Impact Capital is looking for a director for its Americas group… Vinaj Ventures is seeking applicants for its $40 million Equality Can’t Wait Challenge, backed by the Charles and Lynn Schusterman Family Foundation, Melinda Gates’ Pivotal Ventures and MacKenzie Scott. Registration ends Tuesday, Sept. 1.

Thank you for reading.

–Aug. 18, 2020