The Brief | June 13, 2023

The Brief: Collateralizing social loans, carbon-neutral metal, mushroom materials, manufacturing building boom, AI job creation, electric India

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Greetings, Agents of Impact!

👋 Join tomorrow’s Agents of Impact Call. Impact activity is stirring in the stodgy municipal bond market. Tim Coffin of Breckinridge Capital Advisors, Heron’s Barbara VanScoy and Lourdes Germán of Public Finance Initiative will offer their reactions on “How asset allocators are driving racial equity in municipal bonds.” Explore strategies with Preeti Bhattacharji of J.P. Morgan Private Bank, Renaye Manley of the Service Employees International Union, and Harvard’s David Wood, tomorrow, June 14, at 10am PT / 1pm ET / 6pm London. Last chance to RSVP.

Featured: Financial Innovation

Collateralizing small business loans to bring institutional capital to local impactMomentus Securities is taking a page from the corporate credit playbook and applying it to loans for affordable housing, healthcare, education, small businesses and food systems. The new investment bank, a unit of Arlington, Va.-based Capital Impact Partners, is buying loans from community development financial institutions, or CDFIs, and other small-business lenders. Momentus plans to bundle such loans into securities with investment-grade credit ratings and sell them to pension funds, endowments and other institutional investors with an appetite for social impact but few easy ways to enter the market. The “social collateralized loan obligations” will be backstopped by first-loss capital in the form of catalytic grants from philanthropic funders including the Robert Wood Johnson, Heron and Citi foundations and MacKenzie Scott. Momentus’ aims to deploy $3 billion within three years. “We’re buying loans or unrated notes or credit facilities from impact institutions, and repackaging them and issuing CUSIP securities,” Momentus’ Alicia Reyes tells ImpactAlpha. “If we could replicate what exists today for corporate credit into social credit, that would help us achieve our main mission.”

  • Expanded lending. Entrepreneurs of color in the U.S. are starting the bulk of new businesses, led by Black women. “We are skating to where we think the market will be and where the market has the potential to be,” says Ellis Carr, CEO of Capital Impact Partners and Momentus Capital, the umbrella brand for a family of financial services companies (see, “Agent of Impact: Ellis Carr”). Giving local lenders access to institutional capital could vastly expand the credit available to founders and entrepreneurs with viable businesses but who are not eligible for loans backed by the U.S. Small Business Administration, said. “They may not be SBA-eligible. But they’re still good credits,” Carr said. “In today’s market, they actually just don’t get funded.”
  • Mispriced risk. Capital Impact Partners, itself a CDFI with roots as a lender for affordable housing and community infrastructure, moved to add business lending capacity in 2021 by teaming with San Diego-based CDC Small Business Finance, now a part of Momentus Capital. CDC’s Ventures+ technology platform is used by more than 250 CDFIs and “certified development companies,” which last year originated about $24 billion in loans through the platform. Packaging securities from that pipeline will help document the performance of such assets and “put together real and perceived risk so that these things can be priced accordingly,” Carr says.
  • Keep reading, “Collateralizing small business loans to bring institutional capital to local impact,” by David Bank on ImpactAlpha.

Dealflow: Sustainable Supply Chains

VoLo Earth and Capricorn back Magrathea to make carbon-neutral metal from seawater. Lightweight magnesium is used in everything from laptops to bikes to EVs. San Francisco-based Magrathea raised $10 million for its method of producing magnesium from seawater via electrolysis that eliminates the need for mining. Its proprietary process for turning magnesium salt into metal produces a byproduct that sequesters carbon, making it carbon neutral, explained Joseph Goodman of VoLo Earth, which co-led the seed round with Capricorn Investment Group. Other participating investors included Valor Equity PartnersNecessary Ventures, carbon dioxide removal fund CounteractEQT Foundation, Charm Industrial’s Peter Reinhardt and Open AI’s Sam Altman.

  • Lightweighting. Roughly 90% of magnesium is produced in Russia and China using carbon-intensive mining and smelting processes. Magrathea’s Alex Grant is a cofounder of lithium producer Lilac SolutionsJacob Brown is a former Tesla chemical engineer. The company’s pilot plant has produced magnesium and is seeking to scale the technology, which could help replace hard-to-abate metals and ensure a domestic supply. “We see lightweight materials and batteries as the yin and yang of the $10 trillion global transportation market,” VoLo’s Joseph Goodman told ImpactAlpha. “There’s been a lot more focus on the batteries,” he said. “Lightweighting” EVs can reduce the battery power required, opening up opportunities for electric trucks and other large vehicles.
  • Dig in

Ecovative secures $30 million to produce fungi-based sustainable materials. The strength and durability of mycelia, the threadlike root structure of mushrooms, have made mushrooms a favorite for alternative materials from faux leather to biodegradable packaging. New York-based Ecovative, launched in 2007, is commercializing mycelium-based materials for fashion, apparel, automotive, food, packaging and construction. The biotech company partners with brands to grow and test mycelium materials. Its line of products include plant-based food and biodegradable textiles and packaging.

  • Food and fashion. Half of the capital raised in the Series E round will be reinvested as Series A funding in MyForest Foods, an Ecovative subsidiary launched in 2020 that makes mycelium-based bacon. The funding will also support Forager, another Ecovative subsidiary that produces plastic-free and vegan leather and foams. Viking Global Investors led the round, with participation from Standard InvestmentsFootPrint Coalition Ventures and AiiM Partners. Ecovative has raised $120 million to date.
  • Fungus pioneers. Mycelium’s co-founders Eben Bayer and Gavin McIntyre claim to have created the first mycelium-based materials as students 16 years ago. “Our goal is to hack capitalism to support Spaceship Earth: building factories that produce clean air, clean water, and healthy soil, while growing delightful materials that meet everyday needs and produce extraordinary profits,” said Bayer.
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Dealflow overflow. Other news crossing our desks:

  • Boann Social ImpactRealize Capital Partners and Fonds de finance sociale – CAP Finance will manage $400 million out of a $755 million Canadian government social impact fund created to advance UN Sustainable Development Goals. (Prnewswire)
  • Luxembourg-based climate impact verification venture Sustaincert raised $37 million in a Series B round backed by Microsoft’s Climate Innovation Fund, Hartree Partners and Partech(FinSMEs)
  • Sao Paulo-based Positive Ventures secured $25 million to invest in early-stage Latin American founders building impact tech solutions for underserved communities. (TechCrunch)
  • Global Energy for People and Planet and Shell-backed, Lagos-based impact investor All On committed $15 million to finance 25 solar mini-grid projects in Nigeria. (All On)
  • The student-led NYU Impact Investment Fund invested $30,000 in EdVisorly, a Black and woman-led company that helps diverse community college students transfer to universities to complete their degrees. (NYU)

Six Short Signals: What We’re Reading

📈 Supply-demand mismatch. Demand for scaled impact investment products outstrips supply. The clearest demand is for products with greater ambition and alignment to drive positive impact while simultaneously reducing any negative externalities. (World Economic Forum)

🏢 US manufacturing boom. Manufacturing’s share of construction spending hit a 30-year high. The spike is driven by manufacturing spending on computers / electronics (with incentives from the CHIPS Act) and electric vehicles (with a boost from the IRA). (Joey Politano / Bloomberg)

🤖  AI + climate = job creation. Big data analytics, climate tech and cybersecurity are expected to be the biggest drivers of job growth over the next five years. Agriculture technologies and AI will be disruptive but result in net positive gains. Only two technologies are expected to result in net losses: humanoid robots and non-humanoid robots. (World Economic Forum)

👷🏾 Resilient workforce. An accelerator in Detroit is working with Black, Indigenous and other contractors of color to prepare diverse contractors to develop and install resilient power systems. (Clean Energy State Alliance)

⚡ Energy efficiency has energy. US sales of residential heat pumps passed gas furnaces for the first time last year, making up 53% of heating system sales. Global energy efficiency investment in 2022 was about $600 billion. (Utility Dive)

☀️ Electric India. The Indian government will not consider proposals for new coal plants for five years. Instead, it will focus on growing renewables and batteries, according to the updated national electricity plan. (AP News)

Agents of Impact: Follow the Talent

Blue Like an Orange is looking for a junior financial officer in Luxembourg… The Nature Conservancy is hiring an investment analyst in Arlington, VA… Greenbiz is hosting “Greenfin” June 26-28 in Boston… Google launches a cleantech accelerator program for startups in the Middle East and Africa… MITRE receives a $2 million grant from Massachusetts for its BlueTech OCEAN research accelerator.

– June 13, 2023