Greetings, Agents of Impact!
Featured: Catalytic Capital
How Lendable parses risks and returns to mobilize capital for inclusive fintech in emerging markets. There’s little argument about the positive impact of making affordable loans to small and medium-sized enterprises in countries like Indonesia, Egypt, Mexico and Kenya. But… the risks. Lendable, with offices in London, Nairobi and Singapore, has developed an innovative financial vehicle that mitigates risks for investors that want to avoid them, while compensating other investors that actively seek them. Lendable provides debt capital to technology-enabled financial services providers – aka fintechs – that help mostly low-income and women borrowers increase their incomes or reduce their costs. The company’s ‘inclusive fintech’ borrowers include Amartha, which supports unbanked women micro-entrepreneurs in rural Indonesia, and Trella, which provides working capital to independent truckers in Egypt. Lendable is filling a gap long bridged mostly by government-backed development finance institutions that can be stodgy and slow and often reluctant to underwrite smaller deals. Lendable’s average deal size is $7 million. “Fintechs will pay more for faster capital,” says Lendable’s Daniel Goldfarb.
Lendable has raised about $100 million for a vehicle, known formally as Segregated Investment Vehicle I, that flips on its head the typical blended-capital structure for emerging markets impact investments. The catalytic, first-loss capital is provided by Portland-based Variant Investments and other commercial investors in the vehicle’s subordinated notes. High-net-worth families and other investors have effectively been catalyzed, with a fixed, 6% return on a product with 50% subordination, meaning their capital is protected unless more than half of the vehicle’s principal is lost. Clients of Boise-based Caprock Group have committed $16 million to the vehicle, of which $10 million has been disbursed. “We love this structure,” Caprock’s Mark Berryman tells ImpactAlpha. “For a Caprock client, they can take money that may have been in an index fund or a bond fund and get it into the hands of someone generating wealth.”
Keep reading, “How Lendable parses risks and returns to mobilize capital for inclusive fintech in emerging markets,” by David Bank on ImpactAlpha.
Dealflow: Worker Ownership
KKR investment in Charter Next Generation makes all 1,700 employees owners. The private-equity giant has backed Lexington, Ohio-based Charter Next Generation, one of the largest U.S. producers of specialty films for flexible packaging. The company’s packaging keeps food fresh longer, and protects goods from heat and moisture. KKR joins Leonard Green & Partners and a unit of the Abu Dhabi Investment Authority as co-owners of the company, which is reportedly valued at $4 billion, debt included. The owners have agreed to give Charter Next’s more than 1,700 employees ownership stakes in the company. Charter Next’s Kathy Bolhous called out the three investors’ “steadfast approach to employee engagement and ownership.”
- Employee ownership. KKR has distributed a half-billion dollars in dividends and other proceeds to about 20,000 hourly employees of eight companies in its industrial and manufacturing portfolio. Pete Stavros, co-head of the firm’s U.S. private-equity business, told ImpactAlpha last year that the strategy was inspired by his father, who worked as an hourly construction worker in Chicago (see and hear, “This private-equity giant has distributed more than $500 million – to hourly employees”).
- Company conversions. Cajon, Calif.-based Taylor Guitars owners transferred ownership to its more than 1,200 employees through an Employee Stock Ownership Program, or ESOP (see, “Canadian pension fund backs Taylor Guitars’ conversion to employee ownership”).
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Orion Energy Partners’ $1.1 billion fund taps institutional appetite for energy transition. Orion’s third Energy Credit Opportunities Fund is the latest entrant into an increasingly crowded market for funds targeting the global shift to a low-carbon economy. Orion’s focus: tailored debt financing for middle market companies in renewable fuels, energy efficiency, water, waste and transportation infrastructure. Orion, along with firms like Tikehau Capital and EnCap, join better-known names such as BlackRock and TPG’s Rise Fund that are capitalizing on investor demand for such energy transition and decarbonization funds (see, “Cascade of climate-tech funds take aim at $10 trillion energy transition opportunity”). Institutional investors were skeptical when Orion raised its last fund four years ago. “The change that we’ve noticed between Fund II and Fund III is massive,” Orion’s Nazar Massouh told ImpactAlpha. New York State Teachers’ Retirement System, Florida Retirement System Pension Plan and Australia’s Aware Super are among the investors in the new fund.
- Flexible debt. Orion’s niche is entrepreneur-owned businesses looking to grow without diluting their control. For biofuel producer Lakeview Energy, for example, Orion provided a $50 million debt facility – and helped secure an off-take agreement with a hand sanitizer producer. “There is an enormous number of private owner-operator businesses that require capital of between $20 million and $100 million,” said Massouh, who earlier financed power plants at NRG Energy.
Kroger and Village Capital accelerate 10 food waste startups. The Zero Hunger Zero Waste Foundation, the nonprofit arm of Kroger, enlisted Village Capital to support U.S.-based startups working to prevent, recover and recycle wasted food. The new cohort includes San Antonio-based Grain4Grain, which turns grain byproducts into high-protein flour; Portland’s Take Two, which reuses grain from beer production to make plant-based foods; and Journey Foods, an Austin-based startup that directs surplus food to people in need. Such startups are critical to creating “resilient communities that are free of hunger and waste,” said the foundation’s Denise Osterhues. Halving U.S. food waste is a $14 billion annual investment opportunity.
- Food diversity. Eight out of the 10 startups are led by women, and more than half have a Black, Asian or Latinx founder. Six of the 10 companies are based outside of California, Massachusetts and New York. Companies in the cohort will split an initial $1 million in grants and are eligible for another $1.5 million in funding.
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Dealflow overflow. Other investment news crossing our desks:
- Latinx-owned VamosVentures closes its first fund at $50 million to support early-stage health and wellness, future of work, consumer packaged goods and fintech companies led by diverse founders.
- Sustainable packaging company TemperPack secures $30 million in venture debt from Horizon Technology Finance Corp.
- Cameroon-based fintech Maviance raises $3 million to help banks, telecoms and mobile money operators integrate online payment services.
- Bain Capital Double Impact invests in New Hampshire-based urgent care provider ConvenientMD.
Impact Voices: Ethical Digitalization
The promise and perils of global digitalization. The pandemic has accelerated the shift to digital. With billions of individuals and organizations newly operating online come new opportunities and new vulnerabilities. Agents of Impact are on the case.
- Online safety is a new frontier for social innovation in Africa. Online safety and cybersecurity policy and infrastructure are not keeping pace with the rapid growth of connectivity across Africa. A community of startups, nonprofits and education institutions are tackling financial scams, identity theft, disinformation and serious crimes like human trafficking and terrorism recruitment, Tanner Methvin of Cape Town-based Impact Amplifier writes in a guest post. Plug in.
- How digitalization can enhance, shift and transform the entrepreneurial support ecosystem. Organizations providing support to emerging market entrepreneurs, including Sinapis, Pro Mujer, Bridge for Billions and MicroMentor, are rapidly adopting digital tools and practices to deliver services, writes Richenda Van Leeuwen of the Aspen Network of Development Entrepreneurs. ANDE, Dalberg and Argidius Foundation provide a guide to the shifts. Among the questions as entrepreneurial ecosystems continue to innovate, Van Leeuwen says: How can digitalization ameliorate (or worsen) existing digital divides? Go deeper.
Agents of Impact: Follow the Talent
Kizzmekia Corbett, National Institutes of Health coronavirus scientist (and Agent of Impact), joins Harvard T.H. Chan School of Public Health as an assistant professor to continue vaccine development research… Elizabeth Robinson, professor of environmental economics at the University of Reading, is named director of the Grantham Research Institute… More than a dozen U.S. firms have formed the Investment Consultants Sustainability Working Group, including Aon, Cambridge Associates, Hewitt Investment Consulting, Meketa Investment Group, Mercer and SEI.
New Energy Nexus is hiring a climate fintech credit card consultant in New York… Clean Energy Ventures launches a calculator to quantify the climate impact of a new technology… Cultured meat producer Memphis Meats changes its name to UPSIDE Foods… Applications are open to social entrepreneurs for the GLG Social Impact Fellowship, a two-year pro bono partnership with the global expert network… Social Nest Foundation is hosting “Institutional capital: driving change towards a sustainable future,” Tuesday, May 25… Avant-Garde Network’s Women of Color and Capital Virtual Summit is happening Saturday, May 29.
Thank you for your impact.
– May 13, 2021