The Brief | January 12, 2021

The Brief: Community-led COVID recovery, Black-led real estate, climate risk-adjusted indexes, natural capital, ESG improvers

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Greetings, Agents of Impact!

Featured: Impact Voices

Community lenders can lead the COVID recovery for small businesses – with an infusion of common equity. Community lenders got a head start this week in taking applications for a fresh round of small business loans under the Paycheck Protection Program extended in the U.S. spending bills approved last month. That’s a reflection of the heroic efforts of many community development financial institutions, or CDFIs, and minority-owned depository institutions, or MDIs, in reaching the smallest businesses in lower-income, rural, and communities of color in the first round of aid last spring (see, “Innovative CDFIs scale up to help underserved communities move from relief to recovery”). And with the spending bills’ mandate of $12 billion in emergency capital to bolster the balance sheets of CDFIs and MDIs, themselves, the COVID disruption is proving to be a watershed moment for expanding community lending more broadly. The $3 billion allocation to the CDFI Fund in the spending package could result in an increase of four times that amount in additional lending, and it lowers the risk of investing in such institutions. “For impact investors, this unprecedented appropriation provides a unique opportunity to invest in MDIs and CDFIs,” write Laurie Spengler of Courageous Capital and George Surgeon of GSJ Advisors in a guest post on ImpactAlpha.

  • Devilish details. Rules for the additional $9 billion under a new Emergency Capital Investment Program could be problematic, the authors say. For starters: The infusion of capital in the form of 10-year limited-life preferred stock, rather than common equity, is likely to be used to refinance existing capital and not necessarily increase lending (see, “Corporate deposits in CDFIs are good. Equity investments would be even better). Community lenders “do not need a bail-out,” Spengler and Surgeon write. “However, they do need a significant infusion of common equity capital to strengthen their balance sheets in order to dramatically increase lending during the recovery.”
  • Calm before the storm. There was no deluge of loan applications when the community lenders’ exclusive two-day window opened this week. This time, larger businesses are excluded, and businesses that got loans in the first round must wait to apply for second draws. “It’s the calm before the storm,” said Southern Bancorp’s Darrin Williams (see, Agent of Impact). Many businesses the bank serves are in the hard-hit hospitality sector, Williams says. In the Mississippi Delta region, for example, dozens of blues festivals were canceled due to COVID.
  • Secondary market. Corporate bonds and mortgages are securitized; a new white paper argues that CDFI loans can be resold as well. “We see an opportunity for a quantum leap forward in CDFI funding,” write Christopher Shin of the Local Initiatives Support Corp. and Sean Campbell of Capital for Communities, in “Securitization for Social Innovation.” There’s a model: the LISC-managed New York Forward Loan Fund (see, “New York’s $100 million loan fund for small businesses is a model for a $1 billion national fund).
  • Keep reading, “Community lenders can lead the COVID recovery for small businesses – with an infusion of common equity,” by Laurie Spengler and George Surgeon on ImpactAlpha. 

Dealflow: Follow the Money

Black-led real estate firm East Chop Capital closes $4 million fund. Columbus, Ohio-based East Chop Capital has rallied Black investors to back Black developers and aims to partner with Black realtors, banks, electricians, plumbers, housekeeping crews, cleaning companies and more as it acquires luxury vacation rental properties across the U.S. “We’re looking to do that as our portfolio grows – helping them grow their businesses significantly,” East Chop’s Carrington Carter told ImpactAlpha. With its $4 million first fund, the private equity firm aims to acquire up to a dozen vacation homes over six months. At least 90% of investors in the new fund are African Americans, says co-founder Calvin Butts

  • Diversity in real estate. Just 2% of real estate development firms in the U.S. are Black-led. Maryland-based Enterprise Community Partners is aiming to tackle the low representation of Black and other people of color in the real estate sector with a $350 million fund (see, “Enterprise’s Equitable Path Forward initiative”). 
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Dealflow overflow. Short takes on funding news crossing our desks:

  • Gro Intelligence secures $85 million to build climate risk-adjusted indexes. The indexes factor in local climate-related risks like flooding and drought. Intel Capital, Africa Internet Ventures (a joint fund of TPG Growth and EchoVC), and the Ronald Lauder and Eric Zinterhofer family offices backed the Black and woman-owned company.
  • Singapore’s IIX invests in Centrum Microcredit to support women micro-entrepreneurs. Impact Investment Exchange invested $5.5 million in the microfinance firm from capital it raised through its Women’s Livelihood Bond series (see, “IIX raises $27.7 million for third Women’s Livelihood Bond”)
  • Syndio clinches $17.1 million to help employers resolve pay gaps. Bessemer Venture Partners backed Syndio and its software, which identifies companies’ salary discrepancies among employees. The female-founded startup raised Series B financing just nine months after its $7.5 million Series A round. 
  • Partake Foods raises $4.8 million from Black-focused funders. The Black, woman-led food company makes allergy-friendly snack foods. Series A funding came from celebrities including Rihanna, Seattle and Seahawks’ Bobby Wagner, and Black-founder-focused venture funds Black Capital and Black Star Fund, among others. Jay-Z’s Marcy Venture Partners was an early investor.
  • Too Good To Go raises $31.1 million to redistribute surplus food. The woman-led Danish company, which sells unused food from grocery stores, bakeries and other retailers to curb food waste, is expanding to the U.S. Venture fund blisce led the funding round, TechCrunch reports

Signals: Ahead of the Curve

Short takes. A few of the reports and data points we’re watching:

  • Opportunity Zone impact. MLK Gateway is building out offices, retail and workspace for minority-owned tech startups in Washington D.C.’s Anacostia neighborhood, backed by $2.8 million in Opportunity Zone investment from three local investors and loans from LISC. It’s among three new OZ case studies from Economic Innovation Group.
  • Natural capital. HSBC Pollination Climate Asset Management, Lombard Odier and Mirova launched the Natural Capital Investment Alliance with an aim of mobilizing $10 billion for investments in biodiversity restoration and natural resource opportunities.
  • ESG improvers. A new ESG “improvers” index from Bloomberg and Rockefeller Asset Management tracks companies’ gains on environmental, social and governance performance relative to industry peers.

Agents of Impact: Follow the Talent

Ana Paula González is promoted to head of managed funds at 500 Startups… MacArthur Foundation’s Ken Jones is elected board chair of Mission Investors Exchange. Kellogg Foundation’s Cynthia Muller will be treasurer. Ben Bynum of the Colorado Health Foundation, Frank Fernandez of the Community Foundation for Greater Atlanta, and Shanaysha Sauls of the Baltimore Community Foundation join MIE’s board… Carbon Tracker names Catharina Hillenbrand von der Neyen, ex- of Allianz, as head of company research. Andrew Grant is promoted to head of climate, energy and industry research… Cornell University undergrads Ermias Tadesse and Cheick Camara launch BlackGen Capital, the university’s first minority-owned investment fund.

Harvard’s George Serafeim won the Graham and Dodd Scroll Award at the CFA Institute’s Financial Analysts Journal for his research on the pricing of corporate sustainability… The Collaborative for Frontier Finance seeks a director for its early-stage capital providers network… The Reinvestment Fund is looking for a lending associate in the Atlanta region… Applications for VC Include’s fellowship for Black, Indigenous and Latinx first-time fund managers are due this week.

Thanks for your impact.

– Jan. 12, 2021