Greetings, Agents of Impact!
Featured: ImpactAlpha Original
New crowdfunding rules set to boost investment in diverse startups and founders. The SPAC craze is one reaction to the costly and fraught process of taking a company public (see Dealflow, below). A less flashy capital-raising innovation is quietly gaining traction: investment crowdfunding. New U.S. Securities and Exchange Commission rules that go into effect today increase the amount that entrepreneurs can raise from customers, supporters and the broader public from $1.07 million to $5 million. Since the advent of “regulation crowdfunding” under the Jumpstart Our Business Startups, or JOBS, Act, four years ago, some 800,000 investors have committed more than $800 million across 3,600 offerings (campaigns only collect the funds when they meet their minimum goals). The average raise: $350,000. Deals have accelerated despite (or because of) the COVID crisis. The new higher limits will “massively accelerate that growth,” Jonny Price of crowdfunding portal Wefunder writes in a guest post on ImpactAlpha. Price predicts $1 billion could flow to crowdfunded offerings in 2021, a four-fold increase over the past 12 months.
Some companies are crowdfunding in order to engage customers and share wealth more broadly, even when other capital is available. A BlocPower subsidiary is offering “climate notes” to finance energy projects in BlocPower’s client buildings via the RaiseGreen platform, which specializes in sustainable project finance (see, “Brooklyn’s BlocPower raises $63 million to green U.S. buildings”). Crowdfunding can help diverse founders prove their investability. Before it could attract institutional investors, Native American Natural Foods raised $120,000 from 200+ investors (see, “A Native food company’s commitment to social mission attracts investors at last”). Savers Village, a Black-led workforce housing project, is raising on real estate crowdfunding platform SmallChange to create tenant savings accounts that build wealth with a portion of each month’s rent. “The ability for socially-minded entrepreneurs to raise capital from ordinary people (not just millionaires and billionaires) who are passionate about the problem they’re tackling,” Price says, “is invaluable.”
- Global trend. In Europe, where investment crowdfunding first took hold, early stage VC firm Passion Capital is carving out £350,000 out of a £45 million ($62.7 million) fund for individual investors via crowdfunding platform Seedrs. African crowdfunding platform Raise is looking to ignite African-led crowdfunding across the continent (see, “Microtraction backs African equity crowdfunding platform Raise”).
- Second rounds. The new U.S. capital thresholds will let companies that capped out at $1.07 million reopen their campaigns to take advantage of the higher limits. Arlan Hamilton’s Backstage Capital campaign on Republic hit the maximum in under 10 hours with 3,000 investors (see, “Arlan Hamilton opens Backstage Capital to retail investors”). The new rules also permit companies to pool investors into special purpose vehicles, help companies get an early gauge of investor interest, and remove limits on investments by accredited investors.
- Founder diversity. “Regulation Crowdfunding is delivering more capital to under-represented founders – be they founders of color, female founders, or founders outside of California, New York and Massachusetts, which currently account for 77% of VC funding,” writes Price. More than 20% of founders raising on Wefunder are female, compared to the 3% backed by venture capital firms. Black representation (4.4%) is more than quadruple the share of VC funding. And 87% of the founders are located outside of Silicon Valley, compared to 58% for VC firms. Price says companies with successful Wefunder campaigns have gone on to raise over $5 billion and create 15,721 jobs. Price’s full post.
Keep reading, “New crowdfunding rules set to boost investment in diverse startups and founders,” by Amy Cortese on ImpactAlpha.
Dealflow: Follow the Money
General Catalyst aims latest SPAC at Black tech founders. Listings of special purpose acquisition companies, or SPACs, hit a record in February, raising more than $27 billion. Venture capital firm General Catalyst is aiming to boost diversity with a $400 million raise for investments in Black-led software companies. “Our team and board of directors are united around a common goal: to invest in the next generation of Black entrepreneurship and leadership,” the firm said in an SEC filing.
- Rise of the ‘S.’ A spate of SPACs have targeted sustainability solutions like electric-vehicle charging networks and battery tech. Far fewer have focused on social factors in environmental, social and governance, or ESG, investing. General Catalyst will use the SPAC’s profits to launch Catalyst Partners Foundation to “champion initiatives supporting the economic empowerment and inclusion of underrepresented groups.” General Catalyst previously launched two healthcare-focused SPACs.
- Dive in.
Savannah Fund reaches first close on Africa Tech Seed Fund. The Mauritius-based investment firm backs Africa-based tech startups “that create jobs and make an impact.” It secured funding from the International Finance Corp. and the Women Entrepreneurs’ Finance Initiative, or We-Fi, which backs enterprises and fund managers supporting women entrepreneurs (see, “With billions as bait, development financiers seek to hook private investors on gender-lens investing”).
- Early-stage. Savannah Fund launched in 2012 with a Kenya-based tech accelerator and now cuts seed and Series A stage checks of up to $500,000. It has made seven investments from its second fund. Among its portfolio companies: Kenya-based Copia, an e-commerce platform for low-income and rural consumers; edtech startup Eneza Education; and logistics and package delivery company Sendy. All have female co-founders.
Dealflow overflow. Other investment news crossing our desks:
- Active Impact Investments closed on $41 million for investments in North America-based climate tech ventures.
- Nairobi-based Equity Group Holdings secures a $100 million loan facility for small businesses recovering from pandemic-related disruptions.
- Calvert Impact Capital makes a $10 million debt investment in Chennai-based Northern Arc Capital.
- Austin-based SchooLinks raises $7 million from Live Oak Venture Partners, Juvo and SJF Ventures to support college readiness for K-12 students.
Series: Impak Battles
Euronext NV vs. Deutsche Börse in a stock market impact faceoff. The past year was a difficult and volatile time for global stock exchanges. Large-cap stocks in tourism, transportation and the food chain plummeted. Stocks in other sectors soared. Small investors and “meme stocks” (cf. GameStop) redefined market rules. And then there was sustainable investing, which soared in 2020 and pushed stock exchanges to reposition. The latest edition of Impak Battles, an ImpactAlpha series with Montreal-based impact ratings agency impak, pits Amsterdam-based stock exchange Euronext NV, with nearly 1,500 listed issuers and €4.5 trillion ($5.4 trillion) in market capitalization, against Frankfurt-based exchange Deutsche Börse.
- What to watch. Stock exchanges are at risk in areas such as business ethics, including insider trading, fraud and market abuse behavior. Neither company has properly addressed these issues, impak found. “The 2020 sustainable investing explosion brought these issues to the forefront, and the pressure and opportunity it represents for the stock exchange industry is not to be diminished.” Deutsche Börse last month acquired ISS and has a minority stake in Clarity AI.
- Impact battles. Catch up on earlier faceoffs: Nestlé vs. Danone, Engie vs. Enel, Novartis vs. Sanofi, Crédit Agricole vs. BNP Paribas and Total vs. Neste Oyj.
- Euronext NV vs. Deutsche Börse
Agents of Impact: Follow the Talent
Ashley Walter, ex- of Fenwick & West, joins Orrick to advise clients on ESG issues. Perry Teicher, who leads Orrick’s impact finance and investment group, is promoted to impact finance counsel; Betsy Popken becomes sustainability and human rights counsel… Heran Getachew is promoted to director of investments at Illumen Capital… Johnson & Johnson is hiring a global leader of its health equity investments group in New Brunswick, N.J.
In Amsterdam, Mbuyu Capital is recruiting a principal of business development and impact management, Impact Equity Fund is looking for an investment associate, and OpenInvest is recruiting a senior director of business development for the E.U. and U.K… Starbucks has an opening for a corporate social impact specialist in London… Cambridge, U.K.-based Raspberry Pi Foundation seeks an impact analyst… ImpactAssets is hosting “Impact Investing Lab: Reinvent Your Philanthropy Using a Donor Advised Fund,” Thursday, Mar. 25.
Thank you for your impact.
– Mar. 15, 2021