Greetings, Agents of Impact!
Featured: ImpactAlpha Original
How impact investors are using donor-advised funds to shift power to the people and communities. Impact investing, like most investing and even philanthropy, tends to vest power in the hands of those with the capital, who can dictate when and how financing flows to enterprises and nonprofits (see, “Stretch goal for foundations: Shift power, as well as assets, for the post-COVID economy”). Now, some investors are using the flexibility of donor-advised funds to shift at least some power and decision-making authority to affected communities. The Kataly Foundation’s $50 million environmental justice initiative, a donor-advised fund hosted by ImpactAssets, convened nine grassroots environmental justice organizers from the U.S. and Puerto Rico – all of them women of color – to distribute both grants and investments. “We know what our folks are doing,” says National Black Food Justice Alliance’s Dara Cooper, one of the nine people designing the new process. “We don’t need them to jump through hoops to get funding.” Candide Group’s Olamina Fund, which lends to women and BIPOC-led financial institutions, gives an investment decision vote to an advisory committee representing those institutions. Two of Candide’s clients provided the first $40 million for the Olamina Fund from their donor-advised funds.
“Ten years ago, I was trying to convince people that this is a thing that will work,” says Kelley Buhles of RSF Social Finance. RSF launched its DAF program a decade ago with options to consult or co-create criteria with affected communities. This month, RSF added a “community-led funding” option, in which the donor cedes control over how the grant-making decisions are made to a panel of community members. “Now, donors are coming to us because they want to do this work.” More than 700,000 DAFs hold assets totaling more than $121 billion. Racial justice protests in the wake of George Floyd’s murder have underscored the limitations of top-down decision-making in creating a more level playing field. Community input, and the lived experience of beneficiaries, can contribute to better investments. Says Buhles: “Even people with a lot of money and a lot of power are starting to get the sense that they need to draw from a bigger circle.”
Keep reading, “How impact investors are using donor-advised funds to shift power to the people – and communities,” by Meg Massey on ImpactAlpha.
Dealflow: Follow the Money
Evergreen Cooperatives helps Ohio coffee chain transition to worker ownership. The Evergreen Cooperatives launched in 2008 to create worker-owned businesses that could bring jobs and wealth in low-income Cleveland neighborhoods. With a commercial laundry, an urban greenhouse, an energy efficiency provider and other businesses, the network has grown to 207 employees, about half of them employee-owners. Two years ago, Evergreen launched The Fund for Employee Ownership to help more businesses transition to worker-ownership. The latest investment: Phoenix Coffee, a chain of five coffee shops and a wholesale roastery that employs 37 people in northeast Ohio. “This new partnership with Evergreen positions us to not just survive the pandemic but to also grow and share profits with our employees, who are now also owners,” said Christopher Feran, who co-led the employee buyout.
- Growth capital. The Fund for Employee Ownership made its first investment in February, providing a long-term, low-cost loan to finance a buyout by employees of Berry Insulation, which provides insulation and energy services. This month, the fund helped the company, now called BI Cooperative, acquire another local business and expand its capacity. The deal demonstrates “all the ways that we use capital to mobilize employee ownership,” Evergreen’s Brett Jones told ImpactAlpha. “We help the companies we invest in grow.” The Atlanta-based Kendeda Fund last August topped up the Evergreen fund as part of $24 million in grants spread across four employee-ownership organizations.
- Background reading – and listening. KKR’s Pete Stavros discusses worker-ownership strategies for manufacturing businesses in ImpactAlpha’s podcast, “This private-equity giant has distributed more than $500 million – to hourly employees.” Philip Reeves and Todd Leverette make the case for employee ownership as a remedy for systemic racism in “Black and brown employee ownership for the post-COVID economy.” Jessica Rose and Hilary Irby offer guidelines for such transactions in “Turning the small business crisis into an opportunity for equitable employee ownership.” And Rose chats with Monique Aiken in this Impact Briefing podcast from August (at 2:13)
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LISC bets on Fearless Fund with $750,000 investment in first-time fund managers. Diverse fund managers are key to getting more capital to entrepreneurs of color, but it can be hard for new funds to break through. Local Initiatives Support Corp., or LISC, is helping launch fund managers of color with early support for first-time managers. LISC is the first institutional investor in Atlanta-based Fearless Fund, launched in February by Arian Simone, Keisha Knight Pulliam, and Ayana Parsons to invest in high-growth ventures run by women of color. Fearless’ portfolio includes rain hat maker HairBrella, data analysis firm Streamlytics and EnrichHER, a lending platform for women. Fearless Fund “had all the ingredients – experience, good access to pipeline. They just didn’t have experience running a fund,” LISC’s George Ashton told ImpactAlpha.
- Show of faith. LISC invested $500,000 of its investable assets and raised another $250,000 via a grant to LISC from Fifth Third Bank’s foundation as a show of faith to help attract more capital to the fund, Ashton said. Fearless Fund has raised its target from a modest $5 million to $20 million.
- Black-led lenders. In June, LISC launched the Black Economic Development Initiative, seeded with $25 million from Netflix, to support Black-led lenders. Such strategies can help close the racial wealth gap and ensure that corporations have a strong future customer base for their products, says Ashton in a guest post on ImpactAlpha. Read the full post.
Ketos catches $18 million to improve industrial water systems. Much of the U.S.’s water infrastructure is out of date, with some communities still relying on pipes from the 19th century. An increasing number of Americans believe their tap water is unsafe to drink. San Jose-based Ketos uses sensors, software and machine learning to alert industrial water and wastewater utilities of contamination. The venture investing arm of Motley Fool led the $15 million equity investment in woman-run Ketos. Citi and Illuminated Funds Group also participated. Silicon Valley Bank chipped in $3 million in debt.
Rockefeller Foundations commits $1 billion to clean energy and healthcare for COVID recovery. The three-year commitment aims to scale distributed renewable energy across emerging markets, boost access to COVID-19 tests and vaccines, and strengthen public health systems to prevent future outbreaks. The New York-based foundation will leverage $700 million in proceeds from a September bond sale, along with endowment capital, to catalyze billions in private and concessional investments. “The time to act is right now to make sure vulnerable children and families are included in the pandemic response and recovery,” said Rockefeller’s Raj Shah. “We need to reimagine the future we want.”
Agents of Impact: Follow the Talent
Marvin Owens, ex- of NAACP, joins Impact Shares as chief engagement officer… Aceli Africa is hiring a head of policy and partnerships in Nairobi or Kampala (see, “Smart subsidies for Africa’s high risk, low return smallholder finance market”)… The Equality Fund seeks a senior manager of investment strategy in Ontario… Aeris is looking for a financial institutions rating analyst.
Thank you for reading.
–Oct. 28, 2020