The Brief: Disrupting disruption with leverage-first models

The team at

ImpactAlpha

Greetings Agents of Impact! In today’s Brief:

  • Disrupting disruption with leverage-first models
  • BlueEarth’s climate strategy
  • Fighting food waste in India
  • Trillions at Davos

Featured: Impact Management

These social ventures are scaling impact by improving systems, not disrupting them. Disrupters have long held the edge in Silicon Valley, as well as in the world of social ventures. If some system isn’t delivering, goes the conventional wisdom, topple it and rebuild a more optimal version. There’s one problem: The approach doesn’t always work. One pioneering social investor found that system-disruptors had less impact on social inequities than solutions that tweaked existing structures and improved them. Leverage the system, don’t disrupt it, says Jim Bildner, CEO of the Draper Richards Kaplan Foundation, which has funded more than 200 nonprofit and for-profit social enterprises in the US, Europe, Africa and India. The foundation, the philanthropic arm of venture capital firm Draper Richards, says its portfolio of healthcare, education and criminal justice companies have impacted the lives of more than 300 million people. One in five of those companies is improving the lives of over a million people. A study of top-performers revealed a common thread. “Organizations that relied on disruption were not as successful as the organizations that leveraged the existing infrastructure,” Bildner told ImpactAlpha. “Every single one of them was leveraging what existed on the ground and not blowing it up.”

  • Infrastructure first. San Francisco-based Recidiviz, a Draper Richard Kaplan portfolio company, learned that it could have a greater impact building data tools for people inside of criminal justice systems than for outside advocates working on reform. Boswell helps healthcare providers engage eligible but hard-to-reach Medicaid beneficiaries where they are, like at one of the more than 100,000 food pantries across the country. In education, Kinvolved (acquired by PowerSchool in 2022) chose to mitigate absenteeism, rather than disrupt public education. The infrastructure exists, says Bildner, “so fill the gaps, modify the system, and achieve mission.”
  • De-risking operating risk. Inside the DRK Foundation, the thinking around systems has shifted from “Bad infrastructure is terrible, that’s why it needs to be blown up,” to “Infrastructure isn’t perfect and can be improved,” says Bildner. From the standpoint of funders, the paradigm shift mitigates operating risk. Take healthcare. Disruption mode means creating a new system, from design to deployment to the amount of funding required to drive adoption. “It’s enormously complicated,” says Bildner. 
  • Pathway to scale. Working within systems can offer pathways to scale. The internal combustion engine supply chain, for example, is one of the largest in the world and employs tens of millions of people. Cleantech investor Wave Equity Partners last year invested in a company that has modified a diesel engine to run on fuel that is 70% water and 30% ethanol. “The supply chains, the value chains of transportation, energy and water are so massive and so extensive on the planet that you don’t want to disrupt them,” Wave Equity’s Praveen Sahay tells ImpactAlpha. “You want to help them transition to a greener pathway.”

Dealflow: Education Finance

Blue Earth Capital doubles down on Varthana for quality education access in India. Bangalore-based Varthana has extended loans to over 7,500 low-cost private schools in India to rehabilitate facilities, train teachers and secure resources for students. Varthana says it has opened branches in India’s smaller cities to reach more low-income students. Blue Earth’s $14 million follow-on investment “will empower Varthana to expand its support to a wider network of affordable private schools,” said Amy Wang of the Swiss impact investing firm. During the Covid pandemic, Varthana secured a $15 million loan from the US International Development Finance Corp. to help schools transition to online learning. 

  • Climate finance. Separately, Blue Earth closed its latest private equity climate impact fund, raising $308 million to invest in companies driving the low-carbon and circular economies in North America and Europe. The fund will target growth-equity investments in the “missing middle” of the venture and buyout stages. An additional $70 million in commitments will be reserved for co-investments.
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KisanKonnect’s raises $3.7 million to combat food waste and boost farmers in India. Pune-based KisanKonnect started its farm-to-consumer logistics service to cut food waste in India’s inefficient and fragmented food supply chain. It’s evolving to help its thousands of smallholder farmer partners adopt climate-resilient farming practices and technologies. Among its initiatives: “agri clinics” to help farmers improve soil health. Sandiip Bhammer of Green Frontier Capital, which led the company’s pre-Series A round, credited KisanKonnect’s “dedication to soil improvement, reduced chemical usage, and elevated farm productivity – values that align seamlessly with our mission to champion climate tech innovations.” Agri-chemicals company Dhanuka Agritech and several family offices also participated in the funding round.

  • Direct to consumer. KisanKonnect’s app allows its more than 300,000 customers to place orders and see which farms their produce comes from. It also sells its own line of healthy snacks and branded food staples.
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Dealflow overflow. Investment news crossing our desks:

  • Compass Diversified acquired a majority stake in Black woman-led feminine hygiene brand The Honey Pot Co. (Shoppe Black)
  • Australia’s Element Zero snagged $10 million in seed financing to develop an electrochemical process that uses clean energy to decarbonize iron, nickel and other critical metals production. (Element Zero)
  • Paris-based Electra raked in €304 million ($331 million) in a Series B equity round, led by Dutch pension fund PGGM, to expand its network of EV charging stations in Europe. In the UK, Trojan Energy clinched £26 million ($33 million) to provide EV charging for UK households without access to driveway charging. 
  • Germany’s Ineratec raised over $129 million in a Series B funding to make fuels from recycled carbon emissions and renewable energy for aviation, shipping and other hard-to-abate industries. (Ineratec)

Signals: Davos Watch

If every billionaire is a policy failure, what’s a trillionaire? The world is woefully behind on achieving climate and sustainable development goals by 2030. But one area where we’re excelling: minting billionaires and, perhaps soon, trillionaires. In a report released on the eve of the World Economic Forum, the elite gathering of walking policy failures underway in the Swiss Alps, Oxfam said the wealth of five of the world’s richest men – Elon Musk, Jeff Bezos, luxury brand LVMH’s Bernard Arnault, Oracle founder Larry Ellison, and Warren Buffett – has doubled since 2020, while 60% of humanity has grown poorer. “If 10% of every business in the US was employee-owned, it could double the share of wealth of the bottom 50% and the median wealth of Black households,” Oxfam suggests. “Competitive and profitable businesses don’t have to be shackled by shareholder greed.”

  • Missing Trillions. A collaborative of 15 mostly European nonprofits has an idea of what to do with those trillions. The Systemic Climate Action Collaborative is aiming to deliver “large, flexible, unrestricted and long-term funding” for urgent climate action. At Davos, the group organized “Missing Trillions” to explore the $4 trillion annual climate financing gap. “If you envision a Venn diagram with projects that are bankable on the one side, and on the other projects that are impactful; the overlap between these two sides is relatively small,” said Eva Gladek of Amsterdam-based Metabolic. “We need to first figure out how to increase the size of the overlap, and second, [develop] models of how capital can be reimagined for the portions that may never overlap.”
  • Powering AI. The problem may get worse before – if – it gets better. Like cryptocurrency, the rise of artificial intelligence promises to gobble up vast amounts of energy. Clean and renewable energy like nuclear fusion or solar plus storage are key to powering AI’s growth, OpenAI’s Sam Altman said at a Bloomberg side event in Davos. “There’s no way to get there without a breakthrough,” Altman said. “It motivates us to go invest more in fusion.” Altman invested $375 million in nuclear fusion company Helion Energy, which has agreed to deliver 50 megawatts of fusion-powered electricity to Microsoft in 2028. Microsoft is a major investor in OpenAI. 

Agents of Impact: Follow the Talent

Don’t miss these upcoming ImpactAlpha partner events:

Vladimir Savic, formerly with agtech investor Cibus, joins Blue Vision Capital as managing partner… Caitlin Misiaszek, formerly of Johns Hopkins Center for a Livable Future, joins Reinvestment Fund as impact manager of its capacity building and capital access programs… Soros Fund Management is on the hunt for an impact strategy analyst in New York… JPMorgan Chase seeks a vice president of impact finance and advisory equity fund investing… Locus is looking for a remote senior analyst for impact investment services and other roles.

In London, BlueMark has an opening for an impact investing analyst, British International Investment is hiring a portfolio associate, and the European Climate Foundation is looking for a senior associate… Matrix Renewables is hiring a storage business development manager in Madrid… The Sustainable Finance Initiative is recruiting an events project manager in Hong Kong… Raven Indigenous Capital Partners seeks a people and culture director… Propel Impact is recruiting 40 summer analyst interns.

👉 View (or post) impact investing jobs on ImpactAlpha’s new Career Hub.

Thank you for your impact!

– Jan. 18, 2024