Greetings, Agents of Impact!
Featured: Impact Voices
Turning the small business crisis into an opportunity for equitable employee ownership. Up to half of small business owners in the U.S. expect to close as a result of the COVID economic crisis. “Rather than standing by as a wave of corporate buyouts and consolidations undermine local economies and further exacerbate wealth inequality, social impact investors could become the agents of a sweeping economic transformation anchored in broad-based employee ownership,” write Jessica Rose of The Democracy Collaborative and Hilary Irby of Soros Fund Management in a powerful call to action on ImpactAlpha. Impact investors and other capital providers could be the agents who “turn the misfortune that has overtaken the old economy into a new era of shared prosperity.” Even before COVID, impact investors had seeded a handful of new employee ownership investment funds to address the growing wealth gap in the U.S. The Kendeda Fund, for example, last year provided $24 million in grants to organizations building a worker-owned economy, including The Fund for Employee Ownership, The ICA Group, Nexus Community Partners, and Project Equity, and to help finance the sale of businesses to employees.
The caveat: “Capital investments must be done right,” Rose and Irby write. In “Guidelines for equitable employee ownership transactions,” they propose guardrails for employee ownership to protect firms from excessive debt and opportunities for workers to build future wealth. Among the recommendations: Don’t leave firms over-leveraged at exit; allocate substantial (at least 30%) stakes to employees; and benefit low-wage workers, people of color, women and immigrants. Soros Fund Management, the family office of George Soros, is among the groups piloting the guidelines. Others include Colorado-based Main Street Phoenix Project, which is raising capital for a cooperatively owned holding company to acquire and relaunch COVID-distressed restaurants as employee-owned businesses. Mosaic, which has raised a $165 million private equity fund to exit to employee stock ownership plans, or ESOPs, prioritizes employee engagement and a strong employee-ownership culture, “factors that have been shown to drive long-term success,” says Priya Parrish of Impact Engine, which invested in the firm.
Keep reading, “Turning the small business crisis into an opportunity for equitable employee ownership,” by Jessica Rose and Hilary Irby on ImpactAlpha.
- On trend. KKR’s Pete Stavros discusses the worker-ownership strategies for manufacturing businesses in ImpactAlpha’s podcast, “This private-equity giant has distributed more than $500 million – to hourly employees.” In “Black and brown employee ownership for the post-COVID economy,” Democracy at Work Institute’s Philip Reeves and Todd Leverette make the case for investments in employee ownership as a remedy for systemic racism.
Dealflow: Follow the Money
Japan’s Hulic Co. issues bond that punishes for missed environmental impact targets. An increasing number of sustainability-linked loans reward companies with lower interest rates if they meet environmental and social milestones (see, “An incentive for companies that deliver on sustainability: lower-cost capital”). Japanese real estate developer Hulic Co. is taking an opposite approach with a 10 billion yen ($94 million) sustainability-linked bond: if it misses its green targets, it will pay investors an additional 10 basis points, Bloomberg Green reports.
- Green goals. Hulic intends to use the bond’s proceeds to convert its headquarters and subsidiaries’ office buildings to 100% solar electricity, and to build a new commercial facility in Tokyo made with domestically-grown wood.
- Corporate credit. In February, BNP Paribas closed a sustainability-linked loan with JetBlue Airways that included a provision for a lowered interest rate if the airline improves its environmental, social and governance score. Other companies with sustainability-linked credit and bonds include investment firm Neuberger Berman and Johnson Controls.
- Impact incentives. U.S.-based Beneficial Returns, Australia’s IIG, Germany’s Roots of Impact and East Africa-focused iungo capital all offer financing terms tied to businesses’ positive impact achievements (see, “Incentives for driving impact in deal and fund structures”).
- Read on.
Mali’s Energy+ raises $1 million to expand access to off-grid solar products. Many pay-as-you-go solar startups in Africa have moved “up market,” focusing on small commercial or community solar energy access. Not Energy+. As a new company in a frontier market, Energy+ is selling basic home solar products from d.light to Malian households. Its equity round from VentureBuilder, Cordaid Investment Management and the United States African Development Foundation comes with technical assistance. Check it out.
With a ‘green sukuk,’ Leader Energy raises $62 million for Malaysian solar projects. The sukuk, a bond that is compatible with Islamic law, will finance two solar farms in the northwestern state of Kedah. Leader Energy, which develops renewable energy projects in Malaysia and Vietnam, arranged the green bond through HSBC’s regional division, HSBC Amanah.
Movens Capital raises €13 million to back tech startups in Central and Eastern Europe. Warsaw-based Movens isn’t explicitly targeting high-impact ventures, but is aiming to fill the early-stage capital gap in Central and Eastern Europe’s entrepreneurial ecosystem. The firm will invest up to $1 million in seed and Series A rounds, focusing on deep tech, medical tech, fintech, e-commerce and logistics. Movens is backed by the Polish Development Fund and several unnamed private investors.
Ortus Africa Capital to back Uganda’s COVID relief-focused startups. The firm has launched a $1 million fund to offer grants of up to $10,000 to entrepreneurs delivering healthcare, education, financial services and those supporting a resilient, post-COVID workforce and digital economy, as well as tourism and logistics.
Signals: Ahead of the Curve
Water deals flow amid droughts and storms. Wildfires across California and twin storms headed for the Gulf Coast provide a harrowing backdrop for this year’s World Water Week. Water-related threats – too little or too much – are intensifying as the planet warms. That is accelerating investor interest in water-related solutions, from wastewater treatment to access to clean water (see, “Water investments primed to flow in 2020”). As much as $1.5 trillion a year in water and sanitation infrastructure investments will be needed by 2030, according to the Global Commission on the Economy and Climate. Recent action:
- Water finance. Large water infrastructure projects have plenty of financing options; not so for projects under $50 million. That’s the market that Upwell Water LLC is targeting. Last month, the San Francisco-based firm got a capital infusion from private equity firm Crestview Partners. The commitment, on top of previous investments, brings Upwell’s total capital to $1 billion, making it one of the largest specialty water finance providers. Upwell’s first deal: $20 million in working capital and project finance for Fluence, a decentralized water and wastewater treatment solutions provider. Separately, Detroit-based WaterWorks launched an investment marketplace for local water infrastructure projects and water-tech ventures (see, “Grassroots platforms are not waiting for Washington to invest in a green new deal”).
- Water tech. Data, sensors and intelligence can save money for everybody from senior-living operators to textile manufacturers. Mazarine Ventures, an early-stage fund, has backed 10 companies, including Berkeley, Calif.-based Simple Lab, which connects companies and homeowners to water testing services. Mazarine Technology Investments, a second fund launching next month, will write checks of up to $3 million for companies addressing water across agriculture, real estate, industrial and municipal sectors. “The world doesn’t have a water problem,” says Mazarine’s John Robinson. “It’s a policy problem.”
- Stormwater management. StormSensor uses sensors and data analytics to help cities manage stormwater flooding and runoff. “The number and intensity of storms, and their floods, continue to increase with climate change, and we have a lot of work to do to build resilience into our communities,” founder Erin Rothman told the Milwaukee Business Journal. TitleTownTech, a Milwaukee innovation center created by Microsoft and the Green Bay Packers, is StormSensor’s latest investor.
- Water risk. Water scarcity is “a growing and underappreciated risk” across asset classes, with real estate, agriculture, electric power, and food and beverage among the most at risk, warns BlackRock. The asset management firm in June led a $50 million Series C funding round for Scottsdale, Ariz.-based Zero Mass Water, which is deploying rooftop panels that harvest drinking water from water vapor in the air in arid areas (see, “BlackRock leads Zero Mass Water’s $50 million round”).
- Take a dip.
Agents of Impact: Follow the Talent
Provenance Capital Group is seeking an investment associate in San Francisco or New York… Salesforce Ventures joins the Impact Capital Managers network… MicroVest earns B Corp certification… BlackRock is looking for a sustainable investing platform strategist in Hong Kong… Amazon is hiring a sustainability and circular economy program manager in Sunnyvale, Calif… thirdACT, Prime Coalition and MCE Social Capital are hosting ‘DAF Salon’ with ImpactAssets’ Tim Freundlich on Thursday, Sept. 10.
Thank you for reading.
–Aug. 26, 2020