The Brief | November 30, 2022

The Brief: Exiting to employees, TPG enters carbon market, accountability in healthcare investing, insurance for gig workers, chemical-free crop treatment

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Greetings, Agents of Impact!

Featured: Alt-Capital

Through ‘ownership trusts,’ investors can help employees become owners and help owners retire. Patagonia founder Yvon Chouinard’s unusual succession plan made waves with its massive commitment of the family-owned company’s future profits to a nonprofit. Even more interesting was the Chouinard family’s use of a legally-binding trust to preserve the company’s independence and social-mission. Such “perpetual purpose trusts,” or simply “purpose trusts,” are non-charitable legal entities that have long been used to protect inheritances and family assets. Employee-focused purpose trusts, or ownership trusts, could help address yawning wealth gaps by cutting in employees on the wealth they help create, says Zoe Schlag of Common Trust, a new financier and adviser to small business owners seeking to convert to ownership trusts.

  • Exiting to employees. Common Trust seeks to help meet the demand for succession plans, driven by a “silver tsunami” of business owners over the age of 55. “It’s clear that the way to build wealth in America is through ownership, not wages,” Schlag tells ImpactAlpha. Employee ownership trusts represent “one of the largest Archimedes levers of our generation to shift toward a shared-ownership economy.” Schlag, who earlier led Techstars Impact, co-founded Common Trust with Derek Razo through a merger with San Francisco-based Purpose Foundation, which has helped hundreds of companies and communities build equitable ownership and governance structures (see Common Trust’s report, “Exiting to employees through employee ownership trusts”).
  • Emerging structure. Patagonia is the largest among the small but growing number of U.S. companies moving to ownership trusts, according to Mark Hand, a researcher at Southern Methodist University. At least 32 companies in 16 states have converted to some form of purpose trust. Among them: Organically Grown in Eugene, Ore.; Firebrand Artisan Breads in Oakland.; Illuminator Collective in Brooklyn; Bicycle Technologies International in Santa Fe; Cypress Valley Meat Company in Pottsville, Ark.; and Clegg Auto, a group of car-repair shops in Provo, Utah that employs about 50 people.
  • Capital stack. Employee ownership trusts are inexpensive to execute, flexible in design, and free of fiduciary issues that sometimes arise with employee stock option plans. The capital stack typically includes senior debt from a bank, mezzanine debt from a financier like Common Trust, and some amount of seller financing. The capital is loaned to the trust, which uses the proceeds to buy up the shares from the owner. The owner, bank and financier are paid back through the company’s long-term cash flows. For employees, the structure gives them access to a portion of future profits without putting up capital.
  • Keep reading, “Through ‘ownership trusts,’ investors can help employees become owners and help owners retire,” by Dennis Price on ImpactAlpha.

Sponsored by J&J Impact Ventures

How shared accountability can increase the social impact of healthcare investing. Delivering real impact that improves health outcomes for underserved communities requires more than transparency. It requires innovators and investors to be explicit about their expectations and standards – and to share accountability to those expectations. Johnson & Johnson’s Sarah Mullane details the ways in which J&J Impact Ventures, a fund within the Johnson & Johnson Foundation, cultivates such shared accountability. The fund seeks impact data across five key criteria, including access by underserved communities and the contribution of both the company and the fund to outcomes that would not otherwise be achieved. The fund provides consulting to help portfolio companies evolve their impact strategies and reporting. “Together, we focus on actionable data to prove out the business model as well as the theory of change,” Mullane writes. “Particularly at early-company stages, the data we gather is critical because it can flow back into further experimentation and learning.”

Dealflow: Low-Carbon Transition

TPG seeds Rubicon Carbon’s carbon marketplace with $300 million. The private equity giant recruited former Bank of America heavyweights Tom Montag and Anne Finucane to create a market for high-quality credits that corporations can use to offset their emissions. “The growing carbon market will need new tools and financing solutions in order to reduce friction, democratize access and improve quality,” said TPG’s Jim Coulter. New York-based Rubicon Carbon will source carbon credits from TPG portfolio company Anew Climate, the product of an earlier TPG-led rollup, and fund new carbon offset projects through Rubicon Carbon Capital (see, “TPG Rise rolls up Element Markets and Bluesource to go big on carbon credits”). The credits, represented by a “Rubicon Carbon ton,” are backed by a portfolio of nature-based and industrial offsets, rather than by individual projects. TPG’s Rise and Rise Climate funds committed $300 million to Rubicon’s targeted $1 billion equity raise. Bank of America, JetBlue Ventures and NGP ETP are expected to invest. 

  • Crowded field. Carbon markets can help restoration projects and carbon removal technologies become economically viable. Yet a lack of transparency and poor quality standards have spurred charges of greenwashing. Corporations including Delta Air Lines and Credit Suisse are buying cheap “junk” credits to burnish their climate cred, without meaningfully reducing carbon emissions, according to a Bloomberg Green investigation. Among those trying to improve the markets: Salesforce, which launched its Net Zero Marketplace in September; International Finance Corp., which teamed up with neobank Aspiration on a blockchain-based carbon market; and Flowcarbon, a startup co-founded by WeWork’s Adam Neumann, which raised $70 million from Andreesen Horowitz in May. They join a host of smaller players including Nori, ReGen and NCX.
  • Read on

Igloo raises $46 million to provide insurance for gig economy workers in Southeast Asia. In Southeast Asia, insurance coverage as a benefit for employees is a luxury most small businesses can’t afford. Singapore-based Igloo uses data, real-time risk assessment and claims management to create low-cost B2B insurance products. Customers include Vietnamese delivery company Ahamove, which uses Igloo to provide hospital cash allowances and motor and transit insurance for over 120,000 gig delivery riders. Igloo recently launched blockchain-based weather insurance for Vietnamese rice farmers.

  • Gender smart. Investors in the round include BlueOrchard’s InsuResilience Investment Fund, Finnfund, Cathay Innovation and Women’s World Banking Asset Management, which earlier this year raised $103 million to invest in financial services focused on female customers and employees. Women’s World Banking’s Rajat Arora said Igloo’s insurance products can help vulnerable and underserved women build financial resilience.
  • Check it out

Dealflow overflow. Other investment news crossing our desks:

  • Women-led venture fund BackingMinds, in Sweden, raised €50 million ($51.6 million) from EQT, Nordic Capital and others to invest in overlooked founders outside of Europe’s capital cities. 
  • Solar energy provider Solarise Africa secured $33.4 million from Oikocredit, AfricaGoGreen Fund and the African Development Bank to expand its project portfolio in Africa.
  • Ejara, a Cameroonian fintech that helps users buy cryptocurrencies and save with decentralized wallets, raised $8 million in a Series A funding round (see, “Cameroon’s Ejara raises $2 million for impact-focused crypto”).
  • U.K.-based Bigsis scored £4.5 million ($5.4 million) in a Series A round led by Regenerate Ventures to provide chemical-free insect control to farmers. 

Agents of Impact: Follow the Talent

C40 seeks a senior manager for its Zero Emission Areas Program… Rockefeller Capital Management is hiring an investment client portfolio manager in New York… Gratitude Railroad is looking for a remote impact investment associate… The World Bank has an opening for an Adaptation Fund senior evaluation officer in Washington, D.C… UN Women is recruiting a remote national gender statistics consultant… The Center for Sustainable Energy has an opening for a remote director of government affairs.

Arcus Foundation seeks a director for its U.S.-based social justice program in New York… Claire Myers Consulting is looking for a sustainability consultant… BosWell seeks a technical co-founder in Boston… DFC is hiring a managing director and supervisory investment funds specialist in Washington, D.C… The Local Enterprise Assistance Fund (LEAF) is searching for a controller in Boston.

Seedstars launches Seedstars Capital, an investment initiative for emerging and diverse venture capital fund managers, with support from Swiss investment firm xMultiplied… The U.S. Department of Commerce, Lumina Foundation and Washington Center for Equitable Growth will co-host a hybrid virtual and in-person event on advancing equity and wellbeing through data today at 9am ET.

Thank you for your impact!

– Nov. 30, 2022