The Brief | September 11, 2019

The Brief: Faith-based engagement on guns, Goldman’s solar yieldco, Black tech startups, frontier of impact finance, Tony Morgan to CDC

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Greetings, Agents of Impact!

Featured: ImpactAlpha Original

On guns, faith-based investors provide an object lesson in shareholder engagement. In the debate over shareholder “engagement” vs. “divestment,” members of the Interfaith Center on Corporate Responsibility make a virtue of necessity. Faith-based organizations with pensions to pay and charity programs to fund often make the pragmatic choice to invest in the public markets. So they make it their business to watchdog the human rights records and social impact of the companies they own. Take guns. The coalition of more than 350 faith-based organizations managing more than $500 billion in assets proposed its first gun-related resolution to Walmart shareholders a quarter-century ago. After last month’s mass shooting at an El Paso in Walmart that killed 22 people, the ICCR’s David Schilling sent condolences to Walmart CEO Doug McMillon. “We knew the company was needing to go through a discernment process and make changes,” he told ImpactAlpha.

Walmart this month announced that it would stop selling ammunition for assault rifles and handguns in its stores, and would discourage open-carry in its stores. The company is pushing Congress to strengthen background checks and to at least debate an assault rifle ban. “It’s clear to us that the status quo is unacceptable,” McMillon wrote in a public memo. Of course, shareholder engagement means faith-based organizations have to maintain equity positions in companies with practices they oppose, and resist calls from other activists to, say, divest from fossil fuel-based companies. “If you want to change the market, you have to own them to talk to them,” says Schilling’s colleague, Christina Herman. “Our members believe deeply in the markets and in the importance of companies acting in a way that will benefit society and the economy.”

Keep reading, “On guns, faith-based investors provide an object lesson in shareholder engagement,” by Jessica Pothering on ImpactAlpha.

DealFlow: Follow the Money

Goldman Sachs raises nearly $2 billion for solar yieldco. Goldman Sachs’s asset management arm closed on $1.9 billion in equity commitments for Goldman Sachs Renewable Power LLC. The private renewable energy investment company buys or leases power and sells it under longterm contracts, a structure once known as a “yieldco” for its lucrative recurring dividends. Additional debt funding will bring the company’s total capital to $4 billion. Since 2016, the unit has invested over $1.4 billion to assemble 1 gigawatt of distributed solar assets, making it one of the largest owners of distributed generation solar assets in the U.S. and a stable revenue stream for Goldman. In March, Renewable Power leased $87 million in commercial solar project leases from SunPower. Last year, it acquired SunTap, with nearly 200 megawatts of capacity in California and Arizona, from KKR & CoGet illuminated.

Terramera aims to reduce chemical use in agriculture. The Vancouver-based company raised $45 million in a Series B financing led by new investor Ospraie Ag Science and returning investor Seed2Growth (“S2G”) Ventures. Terramera says its technology increases the performance of natural and synthetic ingredients by delivering them directly into target cells, reducing the chemicals needed and boosting natural agents. The funding will help the nine-year old firm deliver on its goal of cutting global synthetic chemical loads by 80% while increasing global farm productivity and yields by 20%, according to Jeff Booth, who chairs Terramera’s board. Check it out.

Black-owned tech startups join Durham’s Black Founders Exchange. Nearly a dozen ventures from across the U.S. and Canada will participate in the immersive program from Google for Startups and American Underground, a Durham, NC-based startup hub. The program is designed to help participants overcome barriers faced by founders of color, such as racial bias in fundraising and operating in “entrepreneurial deserts.” The startups include Courtroom 5, a Durham company that helps individuals handle legal issues such as foreclosures and debt; Vuga, a Toronto company bringing low cost internet to Africa; New York-based Hued, which connects patients of color with medical professionals of color; and Freeman Capital, a wealth management planning and financial education provider based in Charlotte, NC. “Economic opportunity increases when there is a diverse and inclusive startup ecosystem,” said American Underground’s Molly DemarestMore.

Signals: Ahead of the Curve

Lessons in frontier finance from 40 impact investments. The big opportunity in “frontier finance” for small and growing businesses: solving large problems for large populations. Omnivore, an India-based venture fund, for example, invested in Delhi-based Skymet Weather Services in 2011 to generate better weather data necessary for crop insurance and lines of credit for India’s small farmers. The firm’s crop insurance scheme has reached 10 to 12 million smallholder farmers and helped settle 4 million crop insurance claims. Omnivore expects a greater than 5x return on its investment. Still, “within these markets, opportunities for substantial impact remain unrealized,” says the Rachel Bass of the Global Impact Investing Network, which rounded up lessons from 40 frontier finance deals in “Unlocking the Potential of Frontier Finance.” What we learned:

  • Growth markets. Of the 35 investments that shared target return data, two-thirds target market-rate returns of 21% per annum. Average target returns for mezzanine finance deals, the highest among asset classes, was 23%. Almost 90% of investors report financial performance met or is exceeding expectations.
  • Bread and butter. The GIIN cross-referenced the investments with the four types of small and growing businesses identified by the Collaborative for Frontier Finance (see, “The four ‘missing middles’ among small and growing businesses). “Dynamic enterprises” seeking growth through proven business models in established industries such as trading, manufacturing and retail attracted the bulk of the investments. The next biggest batch were “high growth ventures” aiming to scale through disruptive innovations.
  • Catalyzing capital. Most frontier finance is deployed through traditional investment instruments such as private equity or debt. Investors should explore “innovative” structures such as revenue-based repayment models, holding company structures, and evergreen funds, the GIIN advises (see, “Adobe Capital closes $30 million for Mexico’s impact entrepreneurs).
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Agents of Impact: Follow the Talent

CDC appoints Tony Morgan as managing director of direct equity… Mayada El-Zoghbi, previously with CGAP, joins the Center for Financial Inclusion at Accion as managing director… Mandy Van Deven joins Nathan Cummings Foundation as director of communications… Gabby Cazeau comes on at Harlem Capital as a senior associate… Project Equity is hiring an employee ownership investment and capital consultant and other roles… 1863 Ventures is recruiting women entrepreneurs and founders of color for its Pipeline Program accelerator (see, “Melissa Bradley: Boosting the success of Washington D.C.’s founders of color)… Register now for “Making Capitalism Work for All,” an American Sustainable Business Council summit December 10 and 11 in Washington D.C.

Thank you for reading. 

– Sept. 11, 2019