The Brief | March 31, 2022

The Brief: Financing farmers in Africa, organic farming in the U.S., clean energy in Indonesia, LeapFrog’s launchpad, climate-Sharpe volatility ratios

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Greetings, Agents of Impact!

Featured: Farmer Finance

Apollo Agriculture is out to show how financing smallholder farmers can boost production and profits (Q&A). Smallholder farmers have long been the darling of development specialists, microfinance institutions and impact investors. Now, commercial investors are betting on smallholder farmers as well. What’s new: tech-enabled business models that stitch together fragmented input distribution, financing and information chains. Nairobi-based Apollo Agriculture, which supports more than 70,000 smallholder maize farmers across Kenya, this month raised $40 million to provide maize farmers with access to better seeds, fertilizers, training and financing to boost their incomes. “When you mention smallholder farmers, people think these are very poor people. Investors think that with smallholder farmers, you’ll never be able to make money,” Apollo’s Benjamin Njenga tells ImpactAlpha. “Farmers are not poor people. They’re actually very rich.” That’s because they have land, and land is a resource that they can use to make money, je What they don’t have is the right support and the right training to do that.” 

Companies helping Africa’s smallholder farmers become more productive and profitable have to solve pain-points across the value chain, from inputs to financing to market access. In Nigeria, ThriveAgric secured more than $56 million in debt to give farmers access to capital, global markets and more than 450 warehouses to store their crops. AFEX launched a commodities exchange and offers access to inputs, storage facilities and credit. Agricorp, also in Nigeria, specializes in services for spice farmers. In Ghana, Complete Farmer uses crowdfunding to finance farmers to buy inputs and get their products to market. Such models, while complex, have proven out in markets like Kenya and India, Njenga says. “If you bundle inputs with financing so that farmers can afford the inputs during planting, those farmers are able to double or triple their production.”

Dealflow: Regeneration

Farmland LP raises $130 million to convert farmland to organic. The close of Farmland’s Vital Farmland REIT, the second fund from the San Francisco-based manager, brings Farmland’s total assets to over $200 million. Farmland LP owns and actively manages over 15,000 acres of high-quality farmland in Washington, Oregon and California. The strategy: convert conventional farmland to organic, add high-value and permanent crops, and drive productivity with technology. “U.S. farmland offers investors consistent, stable and non-correlated returns,” said Farmland’s Craig Wichner. “Investor interest in organic and regenerative farming is increasing.” Share this post.

New Energy Nexus makes four investments in Indonesia’s clean energy transition. Indonesia is “still heavily dependent on fossil fuels,” said NEX’s Diyanto Imam. “By empowering clean energy startups we will be able to stimulate the investment climate, accelerate the clean energy transition, and create green jobs.” The California-based organization backed energy efficiency startup Synergy Efficiency Solutions, which helps businesses curb energy waste by designing, financing and implementing energy-saving tricks. E-mobility venture SWAP Energy is developing a network of battery-swapping stations for electric motorcycles in Indonesia’s cities. It invested in the $21.5 million Series A round for solar startup Xurya alongside Schneider Electric, Saratoga and electric-vehicle fund East Ventures. NEX also provided a grant to Powerchain to test a smart LED product for street lighting. Check it out.

Dealflow overflow. Other investment news crossing our desks:

  • Evok Innovations raises $300 million to make early-stage investments in carbon capture, new fuels, grid innovation and other decarbonization technologies.
  • Ghana’s Yemaachi Biotech secures $3 million from V8 Capital, Y Combinator, Tencent, VestedWorld and others to boost the genetic diversity of cancer research.
  • Brazil’s Diferente clinches 24 million reais ($5 million) to salvage and deliver “ugly produce” to households on a subscription basis.

Signals: Investing Downmarket

LeapFrog’s ‘launchpad’ helps companies serve low-income consumers in emerging markets. The challenges of delivering essential products and services to customers in low-income and rural areas has kept many companies’ focus on affluent consumers. LeapFrog Investments, which invests in companies delivering financial services and healthcare in Asia and Africa, has a new tool to help its portfolio companies better deliver products and services to low-income customers. With LeapFrog’s CX (for “customer experience”) Launchpad program, “we tap into our deep experience with emerging consumers and partner with our companies to build capabilities that dramatically enhance the end-to-end customer experience,” LeapFrog’s Andrew Kuper says in a new report.

  • Customer experience. In India, LeapFrog helped Chennai-based Dvara double its loans to low-income and rural borrowers over the past year. Turn-around times for loan disbursement decreased from 12 days to two. Kenyan pharmacy chain Goodlife used CX Launchpad to grow by 500% membership in a loyalty program to reduce health expenses for low-income patients in East Africa. LeapFrog sold a 30% stake in Goodlife to Eurapharma, the healthcare division of the CFAO Group.
  • Keep reading, “LeapFrog’s ‘launchpad’ helps companies serve low-income consumers in emerging markets,” by Roodgally Senatus on ImpactAlpha.

Impact Voices: Climate Risk

Tipping points of volatility: The case for climate-Sharpe ratios. Investors today are overlooking a critical category of volatility: climate change. “If climate volatility is not measured properly in conjunction with returns, investors could be speeding into the future with a gaping blind spot,” write ClimateAI’s Himanshu Gupta and Equilibrium Capital’s Dave Chen. In a guest post, Gupta and Chen argue for a new calculation that takes climate risk into account – call it a climate-Sharpe ratio. The traditional Sharpe ratio, developed by economist William Sharpe in 1966, calculates an investment’s return compared to its risk. “Relying on traditional Sharpe ratios exposes portfolios to huge systematic risks,” especially for climate-sensitive sectors such as agriculture, energy and capital goods, say Gupta and Chen.

  • Case in point. Consider an investment in pistachios. Traditional Sharpe ratios based on past returns provide no mechanism to account for the evolving climate risk landscape. Warmer winters in certain regions are likely to diminish the quality and quantity of annual pistachio yields – and therefore financial returns. “In a stable environment, past performance would be a relatively reliable predictor of future performance for investing strategies.” A modernized version of the Sharpe ratio could “decide the winners and losers of the coming decades as climate change and its impacts accelerate.”
  • Volatility tipping points. The exact formulation of a climate-Sharpe ratio remains TBD. Gupta and Chen say portfolio managers can tell if specific asset classes have reached “tipping points of volatility” by matching historical volatility paradigms with key climate drivers of volatility and returns for those asset classes. In coffee portfolios, for example, heat risk during coffee beans’ ripening season has explained changes in global yields and quality.
  • Keep reading, “Tipping points of volatility: The case for climate Sharpe ratios,” by  Himanshu Gupta and Dave Chen on ImpactAlpha.

Agents of Impact: Follow the Talent

Dominic Barton, McKinsey & Co.’s former global managing partner, joins LeapFrog Investments as non-executive chairman… Lisha Bell is promoted to Economic Opportunity Fund manager at PayPal… Nathalie Molina Niño of Known Holdings joins the board of Accion Opportunity Fund… The Workers Lab is hiring a program manager for its innovation fund in Oakland.

Impact Engine is hosting “Chicago Impact Investing Showcase 2022 No. 1: Governments as impact investors” with Melissa Conyears-Ervin of the city of Chicago, Illinois treasurer Michael Frerichs, Bryan Echols of the Illinois State Treasurer’s Office, Brad McConnell of Allies for Community Business, and Impact Engine’s Jessica Droste Yagan, Tuesday, Apr. 5.

Thank you for your impact.

– Mar. 31, 2022