The Brief | July 20, 2023

The Brief: Financing HBCUs, sustainable supply chains, green ammonia, Bridges’ brownfield fund, catalyzing food waste solutions

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Featured: Muni Impact

Social returns on investments in HBCUs rise as affirmative action recedes. Historically Black colleges and universities may represent the ultimate social impact investment. But instead of enjoying a social-benefit premium, many of the educational institutions instead pay what experts call a “Black tax.” The 100 or so HBCUs represent just 4% of four-year colleges and universities in the US but produce more than one in five Black college graduates, and one in four Black graduates in science, technology, engineering and mathematics – far more than the elite universities affected by the recent Supreme Court ruling ending race-based preferences in college admissions. “We see HBCU excellence every day, with staff at every level of the White House and the administration,” President Biden said in May at the commencement ceremony for Howard University, Vice President Kamala Harris’s alma mater. “But we all know that HBCUs don’t have the same endowments and funding as other major colleges and universities.”

  • Black tax. While investor demand for municipal bonds labeled as “social” has saved cities like Atlanta, New York and Chicago millions of dollars in interest payments, HBCUs have been found to consistently pay higher interest rates on their bond issuances, a result of what experts say is implicit or explicit racism in the bond markets. That means a $30 million bond issuance would cost an HBCU about $290,000 in annual interest versus $242,000 for a non-HBCU, representing a $48,000 “Black tax” that depletes endowments, defers maintenance and starves student programs and services. “We’re talking about underfunding across the board,” Carla Whitlock, a trustee of Tuskegee University in Alabama, said on a panel at this spring’s Neighborhood Economics conference in Jackson, Miss.
  • Policy tailwinds. The Biden administration has put $5.8 billion into HBCUs, including through the pandemic-era American Rescue Plan. Biden’s 2024 budget would increase funding for HBCUs (as well as tribal colleges and universities and minority-serving institutions) by $429 million over 2023. A bipartisan group of policymakers last year introduced the IGNITE HBCU Excellence Act, which would provide grants for tech and infrastructure upgrades at HBCUs and other minority-serving institutions.
  • Community partners. Traditional underwriting methods may disadvantage HBCUs that lack the balance sheets of their well-endowed peers. One recommendation: combine balance sheets by lending to pools of HBCUs with similar goals. The National Association for Equal Opportunity in Higher Education is promoting an HBCU CommUniversity Impact Fund to finance nonprofit “pass-through borrowing entities” to develop on and off campus real estate. San Francisco-based Base10 raised a $250 million technology fund and pledged half the firm’s profits to HBCU endowments and scholarships for 100,000 STEM students. Limited partners in the fund include Howard University, Florida A&M, Hampton University, Tuskegee and other HBCUs.

Dealflow: Sustainable Supply Chains

Private equity giants rally behind O9 Solutions’ sustainable supply chain software. Sustainability wasn’t top of mind for Dallas-based O9 Solutions in 2009, when it launched its software to help large companies with supply-chain forecasting and management. O9’s Chakri Gottemukkala says sustainability is now “at the center” of the company’s vision and mission to help clients “understand the ESG footprint across a multi-tier supply chain, and then take surgical actions to improve.” Customers include Google, Danone, PepsiCo and Avon. General Atlantic’s BeyondNetZero fund, Generation Investment Management and KKR reupped their investments in O9 for its evolving sustainability data features. O9 took in $116 million at a $3.7 billion valuation. 

  • Use cases. O9 says its sustainability software is helping an industrial company cut its carbon footprint by up to 8% with better scrap recycling. Right-sizing inventory helped a footwear company reduce its greenhouse gas emissions by more than 30,000 tons. Supply chain-related carbon emissions, or Scope 3 emissions, make up the biggest share of most companies’ carbon footprints, including O9’s. O9 is using its own carbon management tool to develop a strategy for reducing its Scope 3 emissions and meeting its pledge to reach net-zero emissions by 2040.
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Israel-based Nitrofix raises $3.1 million for green ammonia production. Greening ammonia is among the next big emission-reduction opportunities. The gas, which binds with nitrogen in the air, is a key fertilizer input used around the world and has potential as a maritime fuel and a way to store and transport hydrogen. The century-old process of making ammonia relies on fossil fuel gas and high heat, accounting for  2% of global emissions. Nitrofix, using just water, air and a proprietary catalyst, could bring costs down to $500 per ton, in line with conventional ammonia costs, Nitrofix’s Ophira Melamed told ImpactAlpha. The renewable-powered, low-heat process, developed out of Israel’s Weizmann Institute of Science, mimics ammonia-producing bacteria, she said.

  • Deployment. Large-scale green ammonia plants are starting to come online. Nitrofix’s approach enables smaller scale, distributed production of ammonia, cutting transportation costs. “You can produce it almost anywhere near renewable energy [facilities],” says Melamed. Boston-based Clean Energy Ventures led the seed round. Also investing were SOSV, UK-based Zero Carbon Capital, Israel’s High House Investments and Morocco-based UM6P Ventures. Nitrofix will use the funds to hire and develop a prototype by 2025.
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Dealflow overflow. Other news crossing our desks:

  • Atlanta-based Illoominus raised $500,000 for human resources software that helps companies evaluate and improve diversity and inclusion. (Atlanta Inno)
  • Bridges Fund Management is reportedly in the market with its sixth real estate-focused impact fund, which will include investments in cleanup and decarbonization of brownfield sites. (New Private Markets)
  • Telehealth startup Berry Health in Ghana scored $1.6 million to provide remote diagnoses and healthcare resources on stigmatized conditions like depression, anxiety, sexually transmitted infections and hair loss. (TechCrunch)
  • Blume Equity backed a €25 million ($28 million) Series B investment round for Sensorfact, a Dutch remote sensing and software company that helps small manufacturers reduce energy usage. (EU-Startups)

Impact Voices: Catalytic Capital 

A bigger helping of catalytic grant capital can fuel new solutions to food waste. A research grant from the Bill & Melinda Gates Foundation helped kickstart Apeel Sciences, maker of an edible produce coating, that has now achieved unicorn status. Philanthropic capital from The Kroger Co. Foundation helped de-risk Matriark Foods, which now sells upcycled farm produce to more than 50 Whole Foods stores. Philanthropic funding has also provided key support for nonprofits that are rescuing and redistributing food at risk of going to waste. But new data from food waste nonprofit ReFED suggests that philanthropic funding to food waste solutions is falling short of what’s needed to meet food waste reduction goals by 2030. “Philanthropic capital has played a powerful role in developing the food waste reduction sector over the last 10 years,” writes ReFED’s Alejandro Enamorado in an analysis for ImpactAlpha. “Despite all the important work that philanthropic funding has already enabled, we see that it is insufficient to meet the need.”

  • Capital gap. Private investment has dominated the food waste sector in recent years, with capital flowing to imperfect produce channels, logistics solutions, and methods for converting waste into materials. ReFED’s analysis of more than 70,000 grants reveals that just $180 million in philanthropic funding has gone to food waste solutions over the last 10 years, a fraction of the $1.4 billion needed to scale food waste solutions.
  • Startup bets. Funders have used catalytic grants to derisk startups, including food waste prevention solutions AgTools (food data), SoFresh (packaging) and SafetySpect (food safety). Recycling startups also received support, including ReNuble, Mobius and Capro-X. The largest funders include The Kroger Co. Foundation and The Kroger Co. Zero Hunger | Zero Waste Foundation, the Posner Foundation of Pittsburgh, the General Mills Foundation and ReFED.
  • Keep reading, “A bigger helping of catalytic grant capital can fuel new solutions to food waste,” by ReFED’s Alejandro Enamorado on ImpactAlpha.

Agents of Impact: Follow the Talent

Fidelity’s Emilie Goodall, CalSTRS’s Kirsty Jenkinson, and Kieron Boyle of Impact Investing Institute are among the members of TIIP’s working group to set standards for measuring system-level investing influence. Renaissouk’s Lenora Suki will chair the group… IDH is hiring a senior program manager of carbon and landscapes finance in the Netherlands… Applications are open for Unshackled’s Eighteen150, a founder-in-residence program to support immigrant entrepreneurs… The Ownership Economy Conference will be held at the United Nations in New York, Tuesday, Oct. 10.

Thank you for your impact.

– July 20, 2023