The Brief | January 29, 2020

The Brief: Flexible financing in Latin America, GoodFuels exit, sustainable ag fund, climate-friendly beer

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Greetings, Agents of Impact!

Featured: ImpactAlpha Original

Flexible financing gives venture capital a run for the money in Latin America. Big-ticket venture capital and private equity deals, many of them backed by the ubiquitous SoftBank Group, made many investors take notice of Latin America last year. But intentional impact investors who look beyond the headlines may find that fund managers able to structure creative and flexible term sheets are landing deals that may be of better value. Flexible capital is attractive to mission-driven entrepreneurs wary of traditional VC and its attendant pressure for fast growth and quick exits. “There are a lot of new funds coming to market that are more open to creative financial engineering,” Adobe Capital’s Rodrigo Villar tells ImpactAlpha. The early-stage impact fund in Mexico closed its second fund at $30 million last year, and is doing revenue-sharing deals in housing, fintech, education and alternative energy companies.

Many Latin America fund managers are ahead of their U.S. counterparts in raising “alt-capital” funds that can offer entrepreneurs term sheets that include flexible revenue-sharing and other creative financing terms. Blue like an Orange Sustainable Capital offers Latin American entrepreneurs “mezzanine” or structured debt financing that can include grace periods, recapitalization of interest or revenue-based repayments. “The capacity to provide flexible debt instruments, which are really customized to satisfy the expectations of the entrepreneur, has way more value,” says BlueOrange’s Bertrand Badré. The accelerator NESsT is addressing the startup debt gap, while Root Capital is building impact “bonus payments” into its financing terms. “Most of the really great deals are related to impact,” says Villar. 

Keep reading, “Flexible financing gives venture capital a run for the money in Latin America,” by Jessica Pothering on ImpactAlpha.

Sponsored by Tideline: Integrity through Verification

Deadline for transparency in impact management. Come April, the first signatories to the International Finance Corp.’s “Operating Principles for Impact Management” will disclose their alignment. The Operating Principles call on investors to define impact objectives, monitor progress and consider the impact of exits. The ninth principle requires independent verification and annual disclosure. “It’ll be a real step change in transparency,” says the IFC’s Neil Gregory. “To be able to compare side-by-side over 70 impact investors, we’re all going to learn such a lot.” Tideline’s purpose-built methodology assesses firms’ impact management systems for compliance, quality and depth.

Dealflow: Follow the Money

FinCo’s acquisition of GoodFuels gives Social Impact Ventures an exit. Dutch alternative energy company GoodFuels launched five years ago to provide plant-based biofuels to the heavy transport and shipping industries. The company says its alternative fuels cut fuel-based carbon emissions by more than three-quarters. GoodFuels has been acquired by the renewables arm of FinCo Fuels Group, giving Dutch impact investor Social Impact Ventures an exit less than two years after it took an undisclosed stake in the company.

  • Acquisition. FinCo isn’t a clean fuels company – it owns Gulf, and BP-branded fuel retailer Dalhuisen. But the company is staking its long-term success on “offering its customers a portfolio of fuels with a reduced carbon footprint.” FinCo committed to reporting on GoodFuels’ established impact targets. “We believe that in FinCo, we have found the right partner to create a responsible exit and take Goodfuels and its impact to the next level,” writes Social Impact Ventures.
  • Bio-fueled. In the past two years, GoodFuels has backed Dutch shipping company Boskalis in rolling out a biofuel-powered dredging vessel and helped OCEANDIVA convert to biofuel-powered ships for corporate events. 
  • Check it out

FMO and Rabobank commit $80 million to sustainable agriculture. The AGRI3 initiative was developed by U.N. Environment Programme and Rabobank to catalyze $1 billion for investments in sustainable agriculture and forestry. Mirova Natural Capital, FOUNT and Cardano Development are advisors and IDH’s sidecar technical assistance fund will help projects get investment-ready.

Canada’s London Community Foundation adds $7 million to finance affordable housing. The London, Ontario-based community development charity is adding to its $10 million revolving loan fund for non-profit affordable housing developers.

Signals: Ahead of the Curve

Tastes great, less carbon. Climate-positive beer takes regenerative agriculture mainstream. Soil health is all the talk on the campaign trail in Iowa as well as on the slopes of Davos. Something’s in the air, er, ground, when organic agriculture features in a Super Bowl ad. Anheuser-Busch InBev’s spot for its organic Michelob Ultra Pure Gold highlights the “monumental challenges” faced by farmers converting to organic. Helping grain farmers make the transition will take more than the portion of six-pack sales the company will provide. But a spadeful of new initiatives is starting to deliver on the promise of soil carbon.

  • Carbon sink. Healthy soil removes carbon from the air and stores it. Modern farming techniques, from overgrazing to over-tilling to chemical use, have degraded this natural carbon sink. Restoring the world’s soil by rotating crops, eliminating chemicals, integrating livestock and other regenerative techniques could offset 10% of total global emissions in 25 years, according to the U.N.
  • Rewarding farmers. Indigo’s Terraton Initiative seeks to remove one trillion tons of carbon from the air by paying farmers to sequester carbon in soil and reduce emissions. The crux of its scheme: a carbon trading market that pays farmers a minimum $15 for each metric ton of carbon they sequester. 
  • Soil standards. Needed: better ways of measuring and verifying farming practices and carbon sequestration. Climate Action Reserve’s Soil Enrichment Project Protocol aims to measure, verify and report on agricultural practices and carbon sequestration. This spring, a coalition led by the Rodale Institute, will roll out a regenerative organic certification that addresses soil health, pasture-based animal welfare, and worker fairness.
  • Investing in soil wealth. Iroquois Valley Farmland REIT has invested $50 million to help more than 40 farmers restore 12,000 acres of farmland in 14 states. “Soil Wealth,” an analysis of private investment in food and agriculture, identifies 30 farmland investors managing a total of $22 billion in assets (see, “Agriculture funds are investing billions to regenerate soil – and communities). 
  • Catalytic capital. Deals, especially those in the Global South, “are mostly underdeveloped, quite small, not yet investment-ready and need financial structuring, market strengthening and impact monitoring,” says Laura Ortiz of SVX Mexico. Only 1% of impact investment deals are going towards sustainable land use and other investments targeting SDG No. 15 (Life on Land), according to the Global Impact Investing Network.
  • Dig in.

Agents of Impact: Follow the Talent

Sophie Robinson-Tillett was named editor at Responsible Investor… Tideline is hiring a director in Mumbai… Bridges Fund Management is looking for a head of impact management (maternity cover) in London… ISF Advisors seeks a senior strategy associate and senior investment associate in New York, Washington D.C. or Nairobi… The Government of Canada has launched a call for proposals for eight environmental funding programs. 

Thank you for reading.

–Jan. 29, 2020