The Brief | November 13, 2023

The Brief: Higher for longer, AI for tapping the IRA, Japanese investors in Africa, rare earth-free magnets, Evanston’s reparations

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Greetings, Agents of Impact! 

Featured: Macro Impact

‘First-time ever’ economic conditions challenge impact investors to rethink models and expectations. The realities of high interest rates and lower liquidity are setting in for many impact investors. The immediate questions for business leaders: How will higher rates affect the financing costs of our capital expenditures? How will they impact our core business? And, after having thrived on low interest rates, will impact investments now flounder for too long as interest rates remain high? Or will this be the period when good businesses run by competent leaders surface and thrive? To kick off his Macro Impact column, ImpactAlpha contributing editor Robert Brown assesses the impact of today’s unique set of economic circumstances. “This time it really is different,” he says.

  • Rate whiplash. The phrase “all-time” can appropriately be applied “all-over” this monetary environment, Brown writes. The largest-ever increase in the US money supply. The largest rise in consumer borrowing. “The US financial system has never before experienced an injection of liquidity on that scale, or at that rate of change. And then been followed by the most rapid decline in the US money supply, ever. The fastest policy rate hike in US history, ever. And the most inverted yield curve in history – ever,” he says. “Historically, easy financial conditions were followed by a rapid reversal into extremely tight financial conditions. Call it interest rate whiplash.”
  • Market shakeout. Rate increases during tightening cycles tend to affect earnings about six quarters after the event. “The next few months will be important to watch,” Brown says. Smaller banks and finance companies – lenders to small companies, including many impact endeavors – have seen net interest margins and financing spreads compress. Solar installers have seen demand drop off as financing costs for rooftop solar have risen dramatically. And interest rates are showing up indirectly through the market’s lens of lower asset valuations.
  • New realities. How are high interest rates affecting your businesses and your investments? How have you adjusted your models and expectations? In Macro Impact, Brown, who was the co-founder and senior partner at Atlas Impact Partners, and previously led research efforts at JUST Capital, AllianceBernstein, Nomura Securities and Morgan Stanley, will be exploring the new economic conditions in which impact investors and entrepreneurs are working. Drop us a line about what you’re seeing and what you need to know.
  • Keep reading, First-time ever economic conditions challenge impact investors to rethink models and expectations,” by Robert Brown on ImpactAlpha. 

Dealflow: Climate Finance

Pioneer snags $2.9 million to connect climate tech with government funding. Navigating the labyrinths of government has been a challenge for founders of cleantech ventures looking to tap funding from the Inflation Reduction Act and other laws (see, “Clean energy investors are not waiting for Inflation Reduction Act’s billions to flow”). The IRA alone involves 119 programs managed by multiple federal agencies. San Francisco-based Pioneer uses artificial intelligence to help startups identify and apply for government funding opportunities. “Parsing and matching huge amounts of written data for a process that’s non-core to your daily operations: that is a perfect job” for large language models, said Ernst Sack of Blue Bear Capital, which led Pioneer’s seed round.

  • IRA edge. Pioneer, which bills itself as “an outsourced incentives team,” has been helping time-strapped founders take advantage of the historic government largesse since February. Pioneer will use the investment to “serve more entrepreneurs looking to rapidly deploy and scale key climate solutions,” said Pioneer’s Mitko Simeonov. Participating investors include Collaborative Fund, Soma Capital, Cool Climate Collective and Kayan Ventures.

Novastar Ventures secures $40 million for African impact startups. Japanese investors are showing increased interest in Africa’s startup scene. Financial services firm SBI Holdings has directly invested in several startups on the continent. It’s now backing Novastar to ramp up its exposure. Novastar, a nine-year-old impact investment firm, said only that SBI’s capital would be allocated to the its future funds. The firm is raising its third fund. 

  • Track record. London, Lagos and Nairobi-based Novastar has invested $200 million in two dozen African companies supporting the green transition and access to energy, education and healthcare. Its portfolio includes Kenyan electric bus company BasiGo, weather forecasting venture Ignitia, and artisan marketplace Soko.
  • Eye for Africa. Last year, the Japanese government pledged $30 billion for African development, in part to counter-balance to China’s economic presence. Kepple Africa Ventures, a Japan, Nigeria and Kenya-based venture capital firm, has invested in more than 100 African startups since 2018. In March, it inked $43 million from the Japan International Cooperation Agency, Sumitomo Mitsui Trust Bank and others for a partner fund with Nigerian private equity firm Verod Capital. Toyota Tsusho Group in 2019 launched Mobility 54 to invest in African mobility startups.
  • Check it out

Dealflow overflow. Other investment news crossing our desks:

  • Agriculture and Natural Solutions Acquisition Corp., a low-carbon agriculture special purpose acquisition company, or SPAC, formed by low-carbon solutions investor Riverstone and Impact Ag, raised $300 million in its IPO. (Agriculture & Natural Solutions)
  • Minneapolis-based Niron Magnetics raised $33 million from GM and Stellantis Ventures to commercialize an earth magnet technology for more sustainable and cost-effective EV motors. (Niron Magnetics)
  • Bangalore-based Bimaplan scored $3.5 million in seed funding to provide affordable insurance to low-income households in rural and semi-urban India. (Inc42)

Short Signals: What We’re Reading

👷🏾‍♀️ Inequality risk: Enterprise vs. portfolio value. Inequality is a systemic risk. It’s less of a risk to individual enterprises. The interests of pension funds and other diversified owners in ensuring a stable labor force will often diverge from those of individual companies, which may choose to increase future cash flows by underpaying their workers. (Shareholder Commons)

🔎 Lessons from a decade of impact investing. Encouraged by its decade-long, $250 million experiment with program-related investments, the California Endowment says it will begin making mission-related investments across private equity and venture capital. (California Endowment)

💲 Reparation rewards. The city of Evanston’s reparations program, which committed the first $10 million of its cannabis retailers’ tax to address historical injustices in housing and other areas, has garnered widespread approval across every ethnic and racial demographic group, a new study finds. (Northwestern Now)

⚡ Red states, green future. Whether President Biden’s landmark climate law succeeds will be determined in part by places like Blythewood, SC, where Volkswagen is building its first US electric vehicle factory. “They’ve convinced me that electric vehicles are the way to the future,” says Jeff Ruble, head of the county’s economic development agency. (Financial Times)

🌺 Hawaii’s hot bed of legal climate activism. While other US courts quibble over jurisdiction and technical legal barriers in climate lawsuits, Hawaii’s have moved decisively. Recent cases show how the state has become fertile ground for environmental legal action, fueled by a long tradition of decolonization advocacy. (Bloomberg Law)

🥩 Assessing meat risk. Emissions of top animal protein companies rose almost 3% last year, according to the investor network FAIRR, which labeled nearly half of the 60 producers it analyzed as “high risk.” Seafood producers Mowi, Leroy Seafood Group and Greig Seafood scored the highest, putting them in the “low risk” category. (AFN)

Agents of Impact: Follow the Talent

South Pole founding CEO Renat Heuberger is stepping down from the troubled company, effective immediately. The company’s Asia-Pacific commercial director John Davis will become interim CEO until a permanent successor is found… Nuveen names Nick Moss, ex- of Rabobank and UNEP’s AGRI3, as head of nature-based solutions. 

Media Development Investment Fund seeks a Serbia-based director for its Western Balkans fund… CapShift is looking for a client experience managing director in Boston… Acumen is hiring an economic justice principal in San Francisco… Trevor Noah’s foundation is recruiting an impact and learning assistant director in Johannesburg.

👉 View (or post) impact investing jobs on ImpactAlpha’s new Career Hub.

Thank you for your impact!

– Nov. 13, 2023