The Brief | May 18, 2023

The Brief: Inclusive franchise ownership, low-carbon building materials, fundraising FUD at TPG, industrial water management, green hydrogen

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Greetings, Agents of Impact!

Featured: Ownership Economy

With inclusive loans and business support, franchise ownership offers a path to wealth for entrepreneurs of color. Employee ownership is having a moment. One promising strategy: democratizing the franchise model to widen pathways to ownership and wealth creation. The $276 billion fast-food market is ripe with opportunities for wealth-building for people of color, who make up the majority of workers but just a fraction of franchise owners. Healthy food chain Everytable last week raised $12 million in debt and program-related investments towards a targeted $20 million Social Equity Franchise Fund to finance conversions of its stores, many located in “healthy food deserts,” to franchises owned by entrepreneurs of color. The fund will extend loans averaging $500,000 to 40 food entrepreneurs, who also receive paid on-the-job training. “The model is extremely promising for owners of color, their families, and communities,” Cynthia Muller of Kellogg Foundation, an early investor in Everytable, tells ImpactAlpha. “We’ve seen successful franchises build wealth for owners.”

  • Industry trend. Food franchisers like Denny’s, the diner-style restaurant chain, are working with the Multicultural Foodservice & Hospitality Alliance to create 100 Black-owned franchises. In 2021, McDonald’s launched a five-year, $250 million initiative to create franchise ownership opportunities for entrepreneurs of color. The fast food industry has a checkered history with communities of color, and some companies have been dogged by charges of discrimination against Black franchisees. 
  • Happy meals. Everytable’s menu of salads, wraps and kombucha is priced based on each local area’s median income. In Queens, NY, for example, meal prices range from $6 to $9. A consortium of lenders led by The Reinvestment Fund backed Everytable’s Social Equity Franchise Fund, alongside a $3.2 million loan guarantee from the Community Investment Guarantee Pool. The W.K. Kellogg FoundationDignity Health and other foundations came in with program-related investments. The fund is managed by San Diego-based Mission Driven Finance, which plans to begin making loans this summer. “If we can successfully deploy this capital and help other investors understand that this is a safe and investable model over the long term,” Everytable could create thousands of franchises owned and operated by franchisees of color, Everytable’s Sam Polk tells ImpactAlpha.
  • Keep reading, “With inclusive loans and business support, franchise ownership offers a path to wealth for entrepreneurs of color,” by Roodgally Senatus on ImpactAlpha.

Dealflow: Green Buildings

Tangible raises $3 million to help building developers measure and reduce climate impact. Real estate companies seeking to reduce their carbon footprints largely focus on operational carbon—how much a building emits once it’s up and running. But the materials used in construction itself account for 11% of total global greenhouse gas emissions. That so-called “embodied carbon” is a huge part of real estate developers’ overall carbon footprint. “The vast majority of real estate firms’ Scope 3 emissions come from embodied carbon,” said Anneli Tostar of construction tech startup Tangible. Tangible helps real estate firms estimate an individual project’s or an entire portfolio’s embodied carbon footprints, and to identify lower-carbon building materials. 

  • External pressure. A growing number of jurisdictions are requiring real estate firms to reduce embodied carbon. The city of Toronto this month passed new building standards that require all city-owned projects to account for embodied carbon as part of its goal to become net zero by 2040. Last year, California passed legislation to help the state achieve 40% emissions reduction from building materials by 2035. Another pressure point: investors. “Institutional investors are requiring decarbonization from their real estate asset managers,” Tostar told ImpactAlpha. “That’s what’s really starting to move the needle.”
  • Seed round. Tostar co-founded Tangible with Nicole Granath in 2021 after the two separately spotted the growing issue of embodied carbon. Tostar had worked in real estate sustainability consulting and Granath in building materials sustainability. The startup is backed by Fifty Years, “construction tech” investor Foundamental and others. The founders aim to increase transparency with a knowledge and materials-sourcing hub for real estate firms.
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Climate is a bright spot for TPG amid fundraising slowdown. Private equity firms are reporting tough sledding in fundraising (though there are exceptions). TPG, which hit the market last year with its third Rise fund, has raised almost $2.2 billion toward a $3 billion goal. Its impact funds, including Rise and the $7 billion Rise Climate fund, continue to cut deals “at a healthy pace,” TPG’s Jon Winkelried said on an earnings call this week. TPG’s impact funds are the most active of the firm’s vehicles, deploying nearly $1.2 billion, according to its first-quarter statement. Rise and Rise Climate recently co-invested in residential solar company Palmetto. In April, Rise Climate invested in green hydrogen company Ohmium International. In total, TPG has invested almost $3 billion from Rise Climate and $451 million from Rise III. Performance for the climate fund is particularly strong, with a nearly 40% internal rate of return, the firm reports (for context, see “Private equity giants double down on the low-carbon transition and impact investing”).

  • Fundraising FUD. TPG isn’t sure whether it will reach fundraising targets for Rise III or other funds. “We set our original flagship fundraising targets under different market conditions,” TPG’s Jack Weingart said. “We still expect each fund to grow compared to its predecessor. But in aggregate, they may not grow as much as we previously expected.”
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Gradiant raises $225 million, becoming a billion-dollar player in water management. Boston-based Gradiant makes water-treatment systems for companies in essential industries, including many supporting the low-carbon transition, like minerals and renewable energy firms. The company counts semiconductor maker Micron, mining company Rio Tinto, and Coca-Cola among its clients. Its systems conserve water and recycle wastewater and help companies identify ways to cut water usage. Gradiant raised $225 million in Series D financing from BoltRock Holdings and Centaurus Capital. The deal values the company at more than $1 billion.

  • Finite resource. Industrial sectors demand a swelling volume of water even though it’s “increasingly rare and finite,” said John Arnold of Centaurus Capital, which backed Gradiant to support industry “demands in an economic and energy-efficient manner.” Gradiant plans to expand to the water-scarce Middle East.
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Dealflow overflow. Other news crossing our desks:

  • The IFC is providing €64 million in debt and equity to Equatorial Coca-Cola Bottling Company, an African subsidiary of Coca-Cola Group, to help the company reduce energy and water use, manage waste, and make climate tech upgrades, including solar energy use.
  • Bank of America is reportedly getting involved in debt-for-nature swaps, arranging a $500 million deal for Gabon’s marine conservation.
  • Generate Capital is investing $250 million in Ambient Fuels to scale up green hydrogen production. (Generate)

Agents of Impact: Follow the Talent

Shawn Lesser, ex- of Big Path Capital, has launched The Real with digital advertising executive Brent Herd to focus on mental health… RSF Social Finance is hiring a vice president of investor relations in San Francisco… UBS is looking for a head of operations for social impact and philanthropy in New York.

IFU seeks a head of impact ventures in Copenhagen… MSCI is looking for a senior ESG researcher and vice president in Singapore… London Stock Exchange seeks a sustainable finance senior marketing manager in London… The Nature Conservancy is recruiting a bioeconomy specialist in Brazil.

Thank you for your impact.

– May 18, 2023