Greetings, Agents of Impact!
👋 Agents of Impact Call: Indigenizing catalytic capital. Change Labs’ Heather Fleming and MacArthur Foundation’s John Balbach will join Kate Finn of First Peoples Worldwide, Navajo Power’s Brett Isaac, Siċaŋġu Co’s Clay Colombe and other Agents of Impact to share strategies for mobilizing capital in Indian Country, Wednesday, Aug. 23, 10am PT / 1pm ET / 6pm London. RSVP today.
- Background reading. See, “Change Labs’ entrepreneurship hub opens doors for Navajo businesses,” by Jessica Pothering on ImpactAlpha.
Featured: Electric Vehicles
Small vehicles have investors thinking big about India’s e-mobility transition. American electric car makers like Tesla are touting plans to bring their cars to India. But it’s not sedans and SUVs that are steering India’s transition to electric mobility. “We are rooted in two-wheelers and three-wheelers — these are the two ways in which India really commutes,” Anup Jain of Mumbai-based Orios Venture Partners tells ImpactAlpha contributor Shefali Anand in Delhi. Investors are pumping capital into India’s e-mobility transition, helping startups in the sector raise more than $1.6 billion last year, more than double the total in 2021. Ola Electric, launched by ride-hailing platform Ola, has raised $1.2 billion to make electric scooters. E-scooter maker Ather Energy raised debt and equity in multiple rounds last year. In March, International Finance Corp. invested $70 million in Mahindra’s new Last Mile Mobility company to ramp up electric three-wheeler and small commercial EV production. EV infrastructure is also popular: Battery Smart operates a battery-swapping network, while Electric Pe is building an electric charging platform. “We are at the cusp of takeoff,” says Arpit Agarwal of Blume Ventures, an investor in both Battery Smart and Electric Pe.
- Economic incentives. Electric two- and three-wheelers make up a large majority of EV sales in India. Rising fuel costs are one driver: powering an electric scooter for 10 kilometers costs three rupees (roughly four cents) compared to 30 rupees for a gas-powered scooter. Government subsidies are also driving faster adoption. “The economics sit very well in this category,” says Suman Mishra of Mahindra Last Mile Mobility, which has quintupled its annual sales of electric three-wheelers since 2019.
- E-rickshaw boom. Humble e-rickshaws, which resemble tall golf carts, are leading India’s transition to electric – without much help from investors. The low-speed, short-distance vehicles ferry passengers to subway stations and bring children to school. In Delhi, an e-rickshaw costs about 120,000 rupees ($1,500), at least 40% less than the gas-powered version. Most are made in informal workshops using kits imported from China and lead-acid batteries. “The e-rickshaws are thin on margins [and] low on differentiation,” says Orios’ Jain. “This makes them attractive for small scale manufacturers but unattractive for venture capital or private equity investors.” That doesn’t matter to buyers. Guddu Kumar Gaurav, a 23-year-old university student, has been driving an e-rickshaw in Delhi since March. He can earn around $400 a month from passengers while paying only $40 per month to charge the vehicle. “It also helps the environment,” he says.
- Keep reading, “Small vehicles have investors thinking big about India’s e-mobility transition,” by Shefali Anand on ImpactAlpha.
Dealflow: Climate Tech
Direct-air carbon capture gets a boost from federal funding – and Occidental Petroleum. Calgary-based Carbon Engineering scored one of the first blockbuster exists in climate tech – by selling out to Big Oil. Houston-based Occidental’s $1.1 billion acquisition reflects the oil industry’s growing interest in direct air capture, or DAC, both to generate new revenue streams from selling carbon removal credits to other corporations, and to use the captured carbon to extract more oil, a process called “enhanced oil recovery.” Oil producers have been the biggest buyers of captured carbon and have coined the controversial term “net-zero oil.” Occidental, backed by Warren Buffett, has had a four-year partnership with Carbon Engineering, whose investors include Buffett’s old friend, Bill Gates. “We believe using CO2 for enhanced oil recovery and generating net-zero barrels is the way,” Occidental’s Vicki Hollub told Bloomberg last year. “The last company standing that produces the last barrel of oil should do so from CO2-enhanced oil recovery.”
- Clean capture. There is growing, if grudging, consensus among climate experts that excess carbon will need to be removed from the air in order to meet global climate goals. Companies such as Microsoft and Stripe have been early buyers of carbon removal credits, paying $600 or more for a ton of CO2 sucked from the air and stored underground or in products such as cement. Investors have been pouring money into DAC startups (see, “How climate investors are getting ready for the carbon removal boom”). Climeworks raised $650 million last year, the largest-ever haul for a carbon removal startup. Investors including Microsoft’s Climate Innovation Fund and Breakthrough Energy Ventures backed Heirloom Carbon Technologies. Lowercarbon Capital invested in Massachusetts-based Verdox from its $350 million dedicated carbon removal fund.
- Catalytic government capital. Last week, the US Department of Energy awarded $1.2 billion in grants to two DAC hubs, including Occidental’s Kleberg County, Texas site. A second award went to Switzerland’s Climeworks and California-based Heirloom, which are partnering on a DAC site in Louisiana. The two Gulf Coast projects could collectively remove more than two million tons of carbon from the air annually once they are up and running. The awards are the first from a $3.5 billion allocation under the US’s recent infrastructure law to jumpstart regional DAC hubs and drive down the price of carbon removal from roughly $600 a ton today to under $100.
Farmland LP’s third fund raises $33 million for organic and sustainable farmland. The San Francisco-based fund manager has acquired over 16,000 acres of conventional commercial farmland in Washington, Oregon and California since 2009 to implement organic and regenerative-farming management practices. “We have demonstrated that converting low-margin, high-volume farmland into high-margin organic alternatives generates substantial financial benefits while simultaneously promoting environmental stewardship,” said Farmland LP’s Craig Wichner. The firm is targeting $250 million for its third fund. Its first deal is the purchase of a 1,200-acre farm in Oregon. Farmland LP raised $130 million for its second fund in March last year and has more than $250 million in assets under management. Share this post.
Phospholutions secures more than $10 million for sustainable phosphorus fertilizer. Excess nitrogen and phosphorus runoff from fertilizers can lead to toxic algae blooms. Pennsylvania-based Phospholutions has patented an additive that can cut runoff, leaching and greenhouse gas emissions. The company says its product can deliver the same amount of phosphorus to crops with half the amount of fertilizer. That gives producers an opportunity “to embrace sustainable technology and enhance conventional fertilizer production while also extending value to the farmer,” said Melih Keyman of Keytrade Ag, which invested in Phospholutions’ alongside Advantage Capital, Ben Franklin Technology Partners and other investors. Check it out.
Dealflow overflow. Other news crossing our desks:
- Omidyar Network India, Quona Capital and other investors doubled-down on embattled buy-now, pay-later startup ZestMoney following a failed acquisition bid, investor and executive departures, layoffs, and a $7 million emergency injection in July. (YourStory)
- ElectroTempo, which provides demand-forecasting software for electric vehicle charging networks, raised $4 million in a round led by Buoyant Ventures, a women-led VC fund focused on climate startups. (ElectroTempo)
- Bioplastics developer Verde Bioresins is planning to go public on the Nasdaq exchange via special purpose acquisition company TLGY Acquisition Corp. (TLGY)
- Brazil’s Educbank raised $40 million to offer receivables financing to help low- and mid-cost schools pay salaries and invest in upgrades. (Startups.br)
- UK-based facilities management firm Churchill Group became an employee-owned business; 53% of the company’s shares have been placed in an employee ownership trust. (Churchill Group)
Impact Voices: Patient Capital
In India, ‘zebra’ companies deliver impact at scale and exits for investors. An investor in India looking for quick 10x returns might have missed ambulance company Ziqitza Healthcare, clean cookstove firm Greenway Grameen, and affordable housing financier Sitara. The companies are delivering tangible impact for tens of millions of very low-income people. Last year, each delivered an exit for Acumen India, which has invested more than $35 million in 33 companies since 2004. The exits returned three times Acumen’s initial investment. The successful, if slow, exits suggest that VCs in the country may be focusing too much “high, quick returns” from investments in unicorns, Acumen’s Mahesh Yagnaraman argues in a guest post. Moderate-growth zebras, he says, “have immense potential to solve problems of poverty, but require more time and a greater tolerance to risk.”
- Impact-first. Financial inclusion and social commerce account for nearly half of impact investments in India and nearly two-thirds of exits. Acumen deploys patient capital to invest in overlooked sectors such as agriculture for smallholder farmers or workforce development, Yagnaraman says. “The exits we achieved demonstrate that impact-first investing is a viable, replicable, and deeply impactful model for addressing the complex and urgent problems of poverty.”
- Slow ramp. The exits dispel the VC narrative that serious impact investing means market-rate returns and blitzscaling. Ziqitza, a for-profit ambulance company, for example, has taken more than a decade to scale ambulance care to tens of millions of people. Ziqitsa “has now served 48 million people, and created an industry of emergency services that did not exist before,” Yagnaraman writes.
- Keep reading, “In India, ‘zebra’ companies deliver impact at scale and exits for investors” by Mahesh Yagnaraman on ImpactAlpha.
Agents of Impact: Follow the Talent
Marc Becker, former co-head of impact investing at Apollo Global Management, passed away on Monday this week. The 51-year-old had pancreatic cancer… Larry Sacks, ex- of USAID, joins DFC as chief development officer… Tsitsi Masiyiwa, co-founder and chair of the Higherlife Foundation, will succeed William Campbell as board chair of The END Fund… Ted Ferguson, former chief sustainability officer of Profoundry, joins Silfab Solar as ESG director.
Sorenson Impact is looking for a student program associate in Salt Lake City… JPMorgan Chase seeks an impact finance credit solutions vice president in New York… Columbia University’s Center for Development Economics and Policy is hiring a research associate.
US Bank is recruiting an environmental finance impact capital manager… London Stock Exchange Group has an opening for a sustainable finance senior content market specialist in Johannesburg… This year’s Asia-Pacific Economic Cooperation Leaders’ Meeting will take place Nov. 12-18 in San Francisco.
Thank you for your impact.
– Aug. 17, 2023