The Brief | August 19, 2020

The Brief: Investing in nuclear threat reduction, real estate + small business finance, social justice startups, Acumen’s solar exit, agri-investing in Africa

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Greetings, Agents of Impact! 

Featured: Impact Voices

Yes, impact investments can reduce the threat of nuclear weapons. If you thought climate action or, say, pandemic prevention pre-COVID, were underfunded, consider that effectively no impact investors target nuclear threat reduction in their investment strategies. While the chance of nuclear conflict remains low in the short-term, odds rise uncomfortably over the intermediate to long-term. “Investors, along with the broader financial and business communities, and all corners of civil society need to step up their involvement in prevention efforts,” writes David Epstein, who founded The Cross Capital Initiative after a fellowship with the nonprofit N Square, which seeks innovative approaches for reducing the threat of nuclear weapons. “Preventing Nuclear Catastrophe,” calls on impact and sustainable investors to lead the charge. “Because these areas are so under-explored, I believe that impact investors that are early can also do well [financially] while doing good.” 

In a guest post on ImpactAlpha, Epstein ticks through the ways in which investors can reduce the risk of nuclear conflict. Investors can push mining and nuclear weapons manufacturers to issue transition bonds to clean up pollution caused by past activities. Shareholders can pressure banks to bolster counter-proliferation financing measures, and social media companies to combat disinformation and hacking. Impact funds can back “dual-use” of blockchain, data mining and other technologies with commercial application, as well as applications to nuclear-related problems such as compliance with nuclear treaties and monitoring of illicit proliferation. Another strategy: Investments in media and entertainment. The 1983 film “The Day After,” reached President Reagan and reportedly facilitated progress on arms control. Beyond capital, investors can get political, argues Epstein. The broader financial community lobbies on behalf of its own interests all the time, he says. “Reducing nuclear weapons risks to the global economy and capital markets clearly qualifies in this regard.”

Keep reading, “Yes, impact investments can reduce the threat of nuclear weapons,” by David Epstein on ImpactAlpha.

Dealflow: Follow the Money

Can real estate financing + small-business lending = equitable community growth? Arlington, Va.-based Capital Impact Partners, a community-development real estate lender, and CDC Small Business Finance in San Diego are teaming up to boost community financing in Los Angeles, Detroit, and the Washington, D.C. area. The three-city pilot is backed by $6 million in grants from JPMorgan Chase and the Heron Foundation. Community development experts agree real estate financing for affordable housing, charter schools, grocery stores and health clinics is more effective when combined with small business financing for job creation and wealth-building. “You need all of those components for a healthy and thriving community,” said Capital Impact’s Ellis Carr, who was featured as an ImpactAlpha Agent of Impact earlier this year. “It’s a process of getting impact investors comfortable with risk,” added CDC’s Kurt Chilcott. “Small businesses are at the riskier end of the spectrum.” (See, “Opportunity Zone capital flows to real estate but not to small businesses – or impact) 

  • Distribution channels. Capital Impact Partners, a community development financial institution, or CDFI, has raised more than $170 million through its Capital Impact Notes, which are offered monthly to foundations, insurance companies, mutual funds and retail investors. “Right away, I have access to more capital to lend, to invest,” said Chilcott. CDC is one of the nation’s largest nonprofit Small Business Administration lenders. The tie-up will allow Capital Impact to make loans under the SBA’s Community Advantage program, which features an 85% guarantee. 
  • Equitable growth. The alliance combines the traditional commitment of CDFIs to lending in low-income communities with an SBA lender’s ability to cost-effectively underwrite small-business loans. CDC disbursed 4,000 loans worth $180 million through the federal government’s Paycheck Protection Program. “Their alliance reimagines the scope, scale and impact mission-based lenders can have on underserved communities,” JPMorgan Chase’s Ted Archer said in a statement.
  • Keep reading.

Startups tackle home-ownership, social benefits and media in DivInc social justice accelerator. The Austin-based accelerator’s first Social Justice Innovation Accelerator program selected eight startups, including locally-based Break The Box, an Opportunity Zone fund aiming to increase Black homeownership in the U.S.; San Francisco’s Civic Links, which helps individuals connect to government benefits; and Michigan-based Thawra Network, which develops media catering to U.S.-based Arab and Muslim communities. The program is backed by Capital Factory and Notely Ventures.

Acumen exits Indian rooftop solar provider Orb Energy. Bangalore-based Orb connects homes and small businesses to rooftop solar power and solar water heating. Acumen was the company’s first institutional investor back in 2011, when solar panels were costlier. Orb has since raised more than $25 million and sold 160,000 rooftop systems. Acumen sold its stake to the Dutch development bank FMO and Shell Ventures.

Signals: Ahead of the Curve

Getting into the weeds of African agriculture investing. Globally, agrifood tech ventures raised $21.6 billion last year. Yet in an entire decade, 242 known agriculture-related deals in Africa raised only $616 million, according to “Mapping Agriculture Investing in Africa” from Village Capital. Agriculture accounts for 40% of Africa’s GDP and employs 70% of its workforce. Agricultural underinvestment and underdevelopment means that Africa remains a net importer of many staples that could be produced locally. The report found that high-level government interventions haven’t yielded “granular solutions,” particularly around access to finance, including savings, credit, investment or insurance products, and that banks, private investors and philanthropic institutions must play a bigger role. The report suggests Africa’s farmers and agribusinesses need creative solutions like value-chain finance, “where a fertilizer company sells inputs and the farmer only pays after selling their harvest, or a microcredit bank covers the costs of purchasing fertilizer for a farmer.”

  • Direct investing. Of the $616 million in investments counted in the report, 44% went to East African ventures, with Kenya taking the lion’s share. Fewer than 15% of known investors are African-founded funds; most of the capital for direct agribusiness deals in Africa is from foreign-domiciled funds and international development finance institutions.
  • Pandemic dealmaking. Investments are generally small and early-stage, but checks are getting cut. ImpactAlpha’s own tally since March includes: VestedWorld’s investment in Rwanda’s GET IT; Agri-Business Capital Fund’s loan to Ghana’s Dragon Farming; Pearl Capital investment in Uganda’s Naseco; AgDevCo’s backing of grain storage tech company Pee Pee Tanzania; Goodwell’s investment in Nigeria’s Tomato Jos and backing of Tanzania’s East Africa Fruits; off-grid cold chain tech company InspiraFarms’ Series B round; the U.S. International Development Finance Corp.’s loan to Twiga Foods; and the Gates Foundation’s investment in Enko Chem to make eco-pesticides available to African farmers.
  • Catalyzing agri-capital. Africa’s Trade and Development Bank and the African Guarantee Fund committed $1 million to Grassroots Business Fund in July to finance agribusiness SMEs in East Africa. Vital Capital and USAID’s Kenya Investment Mechanism are partnering to unlock $400 million for African businesses impacted by COVID, including agribusinesses. Societe Generale and CDC are increasing lending to West African banks.
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Agents of Impact: Follow the Talent

Seema Lalloo joins Secha Capital… Borealis Philanthropy is recruiting a president… Draper Richards Kaplan Foundation seeks a chief financial officer in Menlo Park, Calif… Omidyar Network is hiring a senior vice president and head of programs in Silicon Valley or Washington, D.C. and a beneficial technology analyst in Redwood City ,Calif… The Employment Technology Fund is looking for a senior associate… Walton Enterprises seeks a senior investment analyst in Washington, D.C.

OpenInvest is recruiting a key account manager in San Francisco… California Southern Financial Development Corp. is hiring a loan portfolio coordinator in San Diego… Spectrum Impact’s Rehana Nathoo is hosting “Raising an Impact Investing Fund During COVID-19,” with Kiva’s Will Jacobsen, Impact Engine’s Priya Parrish, and Cake Ventures’ Monique Woodard, on Tuesday, Aug. 25.

Thank you for reading.

–Aug. 19, 2020