The Brief | September 19, 2022

The Brief: Kicking off Climate Week, scaling good jobs, pooling capital for emerging VCs, Indigenous enterprises, Builders Vision for mission-related investing

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Greetings, Agents of Impact! 

Featured: Climate Week

New momentum and stubborn challenges as Climate Week kicks off. Investors, entrepreneurs, corporate executives and world leaders have descended on New York for Climate Week, the annual gathering alongside the U.N.’s General Assembly. After a season of undeniable extreme-weather events, global energy insecurity, and clarion calls for climate justice, the week’s theme is “Getting it done.” The packed agenda will set up the key COP27 climate summit in Egypt in November. “There is no more time for delay,” Mike Peirce of Climate Group, which hosts the event, tells ImpactAlpha. The U.S. Inflation Reduction Act, which will unleash $370 billion for climate action, is a “once-in-a-generation opportunity” to open trillion-dollar markets, BlocPower’s Donnel Baird said on ImpactAlpha’s Agents of Impact Call last week. 

  • Global spillover. The U.S.-focused IRA will have “knock-on effects in terms of diversified supply chains and lowering technology costs that are going to be great for emerging markets,” Jonathan Phillips of Duke University’s James E. Rogers Energy Access Project said on The Call. Phillips is working with Shell Foundation to map 30 investment pathways for climate adaptation and resilience, including solar irrigation and cold-storage to reduce post-harvest waste. Next up: robust ways to measure the adaptation benefits of such solutions and bring in private capital. “Can we get a better, more robust data environment so that you can put public money together with private money?” asked Phillips.
  • Adaptation and resilience. A new crop of funds is out to prove that investing in resilience can pay. Lightsmith Group is investing in water management, resilient food systems, agricultural analytics, catastrophe risk modeling, and other adaptation plays. Impact venture capital firm Omnivore backs smallholder farmers in India to increase their resilience. Paris-based Tikehau Capital is nearing a first close for its regenerative agriculture fund, which is targeting $1 billion (see, “AXA, Unilever and Tikehau Capital seed regenerative agriculture fund with €300 million”). “These kinds of vehicles could send the right market signals that we have not seen in the past,” Shell Foundation’s Ashish Kumar said on The Call.  Catch the video replay.
  • Industrial policy. The IRA “changes everything,” write Ron Pernick and Clint Wilder of Clean Edge in a guest post on ImpactAlpha. The Act is “the first true U.S. industrial policy that’s rooted firmly in the clean energy transition,” they write. U.S. and foreign companies, from Toyota and Honda to First Solar and Piedmont Lithium, have announced a slew of domestic electric vehicles and battery plants, “the first of many more to come.” Clean Edge’s seven-point action plan to accelerate the clean-energy transition includes energy efficiency, global wind and solar, and storage to enable 100% renewable power 24/7.
  • Keep reading, “Speeding the energy transition: A seven-point action plan,” by Ron Pernick and Clint Wilder.

Dealflow: Good Jobs

HCAP Partners raises $353 million to take its good jobs strategy nationwide. The San Diego-based private equity investor takes stakes in lower middle-market businesses and works with them to improve the quality of their jobs. HCAP aims to prove that better workplace practices can attract and better engage employees and increase enterprise value. HCAP has backed more than 60 companies via four funds. The new fund received commitments from the Ford Foundation, family offices and financial institutions. HCAP says the fund exceeded its fundraising target and more than doubled the size of its predecessor fund. The fund will make mezzanine debt and equity investments of up to $25 million in software, healthcare, services and manufacturing businesses. 

  • Fund structure. The fund will operate as a Small Business Investment Company, or SBIC. This means HCAP can combine private capital with lower-cost capital borrowed with guarantees from the U.S. Small Business Administration. This strategy “provides substantial advantages for limited partners,” HCAP’s Jennifer Neivert told ImpactAlpha.
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Emerging fund managers pool capital for overlooked founders. Baltimore-based RareBreed Ventures, Oregon’s Rogue Women’s Fund, and VitalizeVC in Chicago are combining efforts to raise a collective $10 million for first-time funds through a special purpose vehicle. The big idea: pool capital from smaller investors that wouldn’t typically meet the required minimum commitment for larger funds. Kauffman Fellows McKeever “Mac” Conwell (RareBreed), Caroline Lewis (Rogue Women’s Fund), and Gale Wilkinson (VitalizeVC) lead the funds, which back overlooked founders to close wealth gaps in the U.S. Conwell told Maryland Inno that the vehicle will allow investors “to spread the risk across three separate funds because you’re investing in all three of us.” The special purpose vehicle will lower the minimum investments for investors to $10,000 each year over four years.

  • Overcoming hurdles. The special purpose vehicle will operate separately from the three venture firms, which hope to bring together a more diverse group of investors and overcome their fundraising challenges. The pooled vehicle is the latest innovation from emerging and diverse fund managers, who are getting creative to overcome historic fundraising barriers. Backstage Capital, New Majority Capital and other impact fund managers are tapping non-accredited investors for capital through “community rounds.”
  • Check it out

Dealflow overflow. Other investment news crossing our desks:

  • Raven Indigenous Capital Partners secured $46 million in a first close of its second venture fund to invest in Indigenous-led enterprises that support Indigenous communities.
  • Kenya’s Turaco raised $10 million in Series A equity to provide insurance to underserved business and consumers in Nigeria, Kenya and Uganda.
  • Husk Power Systems scored $6 million in debt funding from EDFI ElectriFI to build solar-hybrid microgrids in rural India.

Signals: Institutional Impact

Walmart heir’s foundation joins the small club aligning endowment with mission. The foundation of Walmart heir Lukas Walton has reached its goal of aligning 90% of its $1 billion endowment with its philanthropic mission of “building a more humane and healthy planet.” The foundation is part of Builders Vision, Walton’s impact platform (aka family office); the grandson of Walmart founder Sam Walton has an estimated net worth of more than $21 billion. “If we are going to make lasting change happen, we need our mission to show up in everything we do – especially in how we commit our resources,” Lukas Walton said in a statement.

  • Impact portfolio. Builders Initiative Foundation approved the investment policy in 2020. Its chief investment officer Noelle Laing spent last year making recommendations for each asset class. In public equities, Builders Initiative selected Ownership Capital, an Amsterdam-based manager that spun out of the pension fund PGGM. In fixed income, Builders Initiative invested in Nuveen’s Core Impact Bonds strategy, an actively managed fund of U.S. fixed income products. In private equity, the foundation has committed to Ember Infrastructure Fund I, which invests for resource efficiency and reduced carbon intensity.
  • Ford’s carveout. Only one in five foundations even screen out investments that are inconsistent with their mission, according to the Council on Foundations. In 2017, the Ford Foundation carved out a $1 billion mission-related mandate from its then-$12 billion endowment to target affordable housing, financial inclusion, and more recently, quality jobs. Last month, Darren Walker, Ford’s president, reported that the mission investments have generated a compound annual return of 28%, though the returns remain mostly unrealized, since the bulk of the portfolio is in illiquid funds. “We’re not saying, ‘mission accomplished,’ or declaring victory,” Ford’s Roy Swan told ImpactAlpha, “but our performance should give some confidence about how you can be successful from a social impact perspective and a financial returns perspective.”
  • Market rate. Laing said Builders Initiative Foundation is seeking risk-adjusted market rates of returns. “We’ve been able to find 90% of a billion-dollar portfolio where we believe, depending on the asset class, we can achieve that return.” So why not 100%? “To get higher, we really need to see continued strong investable options across asset classes,” Laing said. “We could definitely go there, but we need to make sure we’re doing it in a prudent way.”
  • Keep reading, “Walmart heir’s foundation joins the small club aligning endowment with mission,” by David Bank on ImpactAlpha.

Agents of Impact: Follow the Talent

Christopher Harris, ex- of TIAA, joins Zevin Asset Management as a client portfolio manager and will join the firm’s investment committee… Anna Lerner Nesbitt, ex- of World Bank Group and Meta, joins the Climate Collective as CEO… Jacquelyn VanderBrug, ex- of Bank of America, joins Putnam Investments as head of sustainability. 

NRG Consulting Group is recruiting a chief of staff in Massachusetts… The Los Angeles Cleantech Incubator is hiring a government and university relations manager in Los Angeles and several other roles… WaterEquity seeks a remote marketing associate… Abrdn is looking for a fund accounting product management analyst in Philadelphia.

Rockefeller Philanthropy Advisors’ Patrick Briaud will moderate a free virtual event on how impact investing can extend the impact of philanthropic funding, Wednesday, Sept. 21… Impact Experience is hosting a panel on decarbonizing cash deposits and employee retirement plans with a focus on racial and climate justice, Tuesday, Sept. 20 in New York.

Thank you for your impact!

– Sept. 19, 2022