The Brief | July 9, 2024

The Brief: Left-behind communities come from behind

ImpactAlpha
The team at

ImpactAlpha

Greetings Agents of Impact!

🔌 Plugged In: Rebundle moves Black beauty brands toward sustainability. The hair-products platform Mayvenn set the stage for the explosive growth of Black beauty brands. The biases that cause some investors to miss out on such opportunities provide openings for entrepreneurs and investors attuned to changes in consumer demand. To ride the sustainability wave, Rebundle supplies its network of braiders with hair extensions made from repurposed biopolymers, a USDA-certified bio-based product. On this week’s Plugged In, ImpactAlpha contributing editor Sherrell Dorsey chats with Rebundle’s Ciara May about the brand’s growth, sustainability goals and the environmental impact of conventional beauty products. Join us for Plugged In on LinkedIn, Wednesday, July 10 at 9am PT / 12pm ET / 5pm London. RSVP now.

In today’s Brief:

  • The rise of ‘left-behind’ people and places
  • Streamlining access to credit in Mexico
  • Debunking the emerging market debt myth

Left-behind communities ride bipartisan policies, if not politics, to prosper at last. Many of the rural voters powering a populist revolt did pretty well under a US administration they often openly loathe. So-called “left-behind” communities, marked by decades of lagging population and income growth, just notched their “strongest three-year period of job creation and business growth since the turn of the 21st century,” according to the bipartisan policy incubator Economic Innovation Group. The impetus: The early and aggressive response to the economic disruption of Covid-19, marshaled over two US administrations. The bold and broad stimulus programs were a departure from responses to past recessions, which saw industry-specific bailouts and limited fiscal stimulus. This time, the participation of economically stagnating communities in the national economic recovery has helped reduce income inequality for the first time in decades. Jobs in 1,000 left-behind counties, home to about a fifth the population, grew four times faster between 2020 and 2023 than in the previous four years, according to an EIG analysis.

  • Latent potential. The aggressive pandemic-era policy response and raft of recent place-based policy commitments mean “left-behind communities have exited the recession and entered the recovery with real momentum,” EIG’s Kenan Fikri tells ImpactAlpha. That result shows that distressed communities can participate in post-recession national economic growth, says Fikri. Entrepreneurs in these counties are now starting businesses on pace with the broader population, a striking upswing after years of disinvestment and stagnant new business establishments. Fikri called out the “considerable latent potential that’s just beginning to be tapped” in such communities. “Strengthening the safety net for people on the margins of the labor market means that you’re supporting places that have been on the periphery of the US economy as well.”
  • Election backdrop. Left-behind communities are situated in every state, and are rural, urban and suburban. Some 13 million people live in left-behind counties in election swing states like Michigan, Wisconsin and Pennsylvania. Even in blue states, left-behind counties mostly lean Republican, according to EIG. “The reverberating impacts of their economic struggles could have an outsized effect on the nation’s political trajectory as a whole,” notes EIG’s August Benzow. Adds Fikri, “The tailwind in forging deeper and more inclusive recoveries in communities is an asset that we hope no one squanders.”
  • Broad + local. From Trump-era Opportunity Zones to Biden-administration climate, infrastructure and semiconductor investments, economic policies emphasizing marginalized communities represent “real down payments on the continued, broad geographic growth that we’re seeing today,” says Fikri. Low-income regions of the South and Midwest have been big winners under the Biden administration’s Inflation Reduction Act, which has created more than 300,000 clean energy jobs since it was signed into law in August 2022. Says Fikri, “The breadth and diversity of growth engines that the country is enjoying coming out of the pandemic has given more places inroads to participate.”

Dealflow: Impact Tech

Accion and Chile Ventures lead $2.1 million round for Moffin’s alt-credit ratings in Mexico. Many Mexican consumers, particularly in rural or underserved communities, lack traditional financial histories and bank accounts. Financial services firms use Moffin’s software to review alternative consumer financial data for creditworthiness and potential red flags. Guadalajara-based Moffin sources data from credit bureaus, taxation authorities and other providers to shorten approval timelines, improve consumers’ access to financial services, and help lenders manage risks. Moffin works with more than 70 companies, including nonbank financial services providers, digital lenders, buy-now-pay-later providers, and embedded finance applications.

  • Seed round. Moffin’s software “lets financial institutions better understand and serve thin- and no-file customers, many of whom are small businesses and individuals from underserved communities,” said Accion Venture Lab’s Amee Parbhoo. Moffin says its software can also be used in any sector requiring risk management and regulatory compliance, such as the pharmaceutical sector. The seed funding will support product development, consumer monitoring and regulatory compliance. 

Pakistani e-commerce startup DealCart raises $3 million to expand affordable food options. Karachi-based DealCart’s grocery shopping app sources price-friendly food directly from manufacturers and works with locally made brands. The seed funding, led by Abu Dhabi’s Shorooq Partners and London-based Sturgeon Capital, will enable DealCart to reach more low- and middle-income customers. The deal is a win for Pakistan’s startup community, where venture funding last year plunged 77% to just $75.6 million. With 245 million people, nearly half of them connected to the Internet, Pakistan is a huge market for e-commerce.

  • Bulk pricing. In a country battered by double-digit inflation, DealCart offers household food staples such as flour and lentils for nearly 24% less than general stores. Delivery is free. Customers can order in groups, unlocking even lower prices in “a new, engaging and community-centric way to shop,” the company says. “Our goal,” said DealCart founders Haider Raza and Ammar Naveed, “is to make everyday necessities more affordable and accessible.”

Dealflow overflow. Investment news crossing our desks:

  • Amsterdam-based Carbon Equity raised €60 million ($65 million) for its third climate tech fund, just months after closing its €100 million second climate fund. (Carbon Equity)
  • Global Social Impact Investments secured €15 million ($16.2 million) from the Spanish Agency for International Development Cooperation to invest in companies driving social and environmental impact in Africa. (Africa Private Equity News)
  • Alcemy, a German AI-powered green cement venture, snagged $10 million from Norrsken VC, Galvanize Climate Solutions, AENU and other investors. (Alcemy)
  • UK-based Water Unite Impact led a seed financing round for Seabex, a French agtech startup using AI and satellites to optimize water usage. (Wellers Impact)

Signals: Climate Debt

Emerging market debt investors debunk risk myths. The New York-based private-credit provider Muzinich is betting big on the climate transition in emerging markets. The investment firm is developing a billion-dollar private debt strategy to invest in infrastructure, real estate, agriculture, financial services and other sectors supporting climate change mitigation and adaptation. The strategy will put Muzinich in a tiny club of 10-figure emerging market impact debt fund managers. “There are so many climate consequences we haven’t explored yet because we haven’t experienced them,” Muzinich’s Tatjana Greil Castro tells ImpactAlpha. “The more unpredictable the climate gets—to think that you’ll be able to make an 8% predictable annualized return over the next 100 years is absolutely ludicrous.” 

  • Debt funds. More than 750 funds are putting capital to work for social and environmental impact in emerging markets. Collectively they manage just $95 billion, about 8% of all impact capital and just 0.1% of total global assets under management. Private equity is the dominant asset class; fixed-income and debt funds account for less than half of that $95 billion. Debt funds remain fairly small because of investors’ perceptions of emerging market risk. Last year, German insurance firm Allianz made headlines with its $1 billion blended finance SDG Loan Fund. The firm used multiple layers of guarantees and first-loss capital to coax investors in. Muzinich’s emerging market climate debt strategy will target modest but achievable returns, cushioned by commercial credit risk protection.
  • Risk perceptions. Investors’ skittishness is at odds with the portfolio performance of emerging market debt funds. Debt portfolio yields hover around 7.4%. Annual loan write-offs are just 0.4%, while the average loan-loss reserve is 2.4%, according to impact research firm Tameo. “There’s a misconception about the perceived risk that’s not justified,” says Tameo’s Ramkumar Narayanan. “We can show with data that these vehicles are performing very well across the industry. Investing in emerging markets with debt strategies – it’s something that’s very low risk.” Some investors want the risk, of course: in the zero-interest world of 2021, Variant Investments and other commercial investors provided 50% first-loss capital to Lendable for its $100 million financial services loan fund in exchange for a higher rate of return.
  • Safeguarding portfolios. Muzinich’s strategy will target both mitigation and adaptation, the latter of which still receives just 5% of climate finance. “Lack of investable opportunities” is often investors’ excuse for not doing more, observes Greil Castro. The real risk, she adds, is in not addressing climate change with greater urgency. Greil Castro wants to see every financial asset owner invest 1% of their assets in climate change mitigation and adaptation. “That would be sufficient for the climate transition,” she says. “But the big prize is that you are safeguarding your predicted returns on the other 99% of your assets. That’s the prize people need to understand.”
  • Keep reading

Agents of Impact: Follow the Talent

The US Department of Labor appoints Hilary Abell, who co-founded Project Equity, as chief of its employee ownership division… The NYC Commission on Racial Equity hires Maya Williams, previously with Levy Ratner, as research and policy director… LeapFrog Investments names Frances Holliday and Pranav Kumar as partners… Social Capital Partners is looking for a senior policy analyst and a communications director.

Elemental Excelerator is hiring a media and content director, a compliance director, and an IT strategy and operations senior managerSunwealth is recruiting a project finance associate in Cambridge, Mass… The Belgian Investment Company for Developing Countries has an opening for a chief financial officer… Impact Finance Belgium is on the hunt for a new CEO… BlueOrchard seeks a private equity analyst or associate in London.

Mission Investors Exchange is hosting, “Road to 100%: Leveraging all foundation assets in service of mission,” today at 1:30pm ET… Fundamental and Enviu are hosting “Local solutions, global impact: How the impact venture studio model proves to accelerate social and environmental change,” Wednesday, July 17.

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

Thank you for your impact!

– July 9, 2024