The Brief | October 24, 2022

The Brief: Local fund managers as entrepreneurs, community solar, ocean-based climate tech, Chicago’s west side united, gender lens + climate finance

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Greetings, Agents of Impact! 

Featured: Returns on Inclusion

How to drive more capital to small businesses? Invest in local fund managers as entrepreneurs. Across emerging markets, hundreds of local fund managers are looking to prove that investing in small businesses is a viable and profitable path to economic development. Their challenges in building their investment firms often mirror those of the businesses they’re trying to support, including too little funding and not enough investors who understand their business models. “We’re all entrepreneurs,” Laura Davis of Ethiopia-based Renew Capital said at Collaborative for Frontier Finance’s recent convening in The Hague. “But a lot of organizations with money to invest care more about the underlying deals we do and whether they fit perfectly in a mandate, not the firms we’re building and positioning in emerging ecosystems.” That mindset from investors limits fund managers’ operational capacity, risking burnout before they get to scale. Davis and others challenged investors to shift their assessments of risk and invest in emerging fund managers’ organizations. “You have to think at a portfolio level,” said Laurie Spengler of Courageous Capital, “and have an appetite for experimenting, learning, growing and adapting.” 

  • Getting deals done. More than 80% of fund managers in CFF’s network already are inking deals, even though just one-third have reached a first close. In a guest post on ImpactAlpha, CFF’s Susan de Witt suggests investors reframe where emerging fund managers sit in their portfolios. “Consider them an emerging asset class,” she writes, which can build the pipeline for later-stage funds, deploy capital flexibly in local markets, and better serve women than other sectors of finance. Get her full take.
  • Early financing gap. Emerging fund managers are tapping technical assistance grants to defray the costs of setting up their funds. But such capital typically can’t be used to prove out managers’ investment theses. “The way we invest in enterprises is the way institutional investors should invest in first-time fund managers,” said Hema Vallabh of South Africa-based venture fund Five35 Ventures. “Write the check, make the investment, and then do the capacity building. Then my success will be your success.”
  • Decision makers. Funds of funds like Nyala Ventures and Kuramo Capital Management are trying to funnel early capital to emerging fund managers while making the investment economics work for institutional investors. Initiatives like 2X Ignite want to help fund managers warehouse deals and bundle operating costs. Organizations like Switzerland-based Argidius Foundation are providing early, catalytic funding for emerging fund managers and other small business financiers. There needs to be many more such examples, said Spengler. “It’s all about how decision makers look at risk and opportunity. If they are not willing or able to shift the way they assess risk and opportunity of local capital providers, then we need to change the decision makers.”
  • Keep reading, “How to drive more capital to small businesses? Invest in local fund managers as entrepreneurs,” by Jessica Pothering on ImpactAlpha.

Dealflow: Catalytic Capital

Kresge Foundation backs three community solar organizations with program-related investments. Michigan-based Kresge Foundation is aiming to catalyze investments for solar energy and storage in low-wealth communities and communities of color in the U.S. Its $7 million in program-related investments includes $1.1 million to Washington, D.C.-based Urban Ingenuity’s Working Power Impact Fund to bring community solar to local environmental justice groups and affordable housing developments. San Francisco-based RE-volv received $1.5 million to bring solar storage to BIPOC houses of worship and community nonprofits. California-based Collective Energy received $2 million to support local health centers’ energy needs. RE-volv and Collective Energy will also receive $1 million in guarantees.

  • Climate justice. “We want to ensure that communities of color and disinvested communities have equitable access to public and private capital for climate and energy needs,” said Kresge’s Joe Evans. The foundation will prioritize clean energy organizations providing design, education and financing for critical community facilities.
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Propeller Ventures raises $100 million climate tech fund for ocean-based solutions. Trees get all the glory. But oceans absorb 20 times more carbon dioxide than trees. “Only a fraction of venture capital dollars that have flooded into climate tech flows into the seascape of ocean-based solutions,” said Hubspot’s Brian Halligan, who launched Boston-based Propeller in partnership with the Woods Hole Oceanographic Institution. The seed fund will target early-stage companies using algae and microbes for energy, green packaging and pharmaceutical applications; decarbonizing maritime shipping; mining lithium; generating offshore wind; and desalinizing water; and developing other solutions. Halligan, “a sizable investor” in the seed fund, calls oceans “the planet’s best hope to decarbonize the global economy.” Propeller has closed three deals through the fund. The firm will also offer grants to accelerate IP.

  • Ocean impact funds. Investors are starting to embrace ocean-based solutions (for background, see, “Three seafood funds seek to establish an investment trend in sustainable fisheries”). Ocean 14 Capital last month secured €100 million from Lukas Walton’s Builders Initiative, Minderoo Foundation, the European Investment Bank and others to invest in growth-stage tech companies in sustainable aquaculture, alternative proteins, and ocean health and conservation. S2G Ventures raised a $100 million fund to invest in ocean health and sustainable seafood in August 2020. The Althelia Ecosphere Sustainable Ocean Fund, now managed by Mirova, closed a $132 million fund in 2020.
  • Check it out

Dealflow overflow. Other investment news crossing our desks:

  • Revfin scored $10 million in debt and equity to finance electric vehicles for last-mile delivery drivers in India.
  • Seattle-based carbon capture tech venture Lithos raised $6.3 million in seed funding to help farmers reduce carbon by spreading the dust of crushed basalt rock on croplands.
  • West Side United secured a $3 million investment from the American Medical Association to create access to affordable housing, healthy food options, jobs and educational programs in Chicago’s West Side.
  • New York-based Bags bagged $3 million in seed financing to connect underrepresented businesses to equitable lenders.

Signals: Gender Smart

Gender lens + climate finance = broader reach. Gender-lens investing’s next big thing: integrating gender considerations across climate action and other investment themes. Investors channeled more than $600 billion into climate-related investments last year. Gender-lens investing attracted less than $20 billion. But investing at the intersection of climate and gender is the key to meeting nearly all of the Sustainable Development Goals. “Imagine if all the billions mobilized for climate had a gender and inclusion lens,” said GenderSmart’s Sana Kapadia at the organization’s summit in London last week, which gathered more than 400 investors, practitioners and field-builders. (GenderSmart will rebrand as 2X Global when it merges with 2X Collaborative in January).

  • Opportunity. Bringing a gender lens to climate innovation can surface talent, innovation and market needs, according to GenderSmart’s new State of the Fieldreport. Gender and diversity are also key to ensuring a just transition. Women and girls in many parts of the world have emerged as critical climate leaders. “For most investors, climate and gender are viewed as separate arenas,” says GenderSmart’s Suzanne Biegel. “When we invest with both a climate and gender lens, our money goes further.”
  • Gender + climate. The models that exist in public and private markets are the exception rather than the rule. The U.N.’s Green Climate Fund has embedded a gender mandate in its decision making. Sydney-based New Forests’ African forest conservation fund is targeting gender-related impacts for at least a third of its investments. “Addressing the climate emergency in Africa must include gender-smart actions,” said Clarisa De Franco of British International Investment, which backed New Forests’ fund. Adasina Social Capital’s JSTC ETF focuses on gender, racial, climate and economic justice themes. Women-led venture firm Chloe Capital launched a climate tech accelerator to support women founders.
  • Incubating new ideas. “Climate finance has not sufficiently tapped into women’s potential,” according to the Global Innovation Lab for Climate Finance. The lab, managed by the Climate Policy Initiative, helps develop and launch novel financial instruments to address stubborn climate funding gaps. Last week, it put out a call for ideas that address both gender equality and climate mitigation or adaptation, explaining that “more efforts are needed to intentionally disrupt the systems that underlie disproportionate climate impacts on women and prevent them from accessing climate finance.”
  • Keep reading, “Gender lens + climate finance = broader reach,” by Amy Cortese and Jessica Pothering on ImpactAlpha.

Agents of Impact: Follow the Talent

Dickon Pinner, ex- of McKinsey, joins BlackRock as head of its new transition capital unit… Phil Sanders is promoted to partner at New Media Ventures… Beneficial State Bank is hiring a chief impact officer in Oakland… The Global Impact Investing Network seeks a manager of training and accreditation in New York… The University of California, Berkeley’s School of Journalism is looking for a professor of disinformation, technology and/or climate change.

UBS is recruiting a program director for social finance in London… Edward Jones is looking for a director of sustainable investing… Atos is hiring a senior consultant for decarbonization strategies in New York… The Nature Conservancy seeks a community-led economies director for its Africa offices… Investing for Good is recruiting a chair to support innovative finance, impact investing and impact management growth activities.

Tideline presents “Truth in climate impact: management and labeling best practices,” with Brookfield’s Kelly Goddard, British International Investment’s Nicola Mustetea, and Prime Coalitions’ Keri Browder, moderated by Tideline’s Jane Bieneman and Claudia Leon, Thursday, Nov. 3.

Thank you for your impact!

– Oct. 24, 2022