The Brief: Looking ahead to 2023: Abundance, ownership and inclusion

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Greetings, Agents of Impact!

👋 Hop on today’s Agents of Impact Call. Collaboration? Governance? Catalytic? On our last call of the year, we’ll bat around contenders for “Word of the Year.” We’ll also recap new ImpactAlpha features like The Liist and Climate Finance Tracker and share plans for Impact: The Video Game. Our roundups this week are flagging the signals we’ll be watching for in 2023. What’s on your radar? Zoom right into this lively, informal, subscriber-only gathering, today at 10am PT / 1pm ET / 6pm London. No RSVP needed. 

Featured: Looking Ahead to 2023

Abundance, ownership and inclusion hold keys to shared prosperity in 2023. Real solutions. Real revenues. Real places. While other investors chased inflated valuations in crypto and other tech fads, inclusive investors were finding impact alpha in companies expanding access to health care, education, housing, good jobs and economic opportunity. “In all the investments we make, we’re thinking, ‘How do we invest in companies that close gaps for low-income communities and/or communities of color?’” Brian Dixon of Kapor Capital says on an Agents of Impact podcast. Kapor this year raised $126 million for its third fund to invest in underrepresented founders of early-stage startups. “We think it’s generated top-quartile returns in the past and will continue to do so in the future.”

  • Abundance agenda. Investors in impact, community and sustainability have long been practitioners of what the Biden administration is coming to call “supply-side progressivism.” By expanding the supply – and driving down the cost – of quality healthcare, education, good jobs, affordable housing, clean energy and regenerative agriculture, such strategies can support a “soft landing” in the fight against inflation, without triggering a recession. In a new guest post, Laurie Spengler and George Surgeon say the U.S. Treasury Department’s new $9 billion fund for community development financial institutions “tees up, perhaps for the first time in recent history, the chance to serve underserved communities at scale with responsive financing” – and admit they were wrong in an earlier post.
  • Repricing risk to root out systemic bias. From business investing to municipal bond markets, inclusive investors are working to correct systematic mispricing of risk driving up the cost of capital based on non-financial factors such as race, gender and geography. The “Black tax,” for example, can add nearly half of a percentage point to borrowing costs for cities with higher proportions of Black residents. Public Finance Initiative’s Lourdes German is mobilizing issuers, underwriters and investors to tilt the municipal bond market away from extraction and toward racial equity, as we’ve highlighted in “Muni Impact,” ImpactAlpha’s deep dive into the $4 trillion municipal bond market supported by the Robert Wood Johnson Foundation.
  • Claiming ownership to build wealth. Ownership of homes, buildings and businesses – rather than wages – represents the clearest path to wealth in America. Structures are proliferating to expand ownership and create generational wealth for families and communities where equity has been out of reach. Employee ownership trusts represent “one of the largest Archimedes levers of our generation to shift toward a shared-ownership economy,” says Zoe Schlag of Common Trust, which finances such conversions. Investable models for collective ownership, renter payouts and neighborhood trusts are also expanding access to housing wealth.
  • Alternative capital for growing businesses. Venture capital and bank loans finance less than 20% of new businesses. A parallel market of equity, debt and hybrid capital is rising to grow businesses, create jobs and generate wealth. Among the new structures: Revenue-based financing (Founders First and 1863 Ventures), character-based loans (Common Future) and impact notes (ICA).
  • Diversity alpha in asset management. “We’re trying to change hearts and minds around where the opportunity set is,” VC Include’s Bahiyah Robinson says on an Agents of Impact podcast. A growing body of research suggests that diverse-led fund managers outperform less diverse firms, in part by identifying markets, opportunities or entrepreneurial talent overlooked by other investors. Gratitude Railroad’s Inclusive Capital Fund, launched earlier this year, helps overcome the institutional and implicit barriers that block white female managers and managers of color from raising capital.
  • Creating new markets for impact. Inclusive investors are building new markets and defining new opportunities in the creative economy, independent news, for migrants and other people on the move, and for the long-COVID population. “I want to show that there is a market opportunity in helping COVID Long Haulers and shift capital and policy support in that direction,” says Strong Haulers’ Ibrahim Rashid.
  • Keep reading, “Abundance, ownership and inclusion hold keys to shared prosperity in 2023,” by Dennis Price on ImpactAlpha. Catch up on this week’s other lookaheads to 2023 in climate finance and emerging markets

Dealflow: Sustainable Materials

Collaborative Fund raises $200 million fund for materials, ingredients, energy and supply chains. Designer Stella McCartney is anchoring Collaborative Fund’s Collab SOS fund and is also a customer to many of the fund’s portfolio companies, the Financial Times reported. Collaborative Fund said it will invest in Series A and B rounds for companies that offer products and services that are “better for the planet, without asking consumers to sacrifice.” (See, “New impact funds build their portfolios and scratch their way to a first close.”) “We’ve built out a really strategic limited partner and partnership base,” Collaborative Fund’s Sophie Bakalar told ImpactAlpha. McCartney is partnering with Collab Fund portfolio company Protein Evolution, for example, to recycle polyester and nylon fabric into new fibers. 

  • Impact methodologies. Collab SOS said the fund’s 14 investments reflect its interest in companies with processes such as synthetic biology and precision fermentation that drive impact “in creative new ways.” The portfolio includes Protein Evolution, BOLT, which is engineering materials from mycelium, and Brimstone Energy, which is producing carbon-negative cement.
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Dealflow overflow. Other investment news crossing our desks:

  • Commerz Real’s Klimavest invested in five solar development projects in Sweden totaling 246 megawatts.
  • Svante, a Vancouver-based developer of at-source carbon capture technology, raised $318 million in a Series E funding round led by Chevron.
  • Bangalore-based Betterplace raised $40 million in a Series C round to expand its blue-collar workforce management platform.
  • Aquaconnect scored $15 million in Series A financing to extend its network of smallholder aquaculture farmers in India and accelerate exports to the U.S., China and Japan.
  • Chilean fintech venture Kredito raised $6 million from a group of angel investors and family offices to finance small businesses.

Agents of Impact: Follow the Talent

Florida Housing Coalition names its chief programs officer Ashton Nesbitt as its new CEO… The Hammond Climate Solutions Foundation is hiring a remote, part-time climate change intern… The Taskforce on Nature-Related Financial Disclosures seeks a chief operating officer… Jobs for the Future is looking for a vice president for its apprenticeship and work-based learning program… The Meridian Institute is recruiting a remote project associate and fellows based in Dillon, Colo. or Washington, D.C… Applications are open through Jan. 31 for the American India Foundation’s Banyan Impact Fellowships.

Thank you for your impact.

– Dec. 21, 2022