Greetings, Agents of Impact!
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CDC’s Nick O’Donohoe on risk, liquidity and catalytic capital in emerging markets (podcast). When the coronavirus busted out as a global crisis in March, private equity funds, banks and other commercial investors largely pulled out of Africa and other emerging markets. Even most impact investors pulled in their horns. Virtually the only investors who stayed in the game were development finance institutions, or DFIs, including the U.K.’s CDC Group. “The crisis has made a risky area even more risky,” CDC’s Nick O’Donohoe says on ImpactAlpha’s latest Agents of Impact podcast. “It is critically important that development finance institutions step forward, be counter-cyclical, and provide funding and liquidity at a time when commercial investors wouldn’t. That means you’ve got to take on a considerable amount of risk in order to do that.”
Just how much additional risk publicly owned DFIs have been willing to bear, especially in the current crisis, is one of the most hotly debated topics in impact investing. In the interview, O’Donohoe acknowledged that DFIs in the past have been criticized as having similar risk-return profiles as commercial investors, but says that has changed in the last five to seven years. That’s not the impression of many veteran practitioners, who say there’s been little change in the risk parameters by which DFIs approve and underwrite loans. O’Donohoe said CDC is doing what it can to ease the liquidity crunch brought on by the COVID crisis, which has made it difficult for even healthy businesses to access needed working capital, trade loans and other basic business financing. McKinsey estimates the pandemic could affect the livelihoods of 150 million Africans, or about one-third of the workforce. “Somebody has to do it,” he says. “Otherwise these companies will not have liquidity to survive and jobs will disappear. But clearly there’s significant risk involved.”
Keep reading, and listen in to, “CDC’s Nick O’Donohoe on risk, liquidity and catalytic capital in emerging markets” on ImpactAlpha. Catch up on all of ImpactAlpha’s podcasts, including our weekly Impact Briefing.
Dealflow: Follow the Money
Female investors power Rethink Impact’s $182 million gender-lens fund. Jenny Abramson and Heidi Patel launched Rethink Impact in 2016 to invest in female entrepreneurs tackling tough problems. Female investors, who make up nearly two-thirds of the investors in their latest fund, helped make it the largest U.S. gender-lens fund. Backers in Fund II include Melinda Gates’ Pivotal Ventures, the Ford and Kellogg foundations, UBS and university endowments, as well as many high-net-worth women. The firm’s first fund raised half of its $110 million from clients of UBS Wealth Management Americas.
- Track record. Rethink Impact joined last month’s $9.5 million round for CareAcademy, a caregiver-training platform founded by Helen Adeosun and Madhuri Reddy (see, “Agent of Impact: Helen Adeosun, CareAcademy”). Other investments include Sally Krawcheck’s Ellevest and Rachel Carlson’s worker upskilling company Guild Education, one of the first female-led impact “unicorns.”
- Doubling down. Already scant funding for women-led ventures plummeted by 40% in the first quarter of 2020. “Female founders are being left out at a time when their ideas are needed most,” Abramson said in a statement. “Now is the time to address these market blind spots and double down, not lean out.”
- ICYMI. “Victress Capital closes $21.7 million fund to back female founders.”
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Electric truck maker Rivian hauls in $2.5 billion. The round, led by T. Rowe Price, brings Michigan-based Rivian’s total funding to about $6 billion. Investors include Soros Fund Management, Coatue, Fidelity, Baron Capital Group and existing investors BlackRock and Amazon, which is also a major customer.
- Accelerated schedule. Rivian plans to debut its all-electric pickup and SUV models early next year (see, “Electrification of vehicle fleets sparks disruption of energy and transportation”). Due to higher-than-anticipated demand, the company is increasing capacity and accelerating product schedules, Rivian founder R.J. Scaringe told CNBC.
Rally Assets to invest for impact in public and private markets. The Toronto-based advisory firm launched the Rally Total Impact Fund to invest in both private and public impact investments. “Investors want the deep impact of private markets but also want liquidity and ease of managing their portfolios,” says Rally’s Kelly Gauthier. HighView Financial Group seeded the fund. Another fund, the Rally Global Equities Impact Fund, will invest exclusively in public equities.
- Beyond ESG. Both actively managed funds go beyond evaluating environmental, social and governance factors to target investments with measurable impact on the U.N. Sustainable Development Goals. Majestic Asset Management will manage the funds; Rally is the investment advisor.
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Open Road Alliance disburses $5.5 million in COVID-related bridge loans and grants to 40 enterprises. The numbers pale in comparison to the need: the firm fielded 1,200 funding requests totaling $150 million since mid-March from social enterprises impacted by the pandemic (see, “Short-term loans are a safety net as social enterprises face an ‘unexpected OMG moment’”). “The social enterprises I’m talking to are still struggling,” says Open Road’s Caroline Bressan. New investors in the Open Road Impact Fund include Blue Haven Initiative and Swiss Agency for Development and Cooperation, which provided grant funding for social impact incentive-linked loans.
Beyoncé and NAACP team up on grants for Black-owned small businesses. The Black-Owned Small Business Impact Fund, launched by the megastar’s BeyGOOD charity and administered by the NAACP, will offer grants of $10,000 to Black-owned businesses in five cities “negatively impacted by recent events.”
Chelsea Clinton mulls ‘values conscious’ health- and ed-tech venture fund. The former first daughter has been shopping around plans for Metrodora, according to Axios.
Impact Voices: Pass the Mic
Let the needs of small businesses drive impact investing in local economies. Many impact investors define success based on internal goals. Instead, says John Hamilton of the New Hampshire Community Loan Fund, investors dedicated to strengthening local economies “should define success externally: to what degree they can help locally-owned businesses prosper.” Hamilton runs Vested for Growth, the business investment program of New Hampshire community development financial institution, or CDFI. In a guest post on ImpactAlpha, he argues for prioritizing the success of community-based businesses. Among the elements small businesses need to thrive: the right mix of investor capital, sounding boards, business-building skills, technical support and relationship brokerage.
- Engaging communities. CDFIs “have a proven record of combining capital and business-building know-how within sectors that neighborhoods demand, like child care, local food, and retail,” Hamilton says. When investors, CDFIs, and community groups work together, he adds, “those businesses that have been overlooked by mainstream capital—including minority- and women-owned companies and those in low-income neighborhoods—will be better able to compete and thrive.”
- Devolution. Place-based philanthropic investors like Heron Foundation are beginning to redefine success by engaging directly with the communities they are trying to serve and letting them allocate the funding (see, “Agent of Impact: Dana Bezerra, Heron Foundation”). By putting local businesses first, Hamilton says, “impact investors move closer to building the types of diverse local economies we need.”
- Keep reading, “Let the needs of small business drive impact investing in local economies,” by John Hamilton on ImpactAlpha.
Agents of Impact: Follow the Talent
A special happy birthday to ImpactAlpha’s Zuleyma Bebell, who works tirelessly to keep this train on the tracks. Thanks, Zuleyma, for pushing us all to think bigger and be bolder.
Chuka Umunna, formerly of the U.K. parliament and Labour party, is Edelman’s new executive director and head of environmental, social and governance consulting… Purpose Built Communities’ CEO David Edwards steps down. The organization’s president, Carol Naughton, will serve as interim CEO… City Light Capital seeks an analyst in New York… BlueHub Capital (formerly Boston Community Capital) is hiring a chief strategy and implementation officer in Boston… Rethink Education is looking for an analyst in New York… Nexus is hosting a conversation on climate and impact investing featuring FullCycle’s Ibrahim AlHusseini and Morgan Stanley’s Jessica Alsfordat on July 15.
Thank you for reading.
–July 13, 2020