Greetings, Agents of Impact! It was great to see so many of you on yesterday’s lively call on investable opportunities for racial equity in municipal finance. As Eric Glass of Justice Capital said, “This is the beginning of movement, and it’s gaining momentum.” We’ll share the replay tomorrow.
Featured: Catalytic Capital
Four principles to help catalytic investors optimize allocations and scale impact. Development finance institutions are under increasing pressure to play a “catalytic” role in financing for climate solutions and development priorities in emerging markets (see, for example, “To catalyze climate capital, development finance institutions are pressed to ‘publish what you fund’”). To do so, the semi-public entities face the difficult task of deploying the right type capital, for the right amount of time, with the right partners, to “crowd in” commercial investors. “If catalytic capital providers stick around too long, we can hamper the development of a sustainable ecosystem,” writes Ward Nusselder of Dutch development bank FMO in the final installment of ImpactAlpha’s “Scaling Impact” series with C3, the Catalytic Capital Consortium. “It is crucial to reduce catalytic funding as soon as feasible.”
- Source and subsidy. Catalytic investors must be clear on the role of their capital, by identifying the appropriate source of the funding and the level of concessionality that’s required to make investments work, says Nusselder. For example, FMO provides concessional “soft funding” to develop bankable projects and create markets. For scalable investments, including follow-on funds and maturing enterprises, it deploys capital from its own balance sheet.
- Sharing assessments. FMO publishes evaluation reports, on investments in the off-grid energy and clean cookstoves, for example. “Sharing of information, track record and experiences can help other investors in their assessments and, if substantiated by the track record, reduce their perception of risk,” says Ward. Improved risk perception “results in a more optimal allocation of [catalytic] capital, potentially increasing the amount of commercial capital invested.”
- Keep reading, “Four principles to help catalytic investors optimize allocations and scale impact,” by FMO’s Ward Nusselder on ImpactAlpha.
- Catch up. Take a spin through earlier posts in ImpactAlpha’s “Scaling Impact” series, authored by participants in the C3’s learning labs. Posts include, “How to get more international money flowing in local currency,” from Osaruyi Orobosa-Ogbeide of the Africa Finance Corporation, and “Indispensable growth factor for impact funds, strategies and fund managers: catalytic capital,” by Courageous Capital’s Laurie Spengler.
Sponsored by Mission Investors Exchange
How the Educational Resources Impact Fund is supporting quality instruction in schools. The pandemic wiped away decades of learning progress, widening inequities for the most vulnerable students in the U.S. “High-quality instructional material is the equalizer we need to ensure learning acceleration,” says Lin Johnson III of Maycomb Capital, which manages the Educational Resources Impact Fund. In ImpactAlpha’s series with Mission Investors Exchange, Johnson speaks with Susie Lee and Renee Blahuta of the W.K. Kellogg Foundation, one of ERIF’s philanthropic backers, about using flexible financing to enable educational institutions to narrow achievement gaps and build inclusive learning environments. Shares Lee, “ERIF was created to fill capital gaps that seemed to be holding back organizations that work in this space from growth and scale.”
- Keep reading, “How the Educational Resources Impact Fund is supporting quality instruction in schools,” by Maycomb Capital’s Lin Johnson III. This is the final post in ImpactAlpha’s partnership with MIE for its national conference in Baltimore.
- Other contributions: “Investing in financial innovations to narrow the racial wealth gap,” “How impact investments are helping build healthy communities,” “Investors must make noise so BIPOC entrepreneurs don’t have to make do,” “How The California Endowment is investing for health and racial equity,” and “How MacArthur Foundation leverages a full continuum of capital for climate action.”
Dealflow: Affordable Housing
Jonathan Rose Companies eyes $750 million for its sixth affordable housing fund. The New York-based real estate firm has been a pioneer in creating and preserving green affordable housing for more than three decades. The company works with social service providers to embed educational, workforce development and health services in what it calls “communities of opportunity” (listen to ImpactAlpha’s podcast, “Jonathan Rose on building green, affordable communities of opportunity”). Its sixth Preservation Fund is targeting $500 million to $750 million to address the chronic shortage of affordable housing in the U.S. “There is not a single county in America where a parent with a child working a full-time minimum wage job can afford to rent an apartment,” Jonathan Rose told ImpactAlpha. “Our affordable housing Preservation Funds partner with investors who want not only to help preserve the too-small supply of existing affordable housing, but also to grow it.”
- Track record. The latest fundraise follows a $525 million fund raised from investors, including the Ford Foundation and the Sorenson Impact Foundation, in October 2020, amid the Covid crisis. Investments from that fund include a $30 million acquisition of the Pasatiempo apartment complex in Fremont, Calif., which enabled a 20-year extension on rent controls that were set to expire. Rose Cos. has raised just shy of $1 billion to date, building a portfolio of 19,000 apartments in 15 states and Washington, D.C.
- New models. As more investors gravitate toward the social mission – and steady returns – of affordable housing, Rose, the firm’s namesake founder, is looking for new ways to add value. His current obsessions: inter-generational living, collective ownership, and community commons.
Al Gore’s Just Climate makes its first three climate tech investments. The unit of Generation Investment Management, led by David Blood and Al Gore, invested in three European companies focused on green steel, biogas and electric charging solutions (see “Generation stands up Just Climate for capital-intensive climate solutions”). Among them: Swiss EV charging company ABB E-Mobility makes products for home charging, commercial bus depots and electric vehicle fleets. ABB, which operates a plant in South Carolina, has sold more than a million chargers globally and is preparing to go public in Switzerland later this year. Other investors in the $355 million round included Porsche SE, General Atlantic’s BeyondNetZero, and Singapore sovereign wealth fund GIC. The three investments “have the potential to generate attractive risk-adjusted returns through outsized greenhouse gas emissions abatement in the next 10 years,” said Just Climate’s Clara Barby.
- Hard to abate. Just Climate focuses on companies with potential to decarbonize hard-to-abate sectors that may be considered too capital-intensive or unproven at scale for investors. Sweden’s H2 Green Steel uses green hydrogen to replace coal in steelmaking. Just Climate participated in the company’s $191 million Series B raise last October. H2 is building a first-of-its-kind green steel plant in Sweden. Meva Energy, also in Sweden, turns wood and agricultural waste into biogas that can be used by mid-sized industrial companies in place of fossil fuels.
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Dealflow overflow. Other investment news crossing our desks:
- Serena Ventures, Emerson Collective and Metrodora backed Teal Health’s $8.8 million seed round in support of its at-home cervical cancer screening device.
- The U.S. Small Business Administration approved Lafayette Square’s application for its first Small Business Investment Company license.
- Chile’s Lemu raised $8 million to build a network of individuals and organizations with imagery and data that can support ecological conservation efforts.
- Cybersecurity tech venture Guardz secured $10 million to develop insurance products that protect small businesses in the U.S. against data breaches and cyberattacks.
- Canada’s Raven Indigenous Capital Partners closed its investment fund for Indigenous-led businesses at C$100 million (US $75 million).
Impact Voices: Impact in India
As India’s impact ventures grow, so does the need for growth-stage impact capital. India’s impact investing market has witnessed tremendous growth, with investments reaching $7 billion in 2021. Beyond financial services and inclusion, the market includes more social enterprises and investment opportunities in agriculture, technology for good, healthcare, education and livelihoods. Renewable energy, including battery storage, green hydrogen and offshore wind, is particularly ripe for investment. The gap in the market: growth-stage capital from impact funds. “Impact investors have traditionally led funding rounds for early-stage impact enterprises in India, while commercial investors have provided later-stage funding,” write Ramraj Pai, Vedant Batra and Rishi Dewan of India’s Impact Investors Council in a guest post. “Impact funds, too, can finance the transition of impact enterprises beyond early venture funding.”
- Inverse investing. Deal data analyzed by IIC shows that venture capital contributed by impact funders falls sharply as deal size increases. In small-ticket deals, impact investors comprise roughly 50% of total invested capital. In the largest deals – $20 million or more – less than 20% of investment capital comes from pure-play impact investors.
- Scaling impact. “As impact enterprises mature, it is crucial that they remain focused on their core impact thesis,” the authors write. “The presence of growth stage-focused impact funds can incentivize impact enterprises to minimize their mission-drift as they strive to become financially and operationally optimal.”
- Keep reading, “As India’s impact ventures grow, so does the need for growth-stage impact capital,” by Impact Investors Council’s Ramraj Pai, Vedant Batra and Rishi Dewan on ImpactAlpha.
Agents of Impact: Follow the Talent
CrossBoundary’s Habib El Magrissy joins the U.S. International Development Finance Corp. as an Africa investment advisor. The DFC is recruiting an international loan portfolio specialist and a development policy monitoring and clearance manager in Washington, D.C… Open Road Alliance seeks an investment officer… Two Sigma Impact is looking for an investment associate in Portland.
The Thirty Percent Coalition seeks an executive director in Chicago… JPMorgan Chase & Co. has openings for an executive director of sustainable investing policy and a regulatory implementation specialist in London…The Native American Food Sovereignty Alliance is hiring a remote director of communications… Galvanize Climate Solutions is recruiting an impact measurement vice president in San Francisco or New York.
The Global Impact Investing Network has an opening for an event operations manager in New York… Veris Wealth Partners is looking for a wealth manager and a senior wealth manager in New York… The Food Not Feed Summit will focus on the 2023 Farm Bill, Tuesday, Feb. 7 in Washington, D.C… The Aspen Institute will host a virtual event on advancing the next generation of rural and Indigenous leaders, Friday, Feb. 10.
ReImagine Appalachia, in partnership with Manufacturing Renaissance and the American Sustainable Business Network, will host a webinar on community-based manufacturing ecosystems, Tuesday, Feb. 9… The Sunrise Project’s Jordan Haedtler and Evergreen Action’s Sam Ricketts will join Climate XChange’s virtual discussion on climate policy trends, Wednesday, Feb. 15.
Thank you for your impact.
– Feb. 2, 2023