The Brief | May 24, 2023

The Brief: Perpetual purpose payouts for auto mechanics, employee ownership and quality jobs, smart heat pumps, lessons from financial activists

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Greetings, Agents of Impact!

Featured: Ownership Economy

A Utah auto shop demonstrates a pathway to worker ownership via a perpetual purpose trust. The mechanics and other employees at Clegg Auto’s four car-repair shops in northern Utah have received, since last fall, an additional payout alongside their regular paycheck: a share of profits. The company’s shareholders last August transferred ownership of the 25-year-old chain of shops to a “perpetual purpose trust.” The conversion provided an exit for Steve Clegg, the majority owner, while giving employees a stake in future company profits. Kevin Clegg, who gifted his shares to the trust and stayed on as general manager, says the company wasn’t interested in accumulating assets. By cutting in employees on the value they help create, “we’re trying to see more people in jobs that they love and more customers being served in ways that they want to be served,” Clegg tells ImpactAlpha. The conversion of Clegg’s four shops was the first set of transactions for Common Trust, an advisor and financier of employee-ownership trust conversions. Common Trust also helped design the trust of open-source software company Code Weavers, which announced its conversion last week. Clegg Auto “is a very clear example of the ownership flywheel at work,” says Common Trust co-founder Zoe Schlag.

  • Ownership benefits. Purpose trusts are becoming a backdoor into employee ownership. While the trust itself owns the company, stakeholders are using the structure to transfer governance and ownership benefits like profit-sharing to employees, emphasizing stewardship rather than ownership, says Clegg. “We don’t own the company and its shares. We own the ability to receive the rewards of what we’ve built.” Bipartisan legislation introduced last week would make it easier for employee-owned companies to raise money by extending Small Business Administration loan guarantees to investment funds focused on employee ownership. 
  • Quality jobs. The Ford Foundation is pushing Two Sigma Impact and other funds in its “quality jobs” portfolio to adopt worker-ownership strategies, says Ford’s Roy Swan. Two Sigma’s Warren Valdmanis has so far resisted. “Warren may learn over time that he could actually enhance the firm’s and the fund’s profitability – and the returns generated for limited partners – by including an employee-ownership component,” Swan tells ImpactAlpha. On a panel at the New York Federal Reserve yesterday, Jessica Rose of the Global Impact Investing Network called employee ownership “the best kept business model secret of our age and the next big thing for impact investing.” The details.
  • Keep reading, “A Utah auto shop demonstrates a pathway to worker ownership via a perpetual purpose trust,” by Dennis Price on ImpactAlpha. Follow all of ImpactAlpha’s Ownership Economy coverage.

Dealflow: Investing in Health

Syridex Bio scores $5 million from New Jersey to back local health businesses. A former life sciences lawyer, Squire Servance founded Princeton-based Syridex last year to invest in access to quality healthcare for underserved populations, starting in his home state of New Jersey. The Black-led impact venture firm is looking to raise $150 million to back early-stage companies developing drugs and therapies for diseases that disproportionately affect people of color and women. Ethnic minorities in the US face higher rates of hospitalization and death from diabetes, heart disease, cancer and asthma. Servance told New Private Markets that Syridex won’t invest in portfolio companies, but will acquire their products “for an upfront fee, and then cover the cost of development, which can be up to $30 million.”

  • Community-based health impact. Funding from New Jersey Economic Development Authority, or NJEDA, aims to support business owners in the state, “while driving scientific breakthroughs and economic activity for more equitable and inclusive opportunities for New Jerseyans,” said NJEDA’s Tim Sullivan. NJEDA made the allocation via its $60 million Life Sciences and Healthcare Fund, funded through the American Rescue Plan’s State Small Business Credit Initiative, or SSBCI.
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Tipping Point Fund backs field-building efforts of GIIN, The ImPact and ShareAction. The impact investing collaborative has provided grants to five organizations in support of new field-building initiatives, including the Global Impact Investing Network’s assumption, from International Finance Corp., of the Operating Principles for Impact Management. The ImPact is researching use-cases for impact-linked compensation (see, “Why don’t more impact fund managers tie compensation to impact? Let’s find out.”). ShareAction is developing corporate reporting standards on social issues for the International Sustainability Standards Board.

  • Year of the S. Nonprofit Shift is researching high-quality “S” metrics for ESG reporting. The ESG Initiative at the Wharton School aims to shift “current business-school research and pedagogy” toward sustainability.
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Lowercarbon Capital and MCJ Collective back Quilt’s heat pump designs. Sales of heat pumps in the US last year outpaced gas furnaces. Many systems come with installation challenges, however, requiring new duct systems or the installation of wall-mounted “mini-split” units for room-by-room use. Redwood City, Calif.-based Quilt is designing smaller units that don’t require the duct work and can be controlled with a smart thermostat. MCJ Collective backedQuilt’s $9 million equity round alongside Lowercarbon Capital, Climate Capital and others.

  • Clean home energy. Quilt’s system “divides the workload between a heat pump located outside the home and multiple, hyper-efficient indoor air handling units,” MCJ explained in an investment note. “Quilt will be at the forefront of catalyzing the transition to clean home energy.” The company expects to have its systems ready to sell next year.
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Dealflow overflow. Other investment news crossing our desks:

  • Sabi in Nigeria raised a $38 million Series B round to help informal vendors with logistics and business digitalization. (TechMoran)
  • StepChange, in India, secured $4 million to help large companies and financial institutions benchmark ESG performance and manage climate risks. (YourStory)
  • Nigeria’s Figorr (formerly Gricd) raised $1.5 million from Jaza Rift VenturesVestedWorldKatapult and others to expand cold-chain storage for agriculture and healthcare in Nigeria. (TechCrunch)
  • California-based Pledge clinched $10 million from Lowercarbon Capitaland others to help logistics companies understand and mitigate carbon emissions. (Fintech Finance News)

Impact Voices: Effective Activism

Seven lessons from successful financial activists. What does it take to be a successful financial activist? The Just Economy Institute has mentored and supported more than 150 fellows who are using capital as a force for community wealth-building and wellbeing. Effective activists, write the institute’s Deb Nelson and Tina Beck, “share a willingness to listen and learn, an ability to identify and solve root problems, and a commitment to doing the internal work that makes positive change possible.” Nelson and Beck offer up seven best practices for financial changemakers.

  • Work with communities. Involving people who are closest to the problem is the surest path to durable solutions, the authors say. “This approach requires leaders with a certain amount of humility.” Kristi Fairholm Mader of Scale Collaborative, which works throughout Canada, says the approach requires “responding quickly, taking time for conversation, entering with curiosity, seeking understanding, recognizing the effort and brilliance that exists and asking how we can add to it.”
  • Question assumptions. Activists who hear “that’s just not how things work,” shouldn’t assume that mainstream financial advisers or bankers know what’s best. Solidaire Network’s Marlena Sonn left her career as an investment advisor after concluding that “the growth required by public markets is actually a form of environmental debt, with no break-even in sight.” For the past decade, she’s funded social and climate justice movements and worked to restore soil carbon.
  • Do the work. Financial activism requires inner work as well. Jasmine Rashid of Candide Group is a certified practitioner in the “Trauma of Money Method,” which emphasizes trauma healing and financial security. “Opportunities that tend to my inner world and wellbeing remind me that I’m intrinsically connected to the wellbeing of all that surrounds me,” Rashid shares.
  • Keep reading, “Seven lessons from successful financial activists,” by Just Economy Institute’s Deb Nelson and Tina Beck.

Agents of Impact: Follow the Talent

Oliver Withers, ex- of Credit Suisse, joins Standard Chartered Bank as its first head of biodiversity… Blue Like an Orange is looking for a sustainability analyst in Paris… SJF Ventures is looking for a director of impact in New York… Also in New York, Echoing Green is hiring a capital manager… Social Finance has an opening for a controller in Boston… Wavemaker Impact is looking for entrepreneurs interested in launching climate tech unicorns in the Philippines.

Common Future will convene this year’s Common Future Accelerator cohort to discuss strategies for achieving racial economic equity and building a more inclusive economy, Tuesday, June 6… Village Capital and World Education Services’ climate justice investment readiness program is accepting applications from founders building inclusive solutions for communities in the US that are disproportionately impacted by climate change.

Thank you for your impact.

– May 24, 2023