The Brief | August 25, 2022

The Brief: Practitioner wisdom from emerging markets, corporate carbon management, insect farming in India, green commercial real estate, Indigenous-led apparel

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Featured: Practitioner Wisdom

Three lessons impact investors can offer venture capitalists looking for deals in Africa. Early-stage investors allocated a stunning $5.2 billion to African innovators during 2021, more money than in the preceding seven years combined, and VC funding to Africa is still flowing. “If venture capitalists think holistically and ask the right questions, the continent can make a vital leap of progress – socially, environmentally, and economically,” writes Vital Capital’s Nimrod Gerber. In line with the Sustainable Development Goals, Africa needs businesses that transform lives, he says, like medical care where none exists and clean water access. And investors must consider the negative impact of business failures, like the failed solar light charging company that left customers without a backup. Vital Capital has deployed $286 million across 13 investments in food, healthcare, water and infrastructure. His third lesson:

  • Limits of leapfrogs. VC-backed telemedicine is not a substitute for permanent health clinics. Decentralized water offerings do not take the place of urban water and sewage infrastructure. And small-scale “energy as a service” is not a replacement for dependable and affordable clean energy for human and economic development for civil and industrial uses. “‘De-centralized solutions’ for infrastructure – which are popular among venture capitalists – should not have the negative effect of releasing governments from investing in permanent solutions,” says Gerber. “Venture-backed solutions often need to be complemented by – not replace – other types of investment.”
  • Keep reading, “Three lessons impact investors can offer venture capitalists looking for deals in Africa,” by Vital Capital’s Nimrod Gerber. 

Tips for strengthening ESG investing from emerging market fund managers. Fund managers in emerging markets are used to grappling with the scarcity of investment data. That has forced them to be innovative in collecting information to measure processes – ESG – and outcomes – impact – even in the absence of standardized reporting, writes Lauren Yang of USAID Invest, which aims to unlock private capital for inclusive growth in countries where USAID works. For example, Circulate Capital helps its portfolio companies improve gender diversity, helping them qualify as suppliers to global companies with diversity mandates. Women’s World Banking helps its investees dig into how to address key ESG issues, like recruitment of women. “Emerging market managers have cultivated a fertile testing ground for ways to effectively source and apply ESG data,” Yang says, “producing creative solutions that investors and investees should pay closer attention to and borrow from.”

  • Risk management. Gender-based violence can be an indicator for economic and political instability. But an investment policy that excludes investment in areas with high levels of gender-based violence means “finance is not going towards improving the situation,” observes Josh Dobiac of Milliman Financial Risk Management. Instead, investment managers can highlight regional risks so investors can put conditions on their capital. “By finding a way to account for and address such types of risk, investors can avoid missing out on promising investment opportunities,” says Yang.
  • Keep reading, “Tips for strengthening ESG investing from emerging market fund managers,” by USAID Invest’s Laurent Yang. 

Dealflow: Carbon Tech

Carbon Direct raises $60 million for science-based carbon management. Supply chain emissions. Decarbonizing processes. Carbon offsets. Meeting net-zero goals is a daunting challenge for corporations. New York-based Carbon Direct’s software helps partners break down their carbon footprint and connect with carbon removal tech partners. Its team of 30 scientists advises governments and businesses, such as Microsoft. “Organizations will need to significantly change how they manage their carbon footprint in order to meet their climate goals,” said Jeffrey Harris of Quantum Energy Partners, which led Carbon Direct’s financing with Decarbonization Partners, the joint effort of Singapore’s Temasek and BlackRock.

  • Late-stage climate tech. Decarbonization Partners launched last year with a $600 million commitment to hunt for “companies that have proven technology and a capacity to scale — once provided with the right capital,” said Decarbonization Partners’ Meghan Sharp. Decarbonization Partners late last month injected $300 million in clean-hydrogen and carbon-black maker Monolith. In May, it backed Group14 Technologies to commercialize silicon batteries and alt-leather producer MycoWorks.
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Omnivore backs Loopworm’s network of insect farms with $3.4 million. Bangalore-based Loopworm works with a network of smallholder farmers to raise insects for animal and pet feed and oil on unsold and unconsumed food. Loopworm buys the insects and processes them in its facilities. The company says its model curbs food waste, provides farmers with additional income, and yields sustainable, high-protein feeds. Agrifood impact investor Omnivore backed the company to build its first production factory via its OmniX Bio initiative to develop agriculture and food sciences in India. WaterBridge Ventures and Titan Capital also participated.

  • Agri-biotech. Omnivore has backed more than 30 India-based agrifood startups. Startups and venture investors in the country have focused almost entirely on “digital technologies, e-commerce, full-stack farmer platforms, rural fintech and marketplaces,” write Omnivore’s Mark KahnVenky Ramachandran and Renuka Diwan. For harder sectors like agri-biotech, alternative proteins, high-tech farming systems, and bioenergy and biomaterials, they argue, “venture investors of every stage need to step forward with funding to turn these dreams into our new reality.” In addition to Loopworm, OmniX Bio’s initiative has invested in BioPrime, a sustainable crop treatment developer.
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Dealflow overflow. Other investment news crossing our desks:

  • Valley National Bank and Community Preservation Corp. committed $100 million to finance mortgage loans for green commercial real estate development projects.
  • Berkeley, Calif.-based Clarity Movement Co. raised $9.6 million to help businesses, governments and other institutions combat air pollution.
  • Ginew Inc., an Indigenous-owned sustainable garment company, scored $500,000 from Raven Indigenous Capital Partners.
  • Arevia Power secured an undisclosed investment from KKR to develop utility-scale solar and wind energy projects in the U.S.

Agents of Impact: Follow the Talent

Living Cities seeks a managing director of programs in New York or Washington… Meow Wolf is looking for a director of inclusion, diversity, equity and accessibility in Santa Fe… Harlem Children’s Zone is hiring a director of economic mobility in New York… McKinsey & Co. is hiring a green finance consultant in Singapore… Also in Singapore, Bloomberg Data seeks an environmental, social and governance team leader… Sustainalytics is looking for a product manager for ESG and impact products in Chicago… Capital Impact Partners is recruiting a senior loan associate in New York or San Francisco.

Thank you for your impact!

– Aug. 25, 2022