Greetings, Agents of Impact!
Featured: Muni Impact
Engaging racial-equity risks and opportunities in municipal finance (video). The fatal beating by police of Tyre Nichols in Memphis, Tenn. last month exposed risks that have been hiding in plain sight. Memphis and surrounding Shelby County have high rates of pretrial detention, arrests for low-level offenses – and contracts with private equity-backed companies providing health and other services in jails based on how many people are incarcerated daily. “And so you’ve got this strange flow of capital where your public dollars are subsidizing private interests that are undermining the economic security of the residents,” Activest’s Ryan Bowers said on Agents of Impact Call No. 48. Activest got its start as an investment research and analytics firm in 2015, after Michael Brown was killed by police in Ferguson, Mo. There, excessive fees and fines on residents of color represented another previously hidden risk factor. “This is not just a Shelby County issue, and it’s unfortunately not just a Ferguson issue. It’s not even just a private equity issue,” Bowers said. “It’s really about, what does justice and transparency look like in the municipal market? And how are our public dollars, and Black and Brown bodies, being used to benefit everyone except Black and Brown folks?”
- Repricing risk. Just as some real risks are left unpriced, other misperceived risks are given disproportionate weight, reflecting both institutional and individual bias, said Diane Manuel of Adasina Social Capital. A well-documented “Black tax” extracts higher interest payments based on often-misperceived risks in cities with majority-Black populations. “Is there discrimination? Probably. Some racism? More than likely,” said Manuel. “But more than likely, there are some systemic issues… causing the cost of capital for communities like these, underserved communities, to have to pay more to come to market to fix their water pipes.”
- Active engagement. Investors have the most leverage in the new issue market, said Eric Glass, an advisor to Justice Capital after 20 years at AllianceBernstein. “That is your best opportunity to ask questions and to engage directly with issuers around their theory of change, around what they’re investing in, why they’re investing in it, how they’re tracking it,” he said. If bankers and issuers won’t respond, they risk losing the investment, he added. “If you don’t get my order, you’re not optimizing the lowest cost of capital for your issuer.”
- Systemic solutions. Former Heron Foundation president Dana Bezerra welcomed the focus on impact in municipal finance. Impact and ESG investors fight hard for materiality and values in other asset classes. In fixed-income products, “everything is material,” she said, because of the sheer nature of their duration. Ratings agencies, underwriters and others in the space should be concerned with the risk posted to bonds from anti-democratic practices sweeping the country, Bezerra added. Long-term debt “requires successful communities to pay it back.”
- Munis 101. As essential as it is, the muni market can feel opaque. To broaden access to the market and on-ramp newcomers, ImpactAlpha has compiled an explainer to sort out the players, capital flows and mechanisms in the $4 trillion market that funds our public projects. Catch up quickly.
- Read the full recap and watch the video replay of Agents of Impact Call No. 48. Catch up on all of our coverage of Muni Impact, made possible with support from the Robert Wood Johnson Foundation.
Dealflow: Inclusive Communities
Common Future launches first racial equity accelerator. When Common Future absorbed the social impact accelerator Uncharted last May in a rare nonprofit merger, it brought together a team focused on supporting entrepreneurs and community leaders addressing racial equity. Oakland, Calif.-based Common Future is providing a total of $500,000 in unrestricted grants to 10 organizations developing creative models for closing racial wealth gaps (for context, see “Common Future shifts from investee to investor and takes a stake in SOCAP”). “In communities impacted by lack of wealth, independence and power, the solutions to these problems will come from thinkers, doers and builders closest to the problem,” said Andrea Perdomo, formerly with Uncharted, who is running the new accelerator. “For their ideas to flourish, they need space, support and investment.”
- Black farmers. Atlanta-based National Black Food and Justice Alliance is rolling out a loan fund to grow Black land ownership, which has decreased from 16 million acres a century ago to just 4.7 million acres today. “Our goal is to take 50 million acres off the speculative market,” the group’s Kenya Crumel told ImpactAlpha. The $750,000 loan fund will make no- and low-interest loans to buy land and equipment and help nurture effective land stewardship. Los Angeles-based SEED, short for Sustainable Entrepreneurial Ecosystem Development, is democratizing access to agtech for underserved urban farmers of color in the U.S. The B Corp. has developed a handheld soil carbon sensor to help farmers measure their climate impact and participate in the growing market for carbon offsets.
- Community power. Change Labs, a Native-led nonprofit in Tuba City, Ariz., is developing a funding initiative for Navajo startup and growth companies. The Center for Cooperative Development and Solidarity is helping immigrant and women residents in rapidly-gentrifying East Boston form worker-owned cooperatives. The organizations in the cohort are led by BIPOC women. “We’re really here to support these communities,” Perdomo told ImpactAlpha. “We want to make sure the organizations that go through this program are led by the communities that they’re trying to impact.”
Therma secures $19 million to help companies manage cooling and refrigeration needs. Fluorinated gasses used for refrigeration are more potent greenhouse gasses than methane or CO2. One way to cut greenhouse gasses is to improve refrigeration management (another: develop alternative refrigerants). “The massive growth of refrigeration and air conditioning globally will greatly accelerate climate change unless we revolutionize cooling technologies,” said Manik Suri of Therma. The San Francisco-based company helps companies with large refrigeration loads track temperatures, monitor equipment and save on utility bills by shifting some of their energy load to off-peak hours.
- Corporate clients. Therma counts McDonald’s, Domino’s, Marriott Hotels and NOW Foods among its customers. Backers in the company’s Series A round include Zero Infinity Partners and Collaborative Fund, which re-upped its investment in the company.
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Liminal raises $17.5 million to help EV battery makers monitor and improve production. Global demand for lithium-ion batteries for electric vehicles and solar storage is forecast to grow more than 30% per year through 2030. A raft of battery makers are securing private capital, going public and ramping up production (in the U.S., more than $128 billion is going into electric vehicle and battery plants, as well as battery recycling projects). Liminal’s inspection tools help battery manufacturers check quality during production. The Emeryville, Calif.-based company uses ultrasound and machine learning to ensure battery factories meet safety and performance standards. “Most battery innovation to date has focused on material science,” said Mira Inbar of ArcTern Ventures, which led Liminal’s Series A extension round. “The industry needs a larger focus on process and manufacturing innovations to ensure both affordability and safety.”
- Battery backers. The company’s latest financing round was also backed by Swedish battery producer Northvolt, which has raised billions of dollars for its battery “gigafactory.” Ecosystem Integrity Fund, Impact Science Ventures, Helios Climate Ventures and others also participated.
- Check it out.
Dealflow overflow. Other investment news crossing our desks:
- Free From Market, a Black woman-led nutrition service for low-income Americans with chronic health issues, raised $2.1 million from Bluestein Ventures, Acumen America, Google’s Black Founders Fund and others.
- London-based Carbonplace, which is launching a bank-based carbon credit trading marketplace, secured $45 million from BBVA, BNP Paribas, NatWest, UBS and a host of other global banks.
- Gurgaon-based Zypp Electric snagged $25 million, led by Taiwan’s EV battery-swapping company Gogoro, to provide India’s e-commerce companies with electric delivery fleets. Also in India, Simple Energy raised $20 million to boost production of its low-cost electric scooters.
Signals: Entrepreneurship Support
Turning the boom in small business starts into a long-term driver of economic mobility. A record 10 million people in the U.S. applied to start new businesses over the past two years, as President Biden highlighted in his State of the Union address this week. “Ten million,” he repeated for emphasis. “And by the way, every time someone starts a small business, it’s an act of hope.” Black Americans, especially Black women, are the fastest-growing demographic of entrepreneurs. For this promising trend to become a durable driver of economic mobility, Black business owners need access to capital, technical assistance and bankers that understand their needs. The McKinsey Institute for Black Economic Mobility identified business ownership as one of eight key economic mobility pillars (see our earlier reporting, “Four ways impact investors are supporting economic mobility for Black Americans“).
- Solution set. The McKinsey report suggests that impact investors can invest in community development financial institutions and other lenders that provide “affordable, responsible financing to women- or minority-owned small businesses that struggle to obtain financing through traditional sources.” Another solution: Commit funding to companies that provide technical assistance, financial counseling, and loan application assistance to help founders “build knowledge and access capital to scale their businesses.” Advancing Black business ownership via employee ownership transition structures can help increase job security for Black workers (for context, see, “ImpactAlpha Deal spotlight: Black-worker ownership”).
- Pandemic effect. Biden thanked Vice President Kamala Harris for leading efforts to ensure small businesses have access to capital. Harris championed an $8.7 billion investment package for community development financial institutions, or CDFIs, and minority depository institutions. Nearly half of Black-owned businesses closed down during the pandemic, compared to 17% of white-owned businesses. “What happens for communities of color is they actually do what they have to do to survive,” Living Cities’ Demetric Duckett said on ImpactAlpha’s Impact Briefing podcast last month. “So our question is: How are we actually supporting these new demographics as the country shifts, including in moments like the pandemic?”
- Keep reading, “Turning the boom in small-business starts into a long-term driver of economic mobility,” by Roodgally Senatus on ImpactAlpha.
Agents of Impact: Follow the Talent
Sabari Raja, ex- of Nepris, joins JFF Ventures as a managing partner… Scott Eaton, ex- of fintech venture Nivaura, joins Carbonplace as CEO (see dealflow above)… Upstart Co-Lab promotes Ward Wolff to director… Social Investment Scotland appoints Arran Dewar, previously with Inspiring Scotland, as executive director… Greentown Labs is hiring a senior vice president of partnerships in the Boston area… Finite Carbon seeks a forest carbon analyst in Portland.
Maya Climate is recruiting a structured carbon finance lead in Berlin… Avesta Fund is hiring an investment associate in Denver… CrossBoundary has an opening for a business development specialist in Washington, D.C… Kapor Capital is looking for a portfolio services director in Oakland… The Rights and Resources Initiative is recruiting a director for a community land rights and conservation finance initiative… The African Development Foundation seeks a bilingual grants management specialist Washington, D.C… The Environmental Defense Fund has an opening for an energy transition manager in Brussels.
Cuso International is hiring an external relations coordinator in Ottawa… Morgan Stanley’s global sustainability office is looking for a climate transition analytics vice president in New York… As You Sow will release a list of companies defining the future of clean energy during a webinar, Thursday, Feb. 23… Overture is hosting a virtual conversation with Ben Rhodes, a former deputy national security advisor with the Obama administration, on climate change, U.S. foreign policy, and national security, Monday, Feb. 27.
Thank you for your impact.
– Feb. 9, 2023