The Brief | May 27, 2020

The Brief: Redesigning venture finance, $4 billion DFC relief plan, two bites at reducing food waste, measuring climate impact

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Greetings, Agents of Impact!

Featured: Impact Voices

Redesigning venture finance for an inclusive post-COVID world. The good news: the structures we need to reform the capital system already exist. “The question is, are we going to revolutionize capital markets to make them more accessible and inclusive? Or are we going to continue to replicate the current system?” Aunnie Patton Power, a lecturer at the University of Oxford and the University of Cape Town, asks in a guest post on ImpactAlpha. The COVID crisis is providing leadership opportunities for impact investors, she says. “We always seem to find excuses to avoid tackling structural issues in our capital system that perpetuate the asymmetry of access, equity and power.” Patton Power, who is writing a book about how to redesign impact capital, suggests 10 ways to redesign venture finance. “Now is the time to re-examine how we are allocating capital rather than just what our capital is funding.”

Gaining traction in the U.S., Latin America and Africa: revenue-based financing, including loans repaid, up to a maximum, from a percentage of revenue (used by Adobe Capital and others; see, Flexible financing gives venture capital a run for the money in Latin America). Repayments for dividends-based financing (Dazzle) come from a company’s net income, rather than revenues. Equity redemptions (Candide Group) can work well for early stage companies by giving founders options to repurchase investors’ shares. Factoring, as an alternative to traditional loans (TREFI, Mesfix, Innovafunding), allows businesses to sell their accounts receivables at a discount to third-party funders. Forgivable loans, convertible grants (Oxford University Innovation Fund) and recoverable grants (Echoing Green) let grant funders recycle capital and thereby take larger risks. “We need new rules, and we need more players to be willing to break the mold of the legacy institutions,” says Patton Power, “to design capital that truly works for funders, founders and communities.”

Keep reading, “10 ways to redesign venture finance for an inclusive post-COVID world,” by Aunnie Patton Power on ImpactAlpha.

Dealflow: Follow the Money

Development Finance Corp. shores up portfolio with $4 billion COVID relief plan. Multilateral banks and development finance institutions are an especially critical source of capital in emerging markets, as private investors shy away from dealmaking in the pandemic. The U.S. International Development Finance Corp.’s new multi-billion-dollar relief pledge joins big ticket relief efforts from the International Finance Corp., the Inter-American Development Bank and the African Development Bank (see, How development finance leaders can help emerging-market economies survive the COVID-19 crisis). The DFC’s $4 billion Rapid Response Liquidity Facility will target existing DFC projects that “have been particularly impacted by the challenges of the COVID-19 global pandemic,” the agency said. The facility is in addition to an earlier $2 billion initiative to strengthen the COVID health response in emerging markets.

  • Overseas commitment. Approval of the new facility follows the DFC’s new mandate from the White House to back domestic production of vaccines, personal protective equipment and other COVID-related products (see, White House stands up an impact investing arm to finance COVID-response suppliers). “Our development mission is more important than ever in the face of COVID-19,” said the DFC’s Adam Boehler.
  • Doing deals. The DFC has re-upped investments in India-based education lender Varthana and impact lender Caspian Debt, and Kenya-based Twiga Foods, among others. In March, it expanded the investment tools and ticket sizes for its small business-focused Portfolio for Impact.
  • Read on.

Apeel clinches $250 million to curb U.S. and European food waste… The Santa Barbara, Calif.-based company will use the funding to expand use of its edible protective coating for fresh food in the U.S. and Europe, as well as emerging markets. “COVID-19 has shown how tightly wound and stretched our food system is, and food waste acts as an enormous tax on it,” Apeel’s James Rogers told Axios. The company says it’s on track to prevent 20 million pieces of fruit from going to waste in grocery stores and other shops.

…While AgDevCo invests in grain storage to curb food loss in Africa. The impact investor extended long-term debt financing to Pee Pee Tanzania Limited, which makes grain storage bags to help farmers preserve harvested crops without chemical treatments. The 26-year-old company employs 750 people and is one of the largest employers in Tanzania’s northeast port city of Tanga.

Signals: Ahead of the Curve

Better climate-impact due diligence: there’s an app for that. CRANE, for “Carbon Reduction Assessment of New Enterprises,” can assess the potential future climate impact of more than 200 technology solution areas (see, Catalyzing capital to develop carbontech for gigaton-scale CO2 removal). Case in pointPrime Coalition backed Lilac Solutions after an analysis showed the Oakland-based company’s lithium mining technology could reduce carbon emissions by at least a gigaton by 2050, as the world’s transition to electric vehicles drives demand for lithium-ion batteries. In February, Lilac raised a $20 million follow-on round led by the billionaire-backed climate fund Breakthrough Energy Ventures, which is among 500 investors, accelerators and entrepreneurs now using CRANE. Prime, along with Rho AI, Greenometry, Clean Energy Trust and Project Drawdown, has made the online diligence tool for assessing the future carbon reduction potential of new technologies available to all investors (and everyone, really).

  • Climate impact. BEV has now invested in three of Prime Impact Fund’s 16 portfolio companies. Other investors using the tool include The Roda Group, Elemental Excelerator and Grantham Environmental Trust. “In our diligence, there are always surprises of companies that heuristically you would not have assumed would make such a big difference in greenhouse gas emissions,” Prime’s Sarah Kearney told ImpactAlpha, “and things that you might assume would make a big difference that are on the margin.”
  • Early stage. The tool promises to ease climate impact measurement and management for early-stage ventures. Last week, Prime led a $2.5 million round in Clean Crop Technologies to combat pathogens and pests that lead to 500 million tons of food waste each year. In April, Prime backed Sublime Systems to reduce emissions from cement-making, which accounts for 8% of global emissions. Elemental Excelerator’s Dawn Lippert says the clean-tech accelerator uses CRANE as a “common app” for startups “to calculate their climate impact without specialized consultants or bespoke analyses.”
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Agents of Impact: Follow the Talent

Mitty Owens, ex- of Confluence Philanthropy, joins Transform Finance to direct its Capital Strategies program… The U.N. Principles for Responsible Investment is hiring a head of Canada in Toronto… Big Society Capital has an opening for a senior public relations and media relations officer in London… ImpactAssets, with new CEO Margret Trilli, is hosting “Three Months Into COVID – Insights From The Impact Trenches,” on Wednesday, Jun. 3… Moving the Market Initiative and The Investment Integration Project are hosting “Launching Understanding Systemic Social Risk: A Roadmap for Financial Industry Action,” on Tuesday, Jun. 9.

Thank you for reading. 

–May 27, 2020