Greetings, Agents of Impact!
Featured: ImpactAlpha Original
Impact investors turn to revenue-based financing to bridge capital gaps for founders of color. As Kim Folsom likes to say, Founders First is majoring in the minors. Rather than produce a few tech unicorns at billion-dollar valuations, Folsom wants to help create hundreds, or thousands, of diverse-led operating businesses valued in the millions or tens of millions. Without the exponential growth prospects venture capitalists look for or the collateral required for commercial bank loans, such businesses have had a hard time accessing growth capital. Folsom, a seven-time entrepreneur, founded San Diego-based Founders First in 2015 (see, “Agent of Impact: Kim Folsom”). The firm’s flexible form of revenue-based financing for solid, service-based businesses that are creators of both jobs in underserved communities and wealth for diverse founders requires portfolio companies to pay investors a percentage of their top-line sales, up to a predetermined cap. “Our goal is to make this a sustainable model with quantifiable impact in the communities we serve,” Folsom tells ImpactAlpha. “We want to be able to demonstrate a new capital asset class for investors.”
Firms like Decathlon Capital in Park City, Utah and Lighter Capital in Seattle have attracted institutional capital to deploy revenue-based finance to larger companies. Folsom’s model takes revenue-based finance down market, to smaller businesses in second and third-tier cities and led by founders who have largely been shut out of capital access. That boosts the risk – and the opportunity. Founders First itself this month raised $9 million in equity financing from the Rockefeller, Surdna and Kauffman foundations, Spring Point Partners, and others. “If you can prove this out, you have a lot of potential to catalyze some large-scale institutional dollars into this space,” says Rockefeller’s Thomas Belazis. “Layer on the impact angle, and we think that there’s a lot of opportunity here to demonstrate this and make this a full fledged, scalable institutional asset class.”
Keep reading, “Impact investors turn to revenue-based financing to bridge capital gaps for founders of color,” by Dennis Price on ImpactAlpha.
Dealflow: Follow the Money
Black Tech Nation Ventures aims to build an inclusive tech ecosystem in Pittsburgh. Tech startups in the city of bridges attract about $3 billion a year. Black Tech Nation’s Kelauni Jasmyn launched Black Tech Nation Ventures in partnership with Pittsburgh venture fund Birchmere Ventures to make the tech ecosystem more inclusive. The $50 million fund will invest in Black-led tech businesses in Pittsburgh and other cities, along with startups led by women, LGBTQ+ and other diverse founders.
- Gender-lens tech. Erin Gatz founded Prototype PGH in Pittsburgh to broaden access to tech skills and opportunities, especially for women (see, “A prototype for diversity in Pittsbugh’s tech scene”). Gatz saw little diversity of race, gender or class when she returned to Pittsburgh amid the tech boom.
- Bitwise model. Fresno-based Bitwise Industries, a tech apprenticeship, tech consulting and real estate platform, is helping low-income minorities in underrepresented communities break into the tech industry. The company recently raised $50 million to take its integrated model to Toledo, Ohio and other cities largely left out of the boom in tech-related investments and job creation.
- Check it out.
XPRIZE identifies 10 rising startups solving workforce challenges. The lure of $5 million in prize money surfaced a raft of ventures with solutions to rapidly retrain and upskill U.S. workers vulnerable to job displacement. XPRIZE is putting the shortlisted ventures’ solutions to the test with 3,500 displaced workers, and will eventually expand the services to 25,000 workers. The goal is to cut job reskilling time by 50% while ensuring workers secure higher-paying jobs.
- Rapid reskilling. The short list includes Pragya in Boston, which helps higher education students map their studies to job prospects. Somali Family Services in San Diego is developing youth and refugee-focused employment programs. Shimmy in New York is helping textile workers increase their use of technology. Mississippi Coding Academies in Jackson runs an 11-month coding program. Alelo in L.A. and Colaberry in Boston are offering artificial intelligence-based skills training. Dignity of Work in Spokane, Wash. links workers with career path services and apprenticeships.
- Replication innovation. International startups that will test their ideas in the U.S. include artificial intelligence-based skill assessment platform HireMee in Bangalore; WEKIT in Dublin, which is testing virtual reality and holographic skills instruction; and Practera in Sydney, which offers students experiential learning projects and opportunities.
- Dig in.
Canada’s Raven Indigenous Capital raises $25 million to bridge gaps for Indigenous founders. The more than 56,000 Indigenous-owned businesses in Canada contribute $30 billion annually to the country’s GDP. Most lack access to adequate funding and resources. Vancouver-based Raven Indigenous Capital Partners is looking to back Indigenous-led, early-stage startups in Canada over the next three years. It raised $25 million from 38 Canadian and U.S. investors to make equity investments of up to $2 million. Raven Capital’s Stephen Nairne told ImpactAlpha the fund is focused on opportunities in information and communication technologies, food security, renewable energy, and natural products.
- Corporate impact. Canadian telecommunications company TELUS invested in the fund via its $100 million Pollinator Fund for Good (see, “TELUS commits $45 million to corporate social social impact fund”).
Dealflow overflow. Other investment news crossing our desks:
- First Boulevard snags $5 million in seed funding to build a digital bank for Black Americans
- Israel’s precision irrigation venture Netafim acquires Dutch greenhouse maker Gakon
- Praava Health raises $10.6 million to improve healthcare in Bangladesh by integrating clinics with telemedicine services
- Richelieu Dennis’s New Voices Fund and Trident, another Black-run VC firm, commit $5 million to immigrant-run Cornbread, a farm-to-table soul food restaurant chain
Signals: Ahead of the Curve
Tools to help keep companies and funds accountable on climate, diversity and racial justice. Two-thirds of the companies in the S&P 500 made statements calling for racial justice in the aftermath of last year’s killing of George Floyd. The Berkeley, Calif.-based shareholder advocacy group As You Sow looked at whether they walked the talk (see, “Agents of Impact: Andrew Behar and Danielle Fugere”). As You Sow’s latest scorecard measures the 250 largest U.S.-based companies on racial justice disclosure and action. Leaders: Alphabet, Intel, BlackRock, Walmart, and clothing maker PVH. Laggards: Biogen, Domino’s, home builder D.R. Horton, Paycom and Verisign. Racial justice leaders also do well on As You Sow’s diversity, equity and inclusion scorecard. The scorecards “provide a helping hand to get companies on the path to end systemic racism,” said As You Sow’s Olivia Knight. Other tools to provide transparency – and push companies and fund managers to raise their game include:
- Climate friendly. CDP offers an assessment of 20,000 global funds based on Climetrics’ system for scoring how a fund’s portfolio holdings disclose and manage greenhouse gas emissions, water resources and deforestation, as well as the fund’s investment policy and climate governance. Funds from Allianz, Aviva, AXA, Candriam, HSBC and Schroders are among the top 20 actively managed funds supporting the transition to a low-carbon economy, according to CDP. All but one are European: U.S.-based Fisher Investments made the list with its Institutional Emerging Markets Responsible Equity ex Fossil Fuels funds. Others making the top 20 active funds: Amundi, Erste Group, Federated Hermes, La Banque Postale Asset Management, Nordea and Robeco.
- VC diversity. An interactive dashboard from Deloitte, along with the National Venture Capital Association and Venture Forward, shows the venture capital industry’s diversity progress, or lack thereof. While women make up 45% of the VC workforce, they represent just 16% of investment partners. Just 4% of VC workers and 3% of investment partners are Black.
- Dig in.
Banking on climate. Wells Fargo caught up with other big banks with its pledge to achieve net-zero emissions across its portfolio by 2050, following similar moves over the past week by Goldman Sachs and Citigroup. Since Morgan Stanley’s first-mover announcement last September, all six major U.S. banks have now committed to greening their portfolios and boosting sustainable finance (see, “JPMorgan Chase will align financing strategy with Paris Agreement”).
Agents of Impact: Follow the Talent
Phil Giudice joins the Biden-Harris administration as special assistant to the president for climate policy, and steps down from the board of Prime Coalition… Morgan Stanley’s Global Sustainable Finance group seeks a vice president/climate change specialist in New York… Moderna is looking for a vice president/senior director of ESG in Cambridge, Mass… Gary Community Investments is recruiting a director for its new Fund for African American Wealth in Denver… Impact Experience is hiring a head of partnerships in San Francisco… Finergreen is hiring a financial associate in São Paulo…
Roots of Impact, the Center for Sustainable Finance and Private Wealth at the University of Zurich and Convergence open applications for “Impact Investing and Blended Finance for Development Agencies and Foundations,” in Zurich in September… Sanspeur’s Meg Massey and Village Capital’s Ben Wrobel, authors of Letting Go: How philanthropists and impact investors can do more good by giving up control, host “Participation Beyond Philanthropy,” Thursday, March 11… Violette Ruppanner, Francois Rossier and Audrey Selian describe the experience of reshaping financial paradigms with their bodies in “Turning the Tide Through TheoryU.”
Thank you for your impact.
– Mar. 9, 2021