Greetings, Agents of Impact!
Featured: Capitalism Reimagined
Six financial paradigm shifts needed to scale impact. Public and private-market investors that want to realize broad system changes, like ones needed to the Sustainable Development Goals, need to go beyond financial-first ESG approaches and “move toward more intentional, impact-first methods with real measurement and accountability standards,” Dalberg’s Kusi Hornberger writes. In an exclusive preview of his new book, “Scaling Impact: Finance and Investment for a Better World,” Hornberger makes the case for a half-dozen shifts that could lead to “a reimagined financial system that is both more inclusive and more accountable to all, by moving away from extractive, short-term practices that place shareholders first, and toward a system that values the role of all stakeholders – workers, communities and the physical environment.” Among the paradigm shifts:
- Seek financial health (not financial access). Commercial banks, fintechs, and other providers of financial services to consumers “must shift from creating access to improving financial outcomes,” says Hornberger. “Finance must be considered holistically,” he says, “by offering nonfinancial services bundled with credit or insurance, by listening to consumers to understand their real needs, and by measuring performance from the consumer’s perspective.”
- Provide patient capital (not venture capital). Venture capitalists must shift away from a model predicated on exponential growth and “move toward a more patient approach that focuses on the true financing needs of the widely diverse range of small and growing businesses,” Hornberger argues (for examples, see, “10 ways to redesign venture finance”). A more patient model would better serve the majority of businesses that are too small for traditional bank lending or lack VC-style growth and exit potential.
- Offer catalytic finance (not just blended finance). Development finance institutions must shift from acting like risk-averse investment banks and toward providing risk-tolerant catalytic financing. Such catalytic capital can blend with traditional sources of finance and accelerate development goal achievement (go deeper with, “Risk-averse development finance institutions are more often catalyzed than catalytic”). Says Hornberger, “The central role of development finance institutions is to push markets to areas experiencing true market failure and lacking adequate finance.”
- Keep reading, “Six financial paradigm shifts needed to scale impact,” by Dalberg’s Kusi Hornberger on ImpactAlpha.
Dealflow: Smart Cities
BuuPass raises $1.3 million to improve Kenya’s mass transit system. Kenya’s long-distance bus services, which are privately operated, haven’t kept pace with the online trends of its passengers. Bus operators often require in-person bookings and cash payments. Nairobi-based BuuPass is working to make mass transit easier and more accessible for users. The company offers bus fleet-management software, as well as an online marketplace for passengers to book tickets, reserve seats and pay online. The seven-year-old company works with more than 25 bus companies operating about 1,200 vehicles in Kenya and Uganda.
- Pre-seed investment. BuuPass raised the early round from FrontEnd Ventures, Google’s Black Founders Fund and impact investor Renew Capital. Renew’s impact angle for BuuPass centers around “affordable and efficient access to transportation for the masses.” The investment is one of Renew’s first few deals outside of its home market, Ethiopia (for context, see, “Renew rightsizes checks with new East Africa fund for female founders”). The firm is increasingly expanding into other African markets and looking at companies and sectors that benefit from digitalization and strategic technologies.
- Dive in.
Redwood Materials arranges $2 billion Department of Energy loan for EV battery facility. The plant in McCarran, Nev., will make cathode material and copper foil for batteries for electric vehicles. The conditional loan from the D.O.E.’s Loan Programs Office will also help Redwood scale up recycling of materials for use in lithium-ion batteries (for more about the loan office, listen to the podcast, “Jigar Shah on building a $140 billion ‘bridge to bankability’ for the energy transition”). Currently, companies in Asia supply most of the anode and cathode production for U.S. battery makers.
- Lithium security. Separately, the D.O.E.’s Li-Bridge alliance released more than two dozen recommendations for building a domestic lithium supply chain in the U.S. “We have dozens of startups with American-made solutions ready to build an electric future here and abroad with better batteries,” said Danny Kennedy of New Energy Nexus, a partner in the alliance. The report says the U.S. could double annual lithium battery revenues to $33 billion by 2030, meeting about 60% of domestic demand and creating 100,000 jobs.
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Spanish-language digital bank Comun secures $4.5 million from investors. New York-based Comun launched a digital banking service with Spanish as the primary language. Customers don’t need a Social Security number to sign up. Nearly 10% of the Hispanic population in the U.S. is unbanked and 40% don’t have a credit card or have never taken a bank loan. Among lower-income families, more than a quarter are unbanked. Among the obstacles: lack of a Social Security number and language barriers.
- Financial health. “Banking is a gateway to accessing many services that are vital to a person’s livelihood,” said Comun’s Andres Santos, a Mexican immigrant to the U.S. “We built Comun to make it easier to thrive as an immigrant family in the U.S.” Costanoa Ventures, South Park Commons and FJ Labs backed the company’s seed round.
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Dealflow overflow. Other investment news crossing our desks:
- Acumen backed Nairobi-based SokoFresh to provide smallholder farmers with access to solar-powered cold storage. It is Acumen’s first investment from its PEII+ energy investing strategy.
- Lowercarbon Capital, the Clean Energy Finance Corp. and others invested $73 million in Australia-based Loam Bio for its crop inputs that could help farmers sequester more carbon in soil.
- Earth Finance launched with $14 million from investors to help corporations map out net-zero strategies.
Signals: Private Equity
TPG touts strong fundraising – and results – for its climate and impact strategies. The $135 billion investment firm, based in San Francisco and Ft. Worth, Texas, is the latest publicly-listed private equity giant to make climate and impact investing a highlight of its quarterly report (for details from Brookfield, Apollo and KKR, see, “Private equity giants double down on the low-carbon transition and impact investing”). TPG Rise, the firm’s impact investing arm, has raised $300 million in the past month for its third impact fund, bringing its first close to $1.9 billion toward a $3 billion target. TPG Rise Climate, which last year raised a $7.3 billion climate fund, “is in discussions with potential LPs” about a new climate-focused infrastructure fund, CEO Jon Winkelried said on a call with analysts yesterday.
- Impact outperformance. Winkelried noted “very substantial market growth” in impact sectors. TPG’s impact strategy has $16 billion in assets across its Rise and Rise Climate funds, TPG Next, which helps seed emerging and diverse alternative-asset managers, and its Evercare health platform it acquired from Abraaj Group. The impact group logged a gross internal rate of return of 25%, outperforming all TPG strategies except for the firm’s $6 billion market solutions group. “There’s a seismic change in what’s happening in decarbonization and climate, but also across other sectors like online education, healthcare access post-Covid, and financial inclusion,” said Winkelried. “If you thought of a landscape of sectors you might want to be involved in, they overlap the impact investing marketplace very strongly.”
- IPO pop. TPG Rise Climate invested $500 million in Nextracker a year ago. Last week, the San Francisco-based maker of solar-tracking technology raised $638 million from its IPO, the largest public debut of the year (it’s only February). The deal “highlights the benefit of our theme-based Investing,” said Winkelried. “The IPO execution offering was highly successful with the order book well over subscribed and the stock trading up 27% on its first day.” TPG Rise Climate has invested hundreds of millions of dollars to assemble a carbon credit origination and trading platform. It also put $1 billion, with Abu Dhabi’s ADQ, into an electric vehicle spin-off of India’s Tata Motors.
- Diverse managers. TPG closed a $500 million anchor commitment from CalPERS for its TPG Next fund, “We believe there’s a significant market opportunity and are committed to backing and supporting underrepresented managers in our industry,” Winkelried said. TPG Next has invested in diverse-led venture firm Harlem Capital, Latino-led early-stage tech investor VamosVentures, and Black-owned real estate firm LandSpire Group.
Agents of Impact: Follow the Talent
David Malpass, the embattled president of the World Bank, will step down by June… Casey Gunkel, ex- of General Atlantic, will join Sidewalk Infrastructure Partners, an Alphabet spinoff, as head of communications… Kresge Foundation has an opening for a senior health program officer in Troy, Mich… Luminate seeks a partner support analyst.
Wefunder is hiring a remote head of community… Textile Exchange is looking for a climate and impact coordinator in Lamesa, Texas… Equity Accelerator seeks a remote senior project manager… Mission Investors Exchange is looking for a remote director of member experience and director or senior director of communications.
Bloomberg is recruiting a team lead for net-zero research and data… Impact Frontiers is hiring a remote associate or senior associate… Entrepreneurship Funders Network has an opening for a remote program manager… B Lab is recruiting fellows for a one-year virtual research program focused on corporate sustainability and business governance data.
Thank you for your impact.
– Feb. 16, 2023