The Brief | October 29, 2020

The Brief: Small business financing lessons, Draper Richards Kaplan in Europe, PayPal’s bets on Black and Latinx managers, information and emergency funding for small farmers

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Greetings, Agents of Impact! 

Featured: Impact Voices

Financing small businesses in emerging markets: lessons from the COVID crisis. Three guest posts on ImpactAlpha show how the COVID crisis is driving changes in small business lending and impact investing that could outlast the pandemic.

  • Non-bank lenders need capital to finance African small businesses rejected by banks. Government-backed guarantees and financing facilities in South Africa, Zambia, Kenya, Ghana and elsewhere have largely failed to provide even credit-worthy small businesses the capital they need to recover from COVID-related setbacks. Why? “Because the schemes’ constructs call for banks to apply the same risk and transaction structures that they would have applied pre-COVID,” write Susan de Witt of the University of Cape Town’s Bertha Center and Drew von Glahn of the Collaborative for Frontier Finance. Fintech firms, alternative debt funds and other”non-bank financial intermediaries” have flexibility that big banks don’t. Inyosi Empowerment Fund’s reasonably priced loans, ASISA Enterprise Supplier and Development Fund’s hybrid terms and Lulalend’s alternative underwriting technology suggest how non-bank lenders “are providing the types of flexible, affordable, longer-term financing that small businesses need,” say the authors. Five recommendations
  • How Africa’s impact ventures became essential during COVID-19. Most of the two dozen companies in the impact investment portfolio of pan-Africa private equity firm Development Partners International are in essential services. “People still need food, pharmaceuticals and bank accounts. They still need insurance. They still need to educate their children,” says DPI’s Runa Alam. In a Q&A with USAID INVEST’s Vanessa Holcomb-Mann, Alam shares how DPI’s portfolio companies have adapted and grown in the face of the pandemic’s challenges. Read the full Q&A
  • How a portfolio of inclusive businesses prioritized the poor through COVID. “Patient capital” investor Acumen launched two emergency facilities to provide grants and loans to its 136 portfolio companies to support low-income communities most affected by the pandemic. “This is the role of a business in a crisis,” writes Acumen’s Otho Kerr in a guest post. “We need to rally our resources around the small, early-stage stakeholder business models.” Read the full post.

Dealflow: Follow the Money

Draper Richards Kaplan Foundation launches $80 million fund for early-stage social entrepreneurs. The California-based venture philanthropy organization plans to make flexible equity and debt investments and unrestricted grants to 105 social enterprises. DRK has invested $110 million in 175 organizations since 2002. “We structure our capital to follow the need of the entrepreneur and the issue they’re addressing,” DRK’s Lisa Jordan told ImpactAlpha. DRK expects to begin investing the fund, its fourth, in January. 

  • European expansion. The new fund was announced with DRK’s launch of its European office in The Hague. DRK’s Netherlands-based investments include sanitation and waste recycling venture Safi Sana and circular textile startup Renewal Workshop. Its European portfolio includes startups like U.K. based Simprints, which is creating digital identities for vulnerable and undocumented individuals. DRK Foundation is working in partnership with The Hague’s impact initiative ImpactCity and Dutch bank Rabobank for its local and European deal sourcing.
  • Record year. Impact investing may have experienced a brief slow-down early in the pandemic, but it has since come back with force. Impact venture capital deals are expected to hit $19 billion in 2020—up $2 billion from 2019, according to a new report from ImpactCity, Danske Bank and Tech Nation. The organizations launched a new impact deals database in partnership with dealroom at ImpactCity’s virtual ImpactFest. 
  • Impact Feast. The pandemic’s disruption of the global food chain is inspiring creative solutions. Dutch sustainable food startups provided a literal taste of how they’re tackling these challenges by delivering samples to ImpactFest participants. Sunt Foods is diverting unsellable bananas—”the most wasted food on the planet”—for reuse as banana bread and other shelf-stable snacks. Yespers is repurposing grain waste from breweries into snack foods like crackers. Meet Jack is making prepared, frozen meat-alternative meals from jackfruit. And De Lekkere Man, whose name means “The Tasty Man,” is working on charcuterie products made of male animals, which are typically culled in the egg and dairy industries.
  • Dig in

New and under-represented fund managers get a $50 million boost from PayPal. The online payments company is injecting the capital into eight early-stage venture funds run by Black and Latinx managers to support “investment in Black and Latinx entrepreneurs at the earliest stages,” PayPal’s Dan Schulman said. The funds include Chingona Ventures, Fearless Fund, Harlem Capital, Precursor Ventures, Slauson & Co., VamosVentures, Zeal Capital Partners and one unnamed fund. The investment is part of a $530 million commitment by PayPal to support Black-owned businesses and minority communities. PayPal is among a wave of tech and consumer companies directing small slices of balance-sheet capital or making grants to minority-led financial institutions and fund managers.

Acceso acquires Exensio to help small farmers in Latin America and the Caribbean. Smallholder farmers in Latin America and the Caribbean make up roughly half of the region’s 130 million farmers. Most lack access to basic agricultural information to enhance productivity. The newly-combined company aims to improve farmer production with in-person agricultural training and customized digital information. The acquisition “should result in enhanced agricultural productivity and market access, therefore improving farmers’ livelihoods and quality of life,” said Virgilio Barco of Acumen, which owns 20% of Acceso Colombia.

  • Deep reach. Acceso’s businesses in Colombia, El Salvador and Haiti connect small farmers with large domestic food companies and international markets; they have generated over $50 million for more than 15,000 smallholder farmers and farm workers. Mexico City-based Exensio, a spin off of Esoko, has provided more than 19,000 farmers with information on weather and pest management, production risks, agricultural best practices and market trends. 
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European impact investors launch $40 million emergency fund for smallholder farmers. Belgium-based impact investor Incofin estimates that COVID disruptions to the global food supply chain have cost each of the world’s smallholder farmers $500 in income. Incofin is partnering with German development bank KfW and Germany’s Federal Ministry for Economic Cooperation and Development (BMZ) to provide relief to cooperatives, agri-processors and exporters that support and buy from smallholder farmers in Latin America, Africa and Asia.

  • Network effects. The Agri-Finance Liquidity Facility will be disbursed through members of the Council on Smallholder Agricultural Finance, which includes Global Partnerships, Oikocredit, Root Capital, Rabobank and others. 
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Russell Family Foundation moves $14 million to ESG and impact strategies. The foundation shifted $5 million in endowment capital to Ownership Capital, a public equity manager pursuing ESG shareholder engagement; $3.5 million to Marcho Partners, a hedged equity strategy firm investing in tech for social change; and $6 million to Global Impact Access Partnership II, a pooled impact private equity and venture capital vehicle. Ninety percent of the foundation’s endowment is now mission-aligned.

Signals: Ahead of the Curve

Short takes. Here are a few of the reports crossing our desks this week:

  • ESG benchmarks continue to rise. Indexes measuring environmental, social and governance factors, or ESG, rose by 40%, the highest-ever annual growth rate for any index class, according to the Index Industry Association’s annual survey. 
  • Exxon’s erosion of value. The once-blue chip stock has returned less than 1% a year to shareholders in gains and dividends since 2007, according to a new analysis by Carbon Tracker. The fossil fuel laggard is expected to report another loss on Friday.
  • Tobacco is hard to kick for retirement funds. A review by As You Sow found the majority of retirement funds, including those offered by health care companies, contain investments in tobacco producers and promoters. 

Agents of Impact: Follow the Talent

Chicago Booth’s Rustandy Center for Social Sector Innovation, Harvard Business School’s Impact CoLab and the Wharton Social Impact Initiative launch the Impact Finance Research Consortium to collect comprehensive data on impact funds… Echoing Green seeks a director of development in New York… US SIF is hiring a director of research and education in Washington, D.C… Mass Mutual is looking for an impact investing associate in Boston… The Solution Summit for the Housing Crisis will feature Richard Rothstein, author of The Color of Law, and other speakers, Nov. 17-19. 

Thank you for reading.

–Oct. 29, 2020