The Brief: Tough truths about impact investing

Greetings Agents of Impact!

🔌 On the next Plugged In: Better, cheaper and faster climate impact with Third Sphere’s Stonly Blue. In the crowded space of climate tech investing, Stonly Blue and Third Sphere emphasize the deployment of hardware, an area venture capital has historically avoided (for context, see “Third Sphere ramps up for ‘better, cheaper, faster’ climate impact). On the next Plugged In, the Haiti-born investor and entrepreneur joins host Sherrell Dorsey to discuss climate tech investing, investing in hardware and what he’s most excited about. Join other Agents of Impact live on LinkedIn, Wednesday, May 15, at 10am PST / 1pm EST / 6pm London. RSVP.

In today’s Brief:

• Overheard at Mission Investors Exchange
• Cutting e-waste in Latam
• EU-backed loans for Africa’s female entrepreneurs

Featured: Mission Investors Exchange

The talk outpaces the walk: Three tough truths about impact investing. For all the talk of innovation and risk-taking, impact investors, and particularly foundations, can be unnerved by novelty, frustratingly clubbish and slow to cut checks, writes Upstart Co-Lab’s Laura Callanan. Last month, Upstart raised $15 million in the first close of its strategy to drive an inclusive creative economy through film and TV, video games, fashion, music, beauty and other creative industries. Upstart found that foundations required between nine and 18 months to reach an investment decision. Two foundations said their process takes a full 24 months. “This is an eternity when you are starting a fund, and time is (literally) money,” Callanan says. In a guest post, Callanan shares some tough truths she’s learned over a quarter-century of mobilizing impact capital. “Change takes time,” writes Callanan. “But we are overdue for the impact investing club to burst open its doors, welcome new investors, and ask legacy members to work a little harder.” 

• Celebration and self-criticism. At the Mission Investors Exchange national conference in Los Angeles, Tonya Allen of the McKnight Foundation got a cheer for the $1 billion the Groundbreak Coalition has raised to narrow racial gaps in home ownership, business starts and community wealth. She’s aiming for $5 billion (see, “Tonya Allen on philanthropy’s responsibility to counter DEI attacks”). “This isn’t just about fundraising. This is about fundamental change. We need people who have capital to change their behavior,” Allen said. “We who allocate capital need to jump through the hoops instead of the people who are trying to access the capital, which is the way we normally operate.” Echoing Green’s Cheryl Dorsey celebrated the leaders of color who have graduated from the accelerator, but not the disparities in fundraising they have faced or two failed efforts to fill the gap. Echoing Green has now made a dozen investments from its new “Signal Fund,” which has raised $4 million in blended capital for entrepreneurs who have gone on to leverage an additional $8 million.
  
• State of emergency. Los Angeles Mayor Karen Bass described her efforts to address the city’s homelessness crisis, which last year helped an estimated 20,000 people get off the streets. “It’s like peeling an onion. For every peel, you find a barrier. Then another barrier,” she said. “What I did was meet with developers who told us why it was so challenging to build in LA. And when they presented a challenge, we eliminated that challenge.”
  
• Keep reading, “The talk outpaces the walk: Three tough truths about impact investing,” by Laura Callanan on ImpactAlpha. 

Dealflow: Latin America

Chilean startup Reuse raises $4.5 million to refurbish electronics in Mexico. Some 5.5 million tons of electronic devices like smartphones and laptops are discarded each year, according to a recent tally. Circular economy startup Reuse, which operates in Mexico, Chile and Peru, operates refurbished electronics marketplaces that cut down on electronics waste and generate savings for consumers. Reuse sells the used devices to businesses and partners with retailers on trade-ins. The startup generated $15 million in revenues last year. 

• Latam impact. The $4.5 million seed round was led by Seaya Cathay Latam, a joint venture of Spain’s Seaya and Cathay Innovation, along with Latam-focused investors Dalus Capital and IGNIA Partners, and climate tech investor Silence VC. Reuse, will use the funds to expand its presence in Mexico. “Reuse’s mission has been clear: protect the environment by addressing the problem of technological waste,” said Reuse’s Tomás Ulloa.
  
• Dig in. 

EU guarantees Co-op Bank of Kenya’s  $25 million loan to support female-led businesses. The Co-operative Bank of Kenya was founded nearly six decades ago to cater to Kenya’s cooperative movement. It has serviced a broader range of customers and businesses since it became a commercial bank in 1994. The $25 million loan from DEG, a subsidiary of German development bank KfW, is earmarked for micro- to mid-sized businesses owned or led by women in order to create jobs and raise household incomes. Female entrepreneurs in Africa face a $42 billion financing gap. “There is a great need for stronger backing of businesses that are owned or managed by women,” said Co-op Bank’s Gideon Muriuki. 

• EU backstop. The European Fund for Sustainable Development Plus provided a guarantee to secure part of the loan. EFSD+, as it is known, was set up in 2021 to mobilize up to €300 billion ($375 billion) in private sector investments for digital access, climate and energy, health and education and other development priorities. “The EU guarantee is helping to realize this investment,” said DEG’s Monika Beck.
  
• More. 

Dealflow overflow. Investment news crossing our desks:

• Breakthrough Energy Ventures led a $26.5 million funding round for ArkeaBio, a Charlestown, Mass.-based agri-biotech company developing a “methane vaccine” for livestock. (Morningstar)
  
• KKR and Hannon Armstrong Sustainable Infrastructure Capital, or HASI, have teamed up to launch CarbonCount Holdings, which will invest up to $2 billion in US-based “climate positive projects” over the next 18 months. (KKR and HASI)

• The IFC committed up to €100 million in subordinated debt to Turk Ekonomi Bankasi to provide financing for women-owned climate and agrifood small businesses in Turkiye. (IFC)

• Backpack Healthcare (formerly Youme Healthcare), a Black woman-led venture based in Baltimore, raised $14 million from Collab Capital, Rethink Education, Genius Guild and others to provide inclusive mental health services to Medicaid-enrolled youth. (Backpack Healthcare)

Signals: Investing in Place

With collaborations and catalytic capital, place-based pioneers look to expand their impact. If “place-based investing” 1.0 was pioneering new models with local partners, then version 2.0 is leveraging lessons learned from early strategies for wider collaborations and broader impact. “Place-based 2.0 is about how you branch off,” Betty Francisco of the Boston Impact Initiative said at ImpactPHL’s Total Impact Summit last week. Fostering collaborative initiatives, more intentionally engaging public partners on projects, and blending pools of capital to solve complex financing challenges was top of mind for many impact investors as they look to capitalize on the unprecedented federal investment in green infrastructure for underserved communities. The nonprofit Boston Impact Initiative is raising a $20 million second fund to invest throughout Massachusetts and in select communities across New England (see, “The Liist”). The panel, centered on big and bold bets to drive place-based impact, included MacArthur Foundation’s Allison Clark and Ben McAdams of Common Ground Institute, a public policy development organization and was moderated by ImpactAlpha’s Roodgally Senatus.

• Public-private partnerships. “I would encourage people to just jump in, and not fall into analysis paralysis,” said McAdams, a former mayor of Salt Lake County and US congressman. McAdams helped craft one of the country’s first social impact bonds for funding early-childhood education programs in Utah. As a Sorenson Impact fellow, McAdams launched Putting Assets to Work, a policy incubator program that works with city governments to map out and repurpose their stocks of underutilized real estate (listen to the podcast, “Marrying public real estate and private capital”). Putting Assets to Work has worked in more than a dozen cities, including Atlanta, Cleveland, Annapolis, Chattanooga, Lancaster, Calif., and Harris County, Texas to help governments map out their untapped real estate.
  
• Place-based catalytic capital. MacArthur Foundation, through a partnership with the Chicago Community Trust and Calvert Impact Capital, launched Benefit Chicago in 2016 to raise and invest $100 million in patient, flexible and risk-tolerant capital in social enterprises in Chicago. The place-based impact fund fund is nearly completely invested, said Clark. “We’ve made 27 investments in 24 different organizations in real estate or affordable housing, community development and small businesses, and the vast majority has been loans.” MacArthur recently cut the final check for Invest Appalachia’s $35.5 million impact fund for central Appalachia. 

• Keep reading, “With collaborations and catalytic capital, place-based pioneers look to expand their impact” by Roodgally Senatus on ImpactAlpha. 

Agents of Impact: Follow the Talent

Anuradha Shetty, previously with Soros Economic Development Fund, joins Bramble Partners as an investment partner… S2G Ventures, which recently spun out from Builders Vision, appoints Vikram Sharma, formerly a senior adviser with Baird Capital, as operating partner… HCAP Partners promotes Jessica Kim, who joined HCAP as an Impact Capital Managers Mosaic Fellow, and Ben Consoli to vice presidents on its investment team. Chenjing Wang, previously with Morgan Stanley, joins as senior associate… Malcolm Sullivan, previously with Greenhouse Software, joins Social Finance as senior talent associate… Quantified Ventures hires Ana Koerner, previously with Wellsky, as a senior associate.

Liminal Advisors’ Mark Hand joins the board of directors of the Texas Center for Employee Ownership… Maya Rotstein, a master of global affairs candidate at the University of Toronto, joins Rally Assets as an impact investing intern… Promotora Social Mexico is looking for a director of communications and strategic alliances… Dogwood Health Trust is hiring a grants manager in Asheville, NC… LISC has an opening for an assistant general counsel for government contracts in New York… ImpactAssets seeks an investment services associate… Conservation International is recruiting blue carbon directors in several locations… The GIIN is on the hunt for a head of market and credit risk in Amsterdam.

👉 View (or post) impact investing jobs on ImpactAlpha’s Career Hub.

Thank you for your impact!

– May 9, 2024