Greetings, Agents of Impact!
Featured: Emerging Managers
Track record? These fund managers are proving their investment chops in creative ways. Entrepreneurial experience. Local deal pipelines. External investment advice. First-time fund managers with strategies for filling small-business financing gaps are getting creative to demonstrate to investors that they know what they’re doing. Lack of a conventional track record is one of the key barriers for new fund managers in raising money. That hurts small and growing businesses in Africa, where the pipeline of local fund managers is less established than other regions. “The state of small business finance cannot wait for 10 or 20 years of ‘proven track record’ required of local capital providers by most investors,” writes Susan de Witt of the Collaborative for Frontier Finance in a guest post on ImpactAlpha. “Innovative and accelerated approaches are required to develop the skills and experience of these highly committed individuals.”
- Related experience. Around 90% of principals in the Collaborative for Frontier Finance’s network of local fund managers are past entrepreneurs, CEOs or CFOs. Selma Ribica started First Circle Capital to invest in tech businesses in Morocco, where she is based. She’s leaning into her experience working with mobile money platform M-Pesa, running her own business, and as an angel investor as she raises First Circle’s planned $30 million fund.
- Deal pipelines. About half of CFF’s network source deals from their own accelerator or development programs. Hema Vallabh co-founded Five35 Ventures in South Africa after working for nearly 20 years to support women in science and technology. Since its first close, Five35 Ventures has made 18 investments, largely by leveraging its accelerator program, WomHub, and partnerships with other funds, like Launch Africa.
- Warehousing capital. “What lessons can we take from what innovative emerging fund managers are doing with regards to track record to accelerate the growth of small business finance?” asks de Witt. She calls on investors to reevaluate the type of experience they require to invest in new funds, develop proxies for exit performance, and increase the supply of “warehousing” capital to allow emerging managers to deploy capital while building their track records.
- Keep reading, “Track record? These fund managers are proving their investment chops in different ways,” by CFF’s Susan de Witt on ImpactAlpha.
Dealflow: Innovative Finance
MDB Challenge Fund looks to spur innovation in development finance. Leaders at the Summit for a New Global Financial Pact in Paris this week are calling for wealthy nations to boost funding for climate-resilient development in low- and middle-income countries. Making existing funds stretch further may be an easier lift. The Gates, Open Society and Rockefeller foundations launched the MDB Challenge Fund last fall to find ways to more efficiently use the resources of multilateral development banks. The latest grants, from $140,000 to $750,000, “fill key knowledge gaps and demonstrate deepened MDB capacity, collaboration and impact,” said the Gates Foundation’s Kalpana Kochhar.
- New models. The Inter-American Development Bank will use the funding to securitize loans and free up more capital for lending in Latin America and the Caribbean. FSD Africa will explore local currency strategies to bring in domestic investors, such as pension funds. The Caribbean Development Bank is looking at pausing debt repayments in the event of a climate-related natural disaster, an idea championed by Barbados’ Mia Mottley. Other grantees include Germany’s Albert Ludwig University of Freiburg, Risk Control Limited and the University of Leeds in the UK.
- Disclosing data. Nonprofit Publish What You Fund received a grant in April to capture data and improve reporting on how development finance is catalyzing private investment for climate impact, gender equality and other sustainable development issues. A January report from Publish What You Fund exposed just how little data is disclosed by development finance and multilateral institutions (see, “To catalyze climate capital, development finance institutions are pressed to ‘publish what you fund’”). “We’re all relying on private capital mobilization to meet the Sustainable Development Goals,” said Publish What You Fund’s Gary Forster, “and we have pretty much no data on it.”
- Challenge yourself.
India’s Avaana Capital raises $70 million for climate and sustainability fund. The Mumbai-based venture capital fund is looking to raise $120 million for the fund, its first dedicated to climate tech. “Everything has to solve for mitigation, adaptation or resilience,” said Avaana’s Anjali Bansal, a former partner with TPG’s Growth fund. Avaana will invest $1 million to $2 million each in up to 25 startups. The majority of the fund will be reserved for follow-on deals.
- India’s low-carbon transition. The Avaana Climate and Sustainability Fund will target the energy transition, resource management, mobility, supply chains, and sustainable agriculture and food systems. “These sectors constitute about 70% of our economy and are responsible for 90% of the emission footprint in India,” said Bansal. “They’re large market opportunities.” Avaana has backed more than 20 early-stage climate and sustainability startups since 2018, including Mumbai-based solar installer and financier Aerem.
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Dealflow overflow. Other news crossing our desks:
- Delhi-based Satya MicroCapital secured $35 million in debt from Finnfund and FMO to provide low-interest loans to women-led households and businesses in rural India. (Finnfund)
- New York-based Fero Labs raised $15 million financing, led by Climate Investment, to help steel, cement and chemicals manufacturers reduce their carbon emissions. (Fero Labs)
- Berlin-based climate tech venture Squake snagged €3.5 million ($3.8 million) to help customers measure their carbon footprint for travel and logistics, including flights, shipping, car rentals and hotels. (EU-Startups)
The Call: Muni Impact
Connecting supply and demand for racial equity strategies in muni markets (video). Even as some politicians ramp up anti-ESG rhetoric, asset owners and allocators are signaling an appetite for investment strategies with greater consideration of climate and racial equity risks. Investors are seeking high-impact strategies in the $4 trillion market for municipal bonds. “We’re really seeing demand spike,” said Preeti Bhattacharji of J.P. Morgan Private Bank on last week’s Agents of Impact Call. “I’m worried we will miss the moment if we aren’t able to figure out how to build the infrastructure to connect the supply and the demand.”
- Auditing racial equity. David Wood of Harvard and Renaye Manley of the Service Employees International Union are looking to apply racial equity audits to financial institutions’ fixed income strategies. Investors want companies “to identify and then mitigate the risks that may come with exposure to racial inequity and injustice,” said Manley. “The big publicly-traded underwriting functions are places that can help define the space for everybody,” added Wood.
- RFPs and letters of intent. Nathan Cummings Foundation put out a public request for proposals from outsourced chief investment officers to manage its $450 million endowment with an investing equity lens. To signal its aspirations for racial equity, Heron Foundation has used a fixed-income letter of intent to ask managers to consider use of proceeds, track record of the issuer, and needs of the community in selecting municipal bonds.
- Words of caution. Lourdes Germán of Public Finance Initiative challenged participants to ask, “Do issuers who are doing these deals fully have access to information on the changing tenor of investor expectations and demands?” Heron’s Barbara VanScoy would rather asset managers look at use of proceeds and how issuers behave. Breckinridge’s Tim Coffin suggested identifying where racial equity factors are material “to make these better medium- to long-term investments.”
- Read the full recap and watch the replay.
Agents of Impact: Follow the Talent
Align Impact is recruiting a chief of staff… The Global Impact Investing Network seeks a director of impact measurement and management engagement in New York… Palladium has openings for an analyst and a director of financial inclusion for its capital advisory services.
Investing for Good is looking for an innovative finance co-lead in Barcelona or London… Mission Investors Exchange is looking for a remote programs coordinator and a member experience coordinator… Tech2impact is recruiting an investor relations analyst in Austria.
Thank you for your impact.
– June 22, 2023