The Brief | August 30, 2023

The Brief: Trouble at Twiga, battery-recycling billions for Redwood Materials, rooftop solar in the South, impact strategies for single-family rentals

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Greetings, Agents of Impact! 

Featured: Digital Disruption

Trouble at Twiga Foods… and Copia… and Sendy: Downturn hits East African disruptors. The pandemic-era impact story in emerging markets has taken a somber turn. Small business and logistics tech startups in Kenya raised more than $150 million in 2020 and 2021 as investors bought into the enormous opportunity in streamlining informal distribution channels and fragmented supply chains (see, “Riding the digital transformation to drive inclusive and sustainable growth”). Now, some of the most prominent companies are pulling out of markets, firing large numbers of workers, or closing up altogether. Food distributor Twiga Foods this month cut one-third of its staff, its third round of layoffs. Sendy, which supplied essential consumer goods to informal and small retailers, shut down. Copia announced its third round of layoffs and pulled out of neighboring Uganda.

  • Business pivots. Shakeouts are part of the natural cycle in nascent markets; consider the consolidation over the last five years in off-grid solar or retail impact investing platforms. Companies like Twiga, Copia and Sendy are among the first movers in designing tech solutions for underserved populations in and fragmented markets. Sendy pivoted repeatedly, first serving consumers then refocusing on small businesses. Twiga, which started in 2014 in order to crack fresh food distribution, has too. Early on, Twiga sourced produce from smallholder farmers, then switched to large farms, then established its own farms, then launched white-label food products — all to bring staple food costs down, the company says. “This means making tough decisions and getting the right talent,” says Twiga’s Peter Njonjo.
  • New tune. Ventures face a tight fundraising environment and softening consumer spending in the face of higher inflation. The frothy market in which Twiga, Copia, Sendy and others last raised capital increased pressure for fast growth and pushed many tech companies prematurely into new products, services and markets. Startups now have to cater to investors’ new tune. “There is a lot more pressure now on profitability as opposed to growth,” Anthony Kimani of Kenyan impact accelerator E4Impact tells ImpactAlpha. “Even some of the businesses that have prioritized growth are coming under increased pressure to get on a path to profitability.”
  • Keep reading, “Trouble at Twiga Foods… and Copia… and Sendy: Downturn hits East African disruptors,” by Jessica Pothering and Lucy Ngige on ImpactAlpha.

Dealflow: Electrify Everything

Redwood Materials raises $1 billion to recycle lithium-ion batteries at scale. The Nevada-based battery recycler has emerged as a key player in the US supply chain for lithium-ion batteries. In January, Redwood secured a $2 billion loan from the Department of Energy’s Loan Programs Office, led by Jigar Shah. Now comes a whopping 10-figure raise led by Goldman Sachs Asset Management, funds and accounts advised by T. Rowe Price, and Capricorn’s Technology Impact Fund. The funding brings Redwood’s total equity raised to nearly $2 billion. The Financial Times last month suggested the deal would push the battery recycler’s valuation north of $5 billion. Additional investors in the Series D round include Caterpillar, Microsoft’s Climate Innovation Fund and Deepwater Asset Management.

  • Anodes and cathodes. Tesla co-founder and former chief technology officer JB Straubel founded Redwood in 2017 to recycle lithium-ion batteries and produce parts for those that power electric vehicles. The company will use the funding to scale up US production of anode copper foil and cathode active materials used in batteries for electric vehicles. Currently, US battery makers source most such components from companies in Asia. “By lowering the cost of the critical materials for lithium-ion batteries using recycled materials, electric vehicles can become more accessible to lower-income communities,” Shah wrote in February.
  • Technology impact. The three lead investors all backed Redwood’s 2021 Series C round. Capricorn’s technology impact funds have invested in more than two dozen clean energy and electric mobility startups, including battery maker Form Energy, geothermal startup Fervo Energy, and electric airplane company Whisper Aero. “We’ve had a front-row seat to the evolution of clean energy technology and electric mobility,” Capricorn’s Dipender Saluja said in a statement. “Redwood Materials emerges as one of the most pivotal companies in this space.”

Elemental and Schmidt Family Foundation back Allume Energy’s rooftop solar for renters. Australia-headquartered Allume Energy is aiming to expand affordable clean energy access to low-income renters in the US Southeast. “We’re working on alleviating energy [barriers] in a part of the country that has some of the highest energy burdens,” Allume’s Aliya Bagewadi told ImpactAlpha. “Electricity is very inexpensive in the Southeast, but because you have buildings that are not very energy-efficient, people living in these buildings have very high energy bills.” Allume will install SolShare, its behind-the-meter device that draws solar energy generated by rooftop solar PV systems and distributes it to tenants on a monthly basis, starting with affordable housing properties in Florida, Georgia and Mississippi. 

  • Clean and cheap. A pilot project in Orlando has demonstrated average annual savings on electricity bills of $1,166 per apartment in its first year of operation. “We could all use an extra $1,000 a year in our pocketbooks rather than spending it on electricity bills,” said Elemental Excelerator’s Dawn Lippert. The $1.5 million of debt and equity funding from the nonprofit climate tech fund and Schmidt Family Foundation will support Allume’s second project in Orlando. The company’s global portfolio covers approximately 2,000 apartments in Australia, the UK and US, half of which qualify as social or affordable housing.
  • Check it out.

Dealflow overflow. Other news crossing our desks:

  • FVLCRUM Partners, a Rockville, Md.-based buyout firm focused on tackling the racial wealth gap, closed a $302 million fund. (FVLCRUM Partners)
  • MFast scored $6 million in Series A financing, led by Wavemaker Partners, to give Vietnam’s underbanked communities access to financial services and insurance products. (TechCrunch)
  • Nairobi-based MarketForce, which is aiming to digitize the transactions of one million retailers in Africa, launched a $1 million equity crowdfunding campaign on WeFunder (see feature story, above). (Business Daily)
  • Rubio Impact Ventures backed Valyuu, an online marketplace for buying and selling refurbished electronic devices to reduce e-waste. (Rubio Impact Ventures)

Impact Voices: Affordable Housing

Single-family rentals deserve a seat at the affordable housing table. You’ve seen the headlines: “Wall Street has purchased hundreds of thousands of single-family homes since the Great Recession.” More and more people are blaming private equity investors for the crisis in housing affordability. Not all single-family rental investors should be lumped into the same bucket, argues Dan Magder of Washington, DC-based Center Creek Capital Group and Center Creek Homes. Impact-focused investors, he says, are delivering “meaningful, long-term affordability, along with the scalability required to help solve the crisis of limited affordable housing stock.” Across three funds, Central Creek has acquired and renovated more than 430 homes in diverse neighborhoods in Atlanta, Birmingham, Jacksonville, Raleigh and Tampa. More than 96% of its properties are affordable, with rents at or below 80% of the area median income.

  • Existing units. Multifamily housing and government programs are critical to producing new affordable units, says Magder. But the subsidies required for new affordable housing limit scalability. “It’s equally important to preserve existing affordable rental units,” argues Magder, including the single-family homes that make up more than half the rental market. Center Creek fund investors include Prudential Impact Investments, Capricorn, Truist and Regions Foundation.
  • Rental market. Affordable rentals hold up better than more expensive properties in down markets, says Madger, providing “attractive risk-adjusted financial returns while also expanding the supply of affordable housing for low- and moderate-income families.” Rehabbing older houses in significant disrepair can expand affordable, livable housing stock at a fraction of the cost of new construction. “From an impact perspective, the rehab focus makes every invested dollar go further,” says Magder. “From an investment perspective, the total basis in a rehabilitated property is well below replacement cost.” 

Agents of Impact: Follow the Talent

Canadian carbon removal and storage venture Deep Sky appoints Damien Steel, ex- of OMERS Ventures, as CEO… Eliya Imtiaz, ex- of Oppfi, joins Impact Capital Managers as an analyst… Social Finance seeks an impact investments director and an impact finance operations senior associate in Boston… US Bank is hiring a senior sustainable finance product strategist in New York… Yunus Social Business Fund has an opening for an investment manager in Madrid… Symbiotics is recruiting investment analysts in Cape Town, Nairobi and Dakar, Senegal… Avaana’s India Climate Week forum takes place Sept. 6-8 in Bangalore.

Thank you for your impact!

– Aug. 30, 2023