The Brief | August 14, 2024

The Brief: Turning crypto from speculative gamble to inclusive opportunity

ImpactAlpha
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Greetings, Agents of Impact!

☎️ Join today’s Call: Mapping an impact investing path through the new legal landscape. Join Adasina Social Capital’s Rachel Robasciotti, Better Markets’ Dennis Kelleher, B Lab’s Jorge Fontanez and The Shareholder Commons’ Rick Alexander, in discussion with Fran Seegull of the US Impact Investing Alliance and ImpactAlpha’s David Bank, today at 9am PT / 12pm ET / 5pm London. Last chance to RSVP.

In today’s Brief:

  • Crypto as an onramp to opportunity
  • Banking the unbanked in Mexico
  • Greening South Africa’s grid
  • Capitol Gains: Overcoming state pre-emption of local rule

How diverse founders are turning crypto from speculative gamble to inclusive opportunity. Overhyped: The case for crypto as an uncorrelated asset. Last week, Bitcoin’s wild swings closely tracked the rest of the market. Overlooked: The $1.7 trillion market for digital assets as an onramp to opportunity for founders from communities with fewer financing options. Black, Latino and other underrepresented founders are driving innovation throughout “Web3,” the growing ecosystem of blockchain technology, cryptocurrencies and token-based economics. Diverse founders who may not be able to tap “friends and family” funding or early stage venture capital are raising funds through decentralized autonomous organizations, or investment DAOs, token raises and other blockchain-based infrastructure. “We’re moving beyond speculation as a use case,” says Renée Barton of Crypto Council for Innovation, an advocate for responsible Web3 policy. “Most of these projects really begin to create more impact by beginning to address the structural shortcomings of existing solutions.” Backed by the W.K. Kellogg Foundation, Barton led research on “Building a More Inclusive Web3.” 

  • Community VC. Greater participation, in turn, means the creation of Web3 products and services for a broader set of society’s challenges. Atlanta-based Tribl, an investment DAO and social investment club founded by Ikechi Nwabuisi, has helped more than 1,000 investors co-invest over $1 million, including in Black-founded unicorn Esusu, a rent-reporting and credit-building platform for immigrants and minority groups. “The community is the VC,” Nwabuisi told the Crypto Council. Komorebi Collective, a venture DAO that supports women and non-binary founders, has deployed a half-million dollars into seven projects. H.E.R. DAO, with sub-chapters in Latin America, Asia, Africa and Europe, is a developer DAO for women, nonbinary and underrepresented builders. The Council’s Impact Base database includes more than 70 high-impact use cases for Web3 technology.
  • Regulatory clarity. The underdeveloped state of US regulation of cryptocurrency creates barriers to inclusion in the sector, according to the report. Black and Latino founders told the Crypto Council that the lack of clarity favors founders with greater access to resources to absorb legal costs, consolidate market share and offshore operations to regions with more defined regulatory regimes. Since the market highs of 2021 and legal actions that followed, overall funding has fallen faster for diverse founders than in the sector as a whole. Diverse founders want policymakers to “understand the ways in which underserved communities specifically may be engaging with the technology,” says Barton.
  • Crypto voters. Crypto has become a surprise issue in the US presidential campaign. Some proponents have flocked toward former President Donald Trump, who has issued his own non fungible tokens (but has also called crypto a “scam”). A “crypto4harris” campaign is making the case that Vice President Kamala Harris may be open to a “reset” on regulating the sector. Crypto proponents are gearing up to back pro-crypto candidates. Barton credits novel qualities of the Web3 ecosystems, including an emphasis on open source and public good, for helping to broaden access to capital. “I was really astounded to hear repeatedly from builders that we spoke to in this space that it felt more accessible to them than in other innovation spaces.”
  • Keep reading, “How diverse founders are turning crypto from speculative gamble to inclusive opportunity,” by Dennis Price on ImpactAlpha.

Dealflow: Financial Inclusion

Mexican fintech startup Stori raises $212 million in debt and equity. Since 2017, the number of fintech startups in Latin America and the Caribbean focused on financial inclusion has more than tripled to more than 3,000, according to a study by the Inter-American Development Bank and Finnovista. Mexico City-headquartered Stori launched in 2018 to bridge the financial inclusion gap for Latin America’s 100 million unbanked and underbanked population. More than 3 million active users, mostly in Mexico, use Stori’s credit cards and high-yield savings accounts. The no-fee credit card has a 99% approval rating because it doesn’t require a credit history; more than half of Mexico’s adults don’t have one. Stori plans to invest 7 billion pesos (about $360 million) in Mexico over the next two years under its plan to attract more clients and drive greater financial inclusion.

  • Fintech unicorn. The new round includes $105 million in equity from Notable Capital, GIC, General Catalyst, Goodwater, Lightspeed and other investors. Goldman Sachs and Davidson Kempner Capital Management backed the $107 million debt portion. With unicorn status, Stori aims to expand access to formal lending. “From the beginning, we recognized an unfair gap in Mexico’s traditional financial system, which has historically served only certain sectors of the population,” said Stori’s Marlene Garayzar.
  • Early-stage players. With 773 companies and growing, Mexico has become a leading fintech market in Latin America. Crediko, which offers low-interest student loans for primary and secondary school students, snagged $2.5 million in a seed round backed by Grupo Graven and other investors. The startup offers an “all-inclusive” loan package that covers tuition, books and other school materials. Aviva secured $5.5 million of seed financing for its network of AI-powered video kiosks that approves credit in real time for underbanked borrowers in small Mexican cities.
  • Check it out.

Open Access Energy lands early equity to connect green power to South Africa’s grid. South Africa is highly dependent on coal to meet its energy needs. Cape Town-based Open Access Energy wants to support the country’s transition to greener fuel sources by linking independent renewable energy producers into the national grid. The three-year-old company’s software connects power producers, consumers, municipalities and property owners. Open Energy Access secured a $750,000 investment from Colorado-based impact tech investor Factor[e] Ventures. It’s aiming to raise $1.5 million for its seed round. “As we strive to decentralize energy and ensure universal access to clean power for all South Africans, this support will accelerate our innovation capabilities and market reach,” said Open Energy Access’s Gerjo Hoffman.

  • Green stagnation. More than 70% of South Africa’s electricity is produced from coal; just 7% comes from renewable sources. Hours-long daily rolling blackouts have afflicted the country for years. The South African government has stalled on the transition to cleaner energy. The coalition government formed after elections in June has added to the uncertainty. Hoffman said Open Energy Access’s investment comes “at a crucial juncture for the company and South Africa’s energy sector.”
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Podcast: Capitol Gains

Navigating the intricate dynamics between state and local governments (podcast). State and local governments in the US can be more nimble and effective than the more centralized systems of Europe and elsewhere. But, as Brookings Institution Senior Fellow Amy Liu explains on the Capitol Gains podcast, there is a growing trend of state governments overriding local rules, and in ways that amplify political divides. That can block local officials who are closest to their constituents from implementing the solutions their communities need to advance climate resiliency, public health, affordable housing and equitable economic growth.

  • My way or the state highway. The practice of overriding local laws is called ‘state pre-emption.’ It can be particularly detrimental when a state government’s dominant party is ideologically opposed to the party that runs major cities. Take Jackson, Miss., where state interference has hindered the city’s ability to address a severe water crisis despite the availability of federal funds. In Bozeman, Mont., state laws banning inclusionary zoning have hampered local efforts to address an affordable housing challenge. “The cost is about democracy,” Liu warns. “Americans want to see more problem-solving and less focus on politics. If we lose the ability to function and govern at the state and local levels, we lose the American people’s desire to civically engage.”
  • Read the recap and listen to the podcast, from Matt Posner and James McIntyre. Capitol Gains is part of the ImpactAlpha Podcast Network. For more information, email [email protected].

Agents of Impact: Follow the Talent

Illumen Capital promotes Octavio Sandoval to principal… Blue Earth Capital welcomes Daniel Tjemkes, previously a portfolio manager at Partners Group, as head of portfolio management advice… New Majority Capital is recruiting an operations director in Boston… Blueprint Local is looking for an operations director in the Washington, DC-Baltimore metro area.

Norselab, in collaboration with Norway’s Investinor and Capricorn Investment Group, will host the second edition of Norse Impact Day, a half-day program that convenes impact investors and founders during Oslo Innovation Week, on September 25… Climate-KIC will host a deep dive into the Latin America and Caribbean climate innovation ecosystem virtually on August 27, at 11:00 a.m.

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

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