The Brief | April 1, 2024

The Brief: Unlocking ownership to close racial wealth gaps

ImpactAlpha
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ImpactAlpha

Greetings Agents of Impact!

In today’s Brief:

  • “Unlocking ownership” through first-time fund managers
  • Utility-scale battery storage
  • Trade finance for Africa’s small businesses

Featured: Ownership Economy

Wanted: First-time fund managers with strategies to ‘Unlock Ownership.’ A group of mission-aligned investors is pooling philanthropic capital to help first-time managers launch funds to finance employee-ownership conversions and increase home ownership rates. “We are very mission-aligned people that want to play a role in the ecosystem by helping launch more of those emerging models that are going to unlock asset ownership,” said Pluralize Capital’s Amy Brakeman, a longtime impact investor. Other organizers of the Unlock Ownership Fund include Brian and Katie Boland of the Delta Fund, and Deborah Frieze of the Boston Impact Initiative. They are on the hunt for emerging ownership economy funds that support enterprises led by and serving individuals from marginalized communities (see, “Building an ownership movement to close racial wealth gaps”). “Some of them will need a loan for working capital, and it’ll be a three-year loan with a low-interest rate so they can get access to lower-cost capital,” Brakeman says. 

  • Multi-donor. The Unlock Ownership Fund is part of a new crop of multi-donor funds seeking to activate the big pools of capital sitting idle in tax-advantaged donor-advised funds. Because donor-advised funds have been pledged to charitable purposes, the thinking goes, their backers can accept higher risk, lower returns or longer investment timelines than commercial investors (see, “Multi-donor funds emerge as a creative architecture for collaborative, catalytic capital”). The fund, housed at Denver-based Impact Charitable, has secured $5.5 million in commitments from donors and is eying an initial $10 million to make grants and catalytic investments in two-dozen emerging ownership funds and investment initiatives. “We’ve invested in most of the different models that exist so far. We want to make it easier for other catalytic investors to get involved,” Brakeman tells ImpactAlpha.
  • Bridging wealth gaps. Black and Brown household wealth has increased in recent years, but so has the racial wealth gap. “I can’t live with my wealth and my voice if I don’t make an effort to do something about it,” Brakeman says. Brakeman’s personal portfolio includes Project Equity’s Employee Ownership Catalyst Fund, which provides financing for transitions to employee ownership trusts, worker cooperatives and other structures; Denver-based Dearfield Fund for Black Wealth, which provides down-payment assistance for first-time Black homebuyers; and Apis & Heritage, which helps small and mid-sized businesses with large Black and Brown workforces transition to employee ownership. “These are really investable models that are going to reduce the racial wealth gap,” Brakeman says.
  • Ecosystem building. Brakeman is set to present the Unlock Ownership fund at next week’s Employee Ownership Ideas Forum, hosted by Aspen Institute and Rutgers’ Institute for the Study of Employee Ownership and Profit Sharing. The panel, “New frontiers in employee ownership finance,” also includes Common Trust’s Zoe Schlag, Apis & Heritage’s Phil Reeves, and Sorenson Impact’s Jim Sorenson. The forum, in Washington, DC and online, will convene members of Congress, including Senators Bernie Sanders and Chris Van Hollen.
  • Keep reading, “Wanted: First-time fund managers with strategies to ‘Unlock Ownership’,” by Roodgally Senatus on ImpactAlpha.

Dealflow: Energy Transition

Greenbacker provides $100 million to battery storage developer Lightshift Energy. Batteries add value to intermittent sources of renewable energy, such as wind and solar. Lightshift Energy’s standalone, utility-scale lithium-ion batteries help power providers replace fossil fuel-powered “peaker” plants that kick in when demand is high. The Arlington, Va.-based company, formerly known as Delorean Power, has raised $20 million in growth equity and $80 million in project financing from infrastructure investor Greenbacker Capital Management. The deal follows Greenbacker’s $20 million equity investment in 2021. 

  • Cost curves. Rapidly falling battery storage costs and tax incentives from the Inflation Reduction Act are driving business, Lightshift’s Rory Jones told ImpactAlpha (tax credits for battery storage previously were only available in conjunction with solar projects). “Almost without exception, every utility in the country is evaluating the competitiveness of batteries” to replace peaker plants, said Jones. “At today’s battery price points, it’s making sense.” The company’s 10.5-megawatt battery in Danville, Va., is expected to save that city $40 million over 20 years, Jones said. He added that Lightshift has another 20 battery projects under contract.
  • More. 

Uganda’s Credify raises early funding to address Africa’s trade finance gap. Small businesses that source products from overseas pay for the goods well before they sell them. In Africa, where small businesses already face a capital shortage of $330 billion annually, the traditional import process “typically locks up their capital for two months, preventing them from making other investments in their business growth,” explained Selma Ribica and Agnes Kisuule of First Circle Capital. The women-led venture fund cut a pre-seed check to Credify, which allows businesses to manage, track and secure credit for import orders. It’s First Circle’s first deal in Uganda.

  • Trade finance. Development finance institutions are seeking to increase trade financing in Africa by derisking lending for banks. British International Investment last week provided $100 million to the Eastern and Southern African Trade and Development Bank for on-lending to bolster the flow of agricultural inputs and other essential goods. Only 30% of bank capital flows to Africa’s small businesses, First Circles estimates. Credify provides credit and also handles the exchange of goods between buyers and sellers. Its operations in China “verify supplier quality, simplify the process on the sending port’s end, and secure a foothold on major supply routes,” said Ribica and Kisuule.
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Dealflow overflow. Investment news crossing our desks:

  • The World Bank’s Forest Carbon Partnership Facility made its largest carbon payment to date, disbursing $51 million to Vietnam for initiatives to reduce deforestation. (Carbon Credits)
  • Brazil’s Umagrauemeio raised $3.7 million from Indicator Capital, Baraúna Investimentos, The Yield Lab Latam and Rural Ventures for its forest surveillance software that is designed to detect and/or predict forest fires. (LatamList)
  • UK-based Wase inked €9.9 million ($10.7 million) to help food and beverage companies manage wastewater and convert organic waste to renewable biogas. The round included €2.8 million in non-dilutive funding. (EU-Startups)
  • Also in the UK, Clean Food Group secured £2.5 million ($3.2 million) to convert food waste into oils and other ingredients for use in foods and cosmetics. (Tech.eu)

Impact Voices: ESG in VC

Why I love ESG regulation… and tell VC funds to forget about it as quickly as possible. Transparency leads to accountability, or so hope the regulators. The European Union, followed by the US Securities and Exchange Commission and California lawmakers, have adopted this maxim when it comes to enforcing standards for environmental, social and governance, or ESG, investing, as well as climate risks and diversity. “I love that regulators are pushing forward in this way,” VentureESG’s Johannes Lenhard writes in a guest post (for additional context, see “VCs ♥️ ESG”). The EU’s Sustainable Finance Disclosure Regulation, or SFDR, for example, is forcing behemoths like Blackrock as well as small venture capital investors to be more transparent about their thinking around sustainability. Now, the “focus of responsible investing and innovation and ESG needs to shift to value-creating action,” Lenhard says. “The value-add of ESG comes from practices beyond reporting.”

  • Value creation. Disclosure-focused regulations put sustainability and ESG on company and investor agendas, but are not indicative of “good ESG,” according to Lenhard. They may not even help identify meaningful (i.e. material) risk factors. VC firms, such as the more than 500 in the VentureESG community, need to focus much more on the doing, says Lenhard. Perform a materiality assessment, “which helps you to identify key ESG risks and opportunities and then work on the mitigation and fulfillment of those,” he suggests. “That’s also where the business case is.” 
  • Disclosure overhaul. A potential overhaul of SFDR after this year’s European elections could present an opportunity to carve out space for early stage firms, says Lenhard. “Wrong disclosures” on metrics that are non-material can distract investors and companies. For example, reporting on biodiversity, hazardous waste or other environmental metrics as required by SFDR may not be material for tech startups; omitted metrics such as data management, regulatory risk and responsible product design likely are. “Just because it gets measured,” he says, “that doesn’t mean anything gets done.”

Agents of Impact: Follow the Talent

Don’t miss these upcoming ImpactAlpha partner events:

David Socolow, previously with the New Jersey Higher Education Student Assistance Authority, joins Social Finance to head policy for the Social Finance Institute… LISC promotes Nadia Villagrán to vice president, where she will Lead Rural LISC… Novata is hiring an ESG manager in London… As You Sow will discuss its new report, “Pay for climate performance: Linking CEO compensation to emissions reduction,” on a webinar, Thursday, April 11.

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

Thank you for your impact!

– April 1, 2024