The Brief | February 27, 2024

The Brief: Value-creation playbooks for delivering alpha from impact

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Greetings Agents of Impact! Thank you for the enthusiastic reception for this week’s launch of ImpactAlpha Latin AmericaOpt in to receive our special monthly newsletter covering the region’s growing impact ecosystem. In today’s Brief:

  • The impact investor edge
  • Solar surge in South Africa
  • ‘2040 test’ for European companies
  • Overheard at the Africa Tech Summit in Nairobi

Featured: Alpha in Impact

Impact value-creation playbooks provide X’s and O’s for generating alpha. Limited partners increasingly are asking impact-oriented managers a key question: Does it matter to financial performance if an impact-aligned company is owned by an impact investor rather than a traditional investor? In a guest post on ImpactAlpha, Tideline’s Ben Thornley and Alok Patel answer: “We are more convinced than ever that impact investors are better owners of impact-aligned companies than traditional investors might be.” In their report, New Frontiers in Value Creation, Tideline and Impact Capital Managers dissect the ways impact fund managers enhance meaningful impact and financial returns during the five to seven years that they typically hold investments (see also, “After the investment and before the exit, how fund managers drive alpha through impact”). “We envision a future in which growing evidence of the alpha in impact helps elevate the unique capabilities of impact investors as a model for all investors,” they write.

  • Customer expertise and employee focus. Emerging markets financial services and healthcare investor LeapFrog Investments helped Redcliffe Labs, a healthcare diagnostics provider in India, raise revenues from repeat users and lower customer acquisition costs after its investment in 2022. With its emphasis on workforce engagement, Two Sigma Impact helped Circle of Care, a provider of pediatric therapy in Texas, address the shortage of qualified pediatric behavioral health professionals. Circle of Care’s “Flight Path” program trains entry-level behavior technicians to become board certified behavior analysts. “The resulting gains in Circle of Care’s workforce engagement addressed a key growth bottleneck to expand the company’s impact and revenue,” write Thornley and Patel.
  • Levers of action. The report’s case studies illustrate the value-creation playbooks of more than a dozen investors. Bain Double Impact helped Excelsia Injury Care expand from auto accidents and workplace injuries to other areas in which low-income, under-insured patients could benefit from help in finding and funding medical care. Food and ag investor S2G Ventures helped establish Clear Frontier, a Nebraska-based farmland fund that helps farmers transition to sustainable farming practices. S2G introduces Clear Frontier’s farming partners to consumer packaged goods companies looking for organic suppliers – and helped Clear Frontier raise more than $200 million to acquire additional acreage. 
  • Keep reading “Impact value-creation playbooks provide X’s and O’s for generating alpha,” by Tideline’s Alok Patel and Ben Thornley on ImpactAlpha.
  • Agents of Impact Call: How fund managers drive alpha through impact. Join Ben Thornley, Impact Capital Managers’ Marieke Spence, Bain Capital’s Larissa Quinn and S2G Ventures’ Aaron Rudberg, in conversation with ImpactAlpha’s David Bank, to explore levers for financially-material impact value-creation, this Wednesday, Feb. 28 at 10am PST / 1pm EST / 6pm London. RSVP today.

Dealflow: Energy Transition

South Africa’s Hohm Energy nets $8 million to meet demand for solar power. South Africans have endured years of rolling blackouts as the country’s aging coal plants falter. The outages have shaved as much as 2% off the country’s GDP. Businesses and households are adding rooftop solar at an unprecedented clip: solar power generation surged 350% in just over a year. Sandton-based Hohm Energyoffers solar system design, cost analysis, installment and maintenance services on a platform that connects customers to suppliers and credit options through Hohm’s partnerships with local financial institutions. Early stage investors E3 Capital and 4DX Ventures led the $8 million seed investment.

  • Backing clean energy entrepreneurs. E3 Capital, formerly Energy Access Ventures, cuts checks of between $250,000 to $10 million for low-carbon energy and connectivity providers across Africa. Through a joint venture with Lion’s Head Global Partners, E3 has launched E3 Low Carbon Economy Fund for Africa. The early-stage climate fund closed on the first $48 million of a targeted $100 million raise. E3’s portfolio includes d.lightNuruSunculture and InspiraFarms and other metro-grid companies, solar product providers and solar cold-storage solutions.
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Verdane raises €1.1 billion for sustainable European businesses. The Norwegian private equity investor targets tech-enabled businesses that can pass its “2040 test” – a screen to assess whether companies can thrive in a sustainable economy. With its third Verdane Edda buyout fund, Verdane is on the hunt for companies riding the megatrends of digitalization and decarbonization. “There has never been a better time to partner with ambitious companies that seek to digitize and decarbonize the European economy,” said Verdane’s Bjarne Kveim Lie. The fund will write growth equity checks of €20 to €150 million and take majority or minority positions.

  • Growth portfolio. The fund’s portfolio includes Finland’s Evondos, which has built an automated medicine dispensing machine for elderly patients. Germany’s Hornetsecurity provides cloud-based cybersecurity services to global businesses of all sizes. Verdane’s Elevate in-house team offers portfolio companies technical assistance on market and product strategy, technology, finance and sustainability. “Our thematic focus and proven value-creation recipe have enabled us to consistently deliver strong financial returns to our investors,” said Verdane’s Frida Einarson.
  • Institutional LPs. Verdane, a certified B Corp, is partly owned by the Verdane Foundation. The majority of the fund’s commitments came from pension funds, university endowments, foundations, insurance companies and family offices; nonprofits committed 40% of the fund. A quarter of the limited partners are based in the US. In the past six months, Verdane has raised €2.2 billion across two separate funds, including its €1.1 billion growth-stage Capital XI fund.
  • Check it out.

 Dealflow overflow. Investment news crossing our desks:

  • Ascend Elements raked in $162 million from investors, including Just Climate, to upcycle used lithium-ion batteries into materials for new batteries. The company has raised over $700 million in the past year, including a $542 million round led by Blackrock-Temasek’s Decarbonization Partners. (Ascend Elements)
  • Teyliom Finance secured a $20 million loan from BluePeak Private Capitalto increase lending to small and medium enterprises and microbusinesses in Senegal, Burkina Faso and other West African countries. (APEN)
  • San Francisco-based Sway snagged $5 million from seed investors including BAM VenturesAlante Capital and Third Nature Investments for a seaweed-based, home-compostable alternative for plastic packaging. (Sway)
  • The Robert Wood Johnson Foundation provided a $5 million program-related investment loan to Four Bands Community Fund to expand access to capital in Indigenous communities in the Great Plains region. (RWJF)

Signals: Overheard at the Africa Tech Summit

Risks and opportunities in early-stage climate tech in Africa. Climate concerns figured prominently in conversations among investors, development agencies, startups and corporations at this week’s Africa Tech Summit in Nairobi. A common refrain: Africa is not Silicon Valley… and the expectation of skyhigh returns from climate tech startups is unfair, reports ImpactAlpha’s Lucy Ngige. “The best thing we can do is seed that early stage of innovation and produce as many climatetech startups as we can,” said Mercy Corps Ventures’ Scott Onder. “Over time, we can prove out – just as we did with fintech, logistics and distribution – that some of these models can be highly scalable, they can be viable from a profitability standpoint, and the exits will come as a result.”

  • Fintech, water and energy. Water and energy have been a sweet spot for climate investments, noted Maelis Carrarro of Catalyst Fund. Almost three-quarters of the $3.4 billion in climate tech funding in Africa from 2019 to 2023 went to the energy and water sectors, she said. Catalyst Fund backed nine African startups and is on the hunt for companies with solutions for waste management, data insights, sustainable materials and buildings, insect protein and efficient water consumption. Mercy Corps Ventures is looking to support more ventures providing credit, insurance and supply chain financing to help businesses and communities adapt to a changing climate (for background, see, “How responsible fintech in Africa provides resilience in a downturn”).
  • Great expectations. African founders should ignore Silicon Valley definitions of scale, urged Rachel Macauley at the Draper Richards Kaplan Foundation, which has backed farmer financing, clean energy, last mile health, affordable housing and other ventures. “I think the definition for exits in Africa is going to be highly localized,” Macaulay said. Mergers and acquisitions, she said, “are already happening quietly.”
  • More.

Agents of Impact: Follow the Talent

Franz Hochstrasser is stepping down as CEO and board chair of climate crowdfunding site Raise Green and handing the reins to cofounder Jackie Logan… The Texas Center for Employee Ownership hires Taylor Knickel, a former adjunct professor at the University of Denver, as its new program director… Overdeck Family Foundation has an opening for a grantmaking senior director and other roles…

ClimateWorks Foundation seeks a remote associate director for justice, equity, diversity and inclusion… The Rockefeller Foundation is looking for a diversity, equity, and inclusion senior associate in New York… SVX Mexico is looking for a junior consultant for a 4-month project in Mexico City…  GAWA Capital is hiring a climate expert in Madrid… LGT Venture Philanthropy will accept applications for its 2024 impact fellowship cohort until Sunday, March 31st.

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

Thank you for your impact!

– Feb. 27, 2024