The Brief | April 27, 2022

The Brief: Venture capital in Africa, crowdfunding creative businesses, farmer resilience, going circular in Europe and Africa, Japan’s impact investing boom

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Greetings, Agents of Impact!

Featured: Investing in Africa

Energy access and financial inclusion ride Africa’s swell of private capital. The bad news: The Covid-19 pandemic reversed progress in Africa toward the Sustainable Development Goals. The good news: Much of the renewed surge of private capital flowing to the continent has an impact flavor, through investments in small business finance, renewable energy infrastructure and women. Impact investors have been behind the surge in funding for startups like Kenya’s Wasoko and Nigeria’s TradeDepot that are spurring the digitalization of informal businesses, which are overwhelmingly run by women. Overall, more than 600 African startups raised $5.2 billion in venture capital in 2021—as much as 2016-2020 combined – and impact investors were behind more than 40% of the deals. It will take trillions, not billions, to achieve the SDGs, and that means more private capital, says the African Venture Capital Association, which is convening “Private capital in Africa at a crossroads,” this week in Dakar, Senegal.

  • Bounce back. AVCA’s private capital activity report rounds up the regional trends. Fundraising for Africa’s private capital funds jumped four-fold in 2021, after pandemic shutdowns meant funds could only raise $1.1 billion in 2020. Funds targeting specific sectors like renewable energy, agribusiness, the food value chain and technology claimed 60% of all capital. Where fundraising was tough: local venture capital funds (which raised only $100 million), private debt funds and generalist funds. The impact fund of funds Oryx Impact dug into the data of 200 funds measuring their progress around specific impact goals. More than 40% were first-time fund managers, “pointing to a young and vibrant ecosystem,” writes Oryx’s Ewa Abel in a guest post on ImpactAlpha.
  • Energy infrastructure. The pandemic reversed years of steady progress in reaching universal access to electricity and clean cooking. Coming out of the pandemic, infrastructure investment funds that primarily target renewables raised $2 billion, or 45% of the $4.4 billion raised by private capital funds in Africa. “This upward trend in infrastructure investing is a positive sign for the continent,” the AVCA authors report. Renewable energy projects also accounted for roughly 14% of the $7.4 billion in private capital invested in Africa last year. It’s only a start: Africa’s infrastructure deficit is about $100 billion per year.
  • Hot for fintech. Financial services ventures raised almost 40% of Africa-bound private capital in 2021. Most fintech investment capital is going to companies supporting financial inclusion. The biggest deals of 2021 included $400 million for Nigerian mobile money service OPay and $250 million for cross-border payments company Chipper Cash. More progress could be made in backing female founders. Women-led or co-led startups raised just $150 million of all African VC funding last year.
  • Keep reading, “Energy access and financial inclusion ride Africa’s swell of private capital,” by Jessica Pothering on ImpactAlpha.

Dealflow: Creative Economy

Foundations join the crowd to invest in creative startups through Honeycomb Credit. More than 80% of the businesses that have raised capital through Honeycomb’s loan crowdfunding platform are local creative businesses such as cafes, breweries and fashion brands. About half of the companies on the platform were previously unable to access credit. Honeycomb and Upstart Co-Lab have pledges of $600,000 from foundations that will join crowdfunders in financing creative businesses in food, fashion and design. The partners’ Loan Participation Fund expands “what’s possible in the world of impact investing,” said Upstart’s Laura Callanan, and brings “much-needed financing to businesses in creative industries.” The fund allows foundations “to write large checks but allocate the money to small businesses,” added Honeycomb’s George Cook.

  • Local entrepreneurs. Atlanta-based Souls Grown Deep and the White Plains, N.Y.-based A.L. Mailman Family Foundation will invest in Black-owned businesses in nine southern states. Capital from the Jessie Ball duPont Fund will be directed toward entrepreneurs in seven counties in Northeast Florida, with a focus on borrowers who are low-income, women or people of color. Nonprofit FJC will administer the Loan Participation Fund.
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Ghanaian agtech venture Farmerline raises $12.9 million to help small farmers improve yields. The company’s marketplace helps smallholder farmers build climate resilience with digital tools, logistics, field agents, farm resources and agribusiness partnerships. On the other side, Farmline’s platform gives supply-chain intelligence to global food traders, manufacturers and other organizations working with more than a million smallholder farmers. The data allows users to forecast fertilizer demand, trace products and score credit for lending. The company will expand with $6.4 million in equity financing, led by Acumen Resilient Agriculture Fund and FMO, the Dutch development bank, and $6.5 million in debt from DEG, Rabobank, Ceniarth, Rippleworks, Mulago Foundation, Whole Planet Foundation, the Netri Foundation and Kiva. Psst… ImpactAlpha first covered Farmerline back in 2013.

  • Adaptation and resilience. Climate change is spurring innovation in financing for smallholder farmers. Nairobi-based Apollo Agriculture last month raised $40 million and Abuja-based ThriveAgric raised $56.4 million to boost the productivity and incomes of African farmers. In 2020, One Acre Fund secured $20 million in debt to expand its bundle of farm services.
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Dealflow overflow. Other investment news crossing our desks:

  • Autism Impact Fund backed Cortica’s care model focused on autism and other neuro-diverse conditions.
  • Munich-based Twaice raised $30 million, led by Coatue, to enhance the transparency and predictability of batteries.
  • Egyptian EV battery maker Shift secured early-stage funding from Union Square Ventures, Algebra Ventures, the Oman Technology Fund and Wamda Capital.
  • Circularity Capital closed its second fund at €215 million ($228 million) to invest in growth-stage businesses in Europe that “decouple business growth from intense resource utilization.”
  • The African Development Bank stood up a €4 million ($4.3 million) African Circular Economy Facility to finance smart agriculture, renewable energy, sustainable waste management and water efficiency.

Signals: Impact in Japan

Japan’s impact investing sector more than doubles to $10.3 billion. Several years ago, Japan went from laggard to leader in ESG. Now comes impact investing. Impact assets under management surged to 1.3 trillion yen, or $10.3 billion, a 2.5-fold increase from 2020 and nearly 40X higher than 2016. Driving the growth: new impact-focused banks and asset managers, as well as a doubling of assets from existing impact investors, according to the annual survey (in Japanese) by the Japan Social Innovation and Investment Foundation and the Global Steering Group’s Japanese national advisory board. “The Current State and Challenges of Impact Investing in Japan: FY2021 Survey Report” will be published in English next month.

  • Banking on impact. Japan’s largest bank, MUFG Bank, along with Sumitomo Mitsui Trust and Shinsei Bank, were among 21 signatories to Japan’s impact-driven Financing Initiative to boost impact investing in the country. Sumitomo Mitsui has committed to invest 500 billion Japanese yen by 2030 to address carbon reduction and other issues. Last week, Osaka-based fusion energy startup EX-Fusion raised $1 million from Osaka University Venture Capital and a new ESG fund by Tokyo-based venture firm ANRI.
  • Headwinds. Japan’s impact ecosystem is held back by a lack of awareness among individual investors, pensioners and insurers. Just 19% of individual investors said they were interested in impact investing in a survey last year. The SIIF report flags “the passive attitude of asset owners towards impact investment.” Japan’s huge Government Pension Investment Fund, which was key to the shift toward ESG investing, has pulled back since the departure of chief investment officer Hiro Mizuno. “We felt like we should find a way to make a contribution to make the whole system, or whole universe, of the capital markets more sustainable,” Mizuno told ImpactAlpha last year.
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Agents of Impact: Follow the Talent

Former Blackrock sustainable investing head Tariq Fancy launches to advocate for stronger climate regulation… Erin Komorowski is promoted to head of ESG at M&T Bank… David Frank, ex- of Cummins, is named chief productization officer at Twelve. The company also appointed former Linde executive Anne Roby to the board… AHL Venture Partners is hiring an investment associate/manager in Nairobi.

BlackRock seeks a sustainable investing climate and sustainability research lead in New York… Palladium Impact Capital is looking for an associate in Washington, D.C… Circle and SeedInvest kick off their Community Pitch Competition to support historically underrepresented founders.

Thank you for your impact!

– Apr. 27, 2022