The Brief

The Brief: What British International Investment has learned in a decade of catalytic investing

ImpactAlpha · December 5, 2024

Greetings, Agents of Impact! Don’t miss ImpactAlpha’s final two calls of 2024:

🔌 Plugged In: Impact Investing in 2025. Include Ventures’ Taj Eldridge wears a lot of hats – literally and figuratively. Eldridge will join ImpactAlpha contributing editor Sherrell Dorsey to talk green jobs, making climate cool, and impact investing in the era ahead. “If we keep the conversation on the economics and the value of climate action, I think we will be okay in the next administration,” Eldridge tells ImpactAlpha. Bring your own take and your questions to this lively session, Tuesday Dec. 10, at 10am PT / 1pm ET / 6pm London. Sign up now.

📞 Agents of Impact Call: Napoleon Wallace and the Reconstruction of Black Wealth. ImpactAlpha’s first documentary production charts Napoleon Wallace’s quest to build a network of organizations in North Carolina to foster Black wealth building and multi-racial prosperity – while living with the challenges of advanced ALS. We’ll screen the 20-minute video and discuss equity and ownership with Wallace through his text-to-voice “eye pad.” Join Napoleon’s friends and other Agents of Impact for this exclusive showing, Thursday, Dec. 12, at 10am PT / 1pm ET / 6pm London. RSVP today.

In today’s Brief:

  • Catalytic capital at British International Investment
  • Climate-smart infrastructure in Africa
  • Nutritious food-as-medicine
  • Growing Australia’s impact investing market

Risks and rewards on BII’s 10-year journey as a catalytic investor. Building markets for lifesaving drugs in Africa. Forging delivery channels for daily essentials in India. Derisking the clean energy pipeline in coal-guzzling South Africa. In the past decade, British International Investment has deployed nearly $1.9 billion in catalytic capital intended to deepen impact, inclusion and opportunities for commercial investors in emerging markets. The UK development finance institution’s tallies of wins and losses so far in its Catalyst program have resulted in a break-even portfolio – meeting the organization’s requirement to preserve capital. That will allow BII to move additional capital into investment-deprived sectors, geographies and enterprises. “It’s still a young portfolio,” acknowledges BII’s Sarah Marchand. “But the signs are that we’ve got an unequivocally high-impact portfolio. At a portfolio level, we have the balance to keep making these decisions to do difficult things and to continue to scale it up.”

  • Strategy shift. Before Catalyst, the impact investing activities of BII, then known as CDC Group, were largely limited to a £75 million fund of funds strategy. A push from its sole shareholder, the UK government’s Foreign, Commonwealth and Development Office, or FCDO (then known as DFID) inspired the Catalyst strategy. The intent was to give BII the flexibility to take greater risks and to be more responsive to the needs of fund managers, markets and entrepreneurs (listen to ImpactAlpha’s interview with former CEO Nick O’Donohoe, and read, “An investor’s journey: How CDC Group is innovating with catalytic capital”). Today, “every team at BII can avail themselves of catalytic capital,” says Courageous Capital’s Laurie Spengler, who has served on BII’s board since 2017. “And that’s where we wanted to go from the beginning.”
  • Embedded impact. Investments from Catalyst now account for about 20% of BII’s capital deployments, details a new report, “Pioneering catalytic capital: A decade of learning.” A number of Catalyst deals have graduated into BII’s more mature Growth portfolio. Others have prompted even more risk-taking and experimentation through BII’s Kinetic program, which has an even higher tolerance for risk. MedAccess provides sales guarantees to drug and health product manufacturers to convince them to enter new markets in Africa. The organization was funded with $200 million in equity from Catalyst in 2017, incubated within BII and spun out. Its guarantees have forged new markets for affordable malaria vaccines, improved mosquito nets, HIV tests, and treatments for latent tuberculosis. “Right now we basically operate on a break-even model,” says MedAccess’ Michael Anderson, “so the unique, patient capital from BII is absolutely essential to our operation.”
  • Liquidity requirements. In a guest post on ImpactAlpha, BII’s Swetha Balachandran and Martina Castro and Yasemin Saltuk Lamy, who recently joined Legal and General, reframe the long-standing debate about trade-offs between impact and financial returns. Analyzing more than 200 deals at BII, they “found that trade-offs weren’t showing up between financial returns and impact, but rather between financial liquidity and impact,” they write. Take BII’s anchor investment in the African Forestry Impact Platform, which is structured as a permanent capital vehicle because it’s expected to “take a longer timeframe to achieve financial returns, given the impact we want to achieve,” the authors write. Reframing trade-offs around liquidity, rather than returns, “could be meaningful for other investors like BII that can invest on patient terms and tolerate lower liquidity for greater impact.” Read their full guest post. 

Dealflow: Green Infrastructure

BlueOrchard’s Green Earth Impact Fund invests $5 million in climate smart infrastructure in Africa. Swiss impact investment manager BlueOrchard has invested in the fourth African Infrastructure Investment Fund, or AIIF4. The funding will come through BlueOrchard’s Green Earth Impact Fund, which raised $25 million last year from Luxembourg’s Ministry of Finance to back private equity, debt and real assets funds that finance climate mitigation, adaptation, water and biodiversity protection in emerging markets. The OECD says infrastructure financing deals that factor in climate resilience remain the exception rather than the norm. Between the 1970s and 2010s, economic losses from accelerating climate disasters increased sevenfold from $198 billion to $1.6 trillion. Climate-related losses are a bigger concern in emerging markets.

  • Sustainable infrastructure. AIIF4 is a private equity infrastructure fund managed by Cape Town-based African Infrastructure Investment Managers. It raised nearly $1 billion in August this year to support logistics, telecommunications and renewable energy projects in Africa. Funding from BlueOrchard will go into AIIF4’s dedicated unit for climate impact investments in infrastructure and will focus on South Africa and Morocco. AIIM’s Paul Frankish said the firm aims to “to increase clean energy supply, decrease carbon intensity, and provide sustainable food security” by investing in renewable energy, green data centres, and temperature-controlled logistics.
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ModifyHealth snags $13.5 million for nutritious ‘food as medicine.’ ModifyHealth, based near Atlanta, launched in 2018 to treat patients with diet-related diseases with “food as medicine.” Dietary management is recommended for chronic conditions including Type 2 diabetes, irritable bowel syndrome and heart and kidney diseases. “ModifyHealth’s commitment to making food as medicine simple, accessible and sustainable aligns seamlessly with our mission,” said Rachel Roller of the Dohmen Company Foundation, which led ModifyHealth’s Series C round through its Dohmen Impact Investment Fund. 

  • Investing in health. ModifyHealth aims to make “telenutrition and medically tailored meal support a standard of care,” says its CEO GB Pratt. The financing will help the company expand live nutrition coaching and remote patient monitoring, as well as partnerships with healthcare providers and employers. ModifyHealth offers individual customers subscription plans for meals. Backers in the new round include RC Capital and Nashville Capital Network.
  • Check it out.

Dealflow overflow. Investment news crossing our desks:

  • Ethiopia-based Renew Capital signed its first deal in Tunisia, backing Konnect to make digital payments more accessible for the unbanked. (APEN)
  • Draper Richards Kaplan Foundation secured an $8.6 million catalytic grant from the Swiss Agency for Development and Cooperation to support 140 new social enterprises in six African countries. (DRK Foundation)
  • Israeli climate tech startup FireDome raised $4.5 million for wildfire detection and response using sensors, connected devices and software. The pre-seed round includes a $1.5 million grant from the Israeli government. (CTech)
  • New York-based Rosy Soil clinched $3.6 million in seed funding, backed by Climate Capital and Boost VC, to create a biochar-based soil additive from captured carbon emissions to improve soil health and plant growth. (Rosy Soil)

Signals: Ownership Economy

Meet 22 funds raising capital to finance high-impact transitions to employee ownership. An inconvenient truth is limiting the impact of an increasing number of business conversions to employee ownership. “There is often a trade-off between the percent of employee ownership and the return to investors,” according to a new report from Ownership Capital Lab and Transform Finance. Financing is plentiful for more diluted shared-ownership strategies (see, “As private equity firms start to share the wealth, low-income workers get just a little bit”). “Meanwhile, the field’s impact leaders – funds that prioritize Black, Brown and low- and medium-income workers, utilize durable employee ownership forms and integrate worker voices and/or governance – do not have the capital they need behind them,” concludes the report, “Capitalizing the employee ownership opportunity.” That presents an opportunity for catalytic and other impact-first investors. The report identifies nearly two-dozen funds raising a collective $670 million that finance companies’ transition to at least 30% employee-ownership, a threshold set by CertifiedEO. 

  • Range of returns. Return expectations vary widely among the funds raising capital. Eight closed-end funds, raising a collective $350 million, are seeking market-rate or near-market-rate returns of more than 15%. Another four funds, raising a total of $290 million, offer returns of between 5% and 15%. Nine funds, mostly evergreen funds through community development financial institutions, seek returns below 5%. Authors Alison Lingane and Julie Menter said such CDFI funds are critical to filling the “senior debt gap” left by most banks’ unwillingness to lend to groups of employees because of the absence of a personal guarantee. Rather than reducing workers’ shares, the authors say investors’ returns can be improved by boosting businesses’ underlying revenues, securing catalytic capital, and adjusting performance benchmarks to account for misperceptions of risk.
  • In the market. An appendix to the report identifies 22 funds currently raising capital, including familiar employee-ownership focused managers such as Apis & Heritage and Mosaic Capital Partners. It also surfaced funds such as the Cannabis Employee Ownership Fund, “financing the development of an inclusive and democratic cannabis market,” along with managers like Denver-based Ownershift, Allivate Impact Capital in Philadelphia, and Arctaris Impact Investors in Wellesley, Mass. Chicago-based Essential Owners Fund is focused on businesses with large numbers of frontline workers in food, care and transportation. Evergreen funds that are financing ownership conversions include innovative models like worker-owned conglomerate Obran, and Kachuwa, a cooperative impact fund (see, “Making co-ops work for investors, too”). ImpactAlpha’s Ownership Economy database includes 68 funds, not all of which are currently raising capital.
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Agents of Impact: Follow the Talent

TruFund Financial Services appoints Stephaniee Kabore, formerly with myAgro, as senior vice president and chief financial officer… Ariel Smilowitz, previously with BlackRock, joins PwC as director of its governance insights center… DC Housing Finance Agency taps Brichette Reid, previously with Mill Creek Residential Trust, as compliance manager, and Kira Antoine, previously with JLL, as an underwriter… Mirova selects Raphael Lance, the sustainable investing firm’s head of energy transition infrastructure funds, to lead its new real assets division. The group combines Mirova’s energy transition infrastructure, natural capital and private equity businesses.

Palladium is looking for a legal counsel in London… Roots of Impact has an opening for an impact-linked senior associate in Frankfurt… VentureESG seeks a part-time emerging markets lead in London… Enterprise Community Partners is looking for a green communities intern in Washington, DC… IDB Lab is recruiting a senior specialist of ecosystem building and acceleration in Brazil… Rewrite Capital Advisors is looking for an M&A senior analyst to work on employee ownership deals in Canada. 

Aliança pelo Impacto and Enimpacto are launching a survey on the mobilization of capital for the impact economy in Brazil. Join a virtual event on Friday, Dec. 6 to learn more… Katapult Future Fest has canceled its 2025 Oslo-based conference. “Sometimes, stepping back is the boldest step forward,” the group wrote in note to its community. “We want to create space for an emergence of thought, to build a platform for scaled impact and long-term sustainability.”

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

Thank you for your impact!

– Dec. 5, 2024