TGIF, Agent of Impact!
‘Scaling with integrity’ was the theme of this week’s annual meeting of the investors council of the Global Impact Investing Network on Long Island outside New York. The closed-door huddle got underway the same day news broke that the CEO of the most highly scaled impact fund of all had been caught on tape acting with a distinct lack of integrity in the “Varsity Blues” college-admission scam. Bill McGlashan, the brash and brilliant force behind The Rise Fund, was quickly put on leave; two days later he was fired for behavior a spokesman called “inexcusable and antithetical to the values of our entire organization” (see No. 1, below).
Does McGlashan’s fall signal some kind of moral rot at the core of impact investing, as some commentators have suggested? Or is it the very contrast with Rise’s stated goals – including “build businesses that expand access to educational attainment, boost educational achievement, and strengthen pathways to employment” – that made McGlashan such an emblem of bad behavior? Self-dealing and hypocrisy is not unique to impact investing. What is new in business and finance is the expanding culture of, and toolkits for, accountability for social impact.
For my money, I’ll take intentional capital and the occasional embarrassment over conventional capital with little accountability to social justice. Reforming the rigged college-admissions process requires investment and innovation (see No. 3). TPG Growth has already raised $1 billion toward its planned $3 billion Rise II; it already has allocated nearly $2 billion from Rise I. Raising and deploying capital on that scale puts Rise in an impact investing league of its own. You can bet there will be a lot of people watching closely whether they scale with integrity.
– David Bank, editor
Featured: The Brief’s Big 7
1. The rise and fall of the Rise Fund’s Bill McGlashan. On Tuesday, the private-equity power player’s name was among 50 people charged in Operation Varsity Blues, the federal crackdown on a wide-ranging college admissions scam. By Thursday afternoon, McGlashan was fired from both TPG Growth and The Rise Fund. McGlashan had built TPG Growth into a $13 billion juggernaut before raising a $2 billion impact fund. Jim Coulter, co-CEO of TPG, is taking over McGlashan’s role at both TPG Growth and The Rise Fund. The latest fallout: Rise is allowing investors, including major pension funds, to withdraw their more than $1 billion in commitments to its planned $3 billion second fund, Bloomberg reports. Also hanging in the balance is the Rise Fund’s anticipated takeover of the Gates Foundation-backed $1 billion global health fund from the Abraaj Group, which was brought down last year by a scandal of its own. “We’re very confident in our go-forward plan,” a TPG spokesman said. The update.
2. Catalytic capital gets some respect – and a $150 million pledge. Investors willing to accept higher risks, lower returns, and flexible repayment terms are an indispensable element in the growth of many high-impact enterprises—and even entire impact sectors. “If we don’t have a healthy commitment to the catalytic piece, we’ll be leaving impact behind,” MacArthur Foundation’s Debra Schwartz told ImpactAlpha. MacArthur, along with the Rockefeller Foundation and Omidyar Network, launched the Catalytic Capital Consortium this week to boost the flow of capital. MacArthur committed to invest $150 million in managers and mechanisms that demonstrate the power of catalytic capital and put the first $30 million, matched by $30 million from Rockefeller, into Rockefeller’s newly formed impact investment management company. The funds will seed projects in Rockefeller’s “Zero-Gap” portfolio aimed at the Sustainable Development Goals. MacArthur has already received about 150 proposals totaling more than $2 billion and will announce another five or six investments by year-end. Dive in.
3. Agent of Impact: Michael Carter, founder of Strive for College and UStrive Inc. Admission to college is a zero-sum game, as the scams that came to light this week make clear. “It saddens me to think about all of the students who didn’t get into their dream school because another student took a spot under false pretenses,” says Michael Carter, who launched Strive for College to help primarily low-income students navigate college admissions and financial aid applications. A virtual network of mentors, UStrive, provides free one-on-one help. Carter saw the inequalities in education access when he switched from private to public high schools in San Jose, Calif. Most private-school students were planning to go to college. But promising public school students saw college as out of reach and the school provided too little guidance. (More than 660,000 graduating high school students didn’t complete financial aid applications last year, leaving unclaimed $2.6 billion in free college money.)
Strive for College says 90% of its “Strivers” attend four-year institutions with little or no debt. A partnership with American Express (sealed with $500,000) is expanding the network of mentors. With PlatformQ Education, Strive is helping colleges connect with underserved students. The test prep company Magoosh is helping Strivers “ace their tests.” Strive was among the winners of New Schools Venture Fund’s Future of Work challenge to help middle- and high school students succeed. The latest scandal, Carter says, is a reminder how important it is “to make college equally accessible to all.” Follow ImpactAlpha on Instagram.
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4. Israel’s OurCrowd launches a fund for the global goals… and links its own compensation to impact. There is a yawning gap between the number of Israeli entrepreneurs who believe their businesses are doing good (84%) and the number that track or measure their impact (13%). Israel-based investing platform OurCrowd wants to shrink that gap with a $30 million fund targeting the Sustainable Development Goals that will require portfolio companies to track and report their social and environmental performance. OurCrowd is tying the firm’s “carry,” or share of the profits, to the impact of the underlying portfolio. “Once we can standardize the idea of translating impact to a dollar figure,” muses OurCrowd’s Richard Norman, “you may see more investors asking for it.” Get the full story.
- More “impact carry.” “Media Development Investment Fund raises $13 million for journalism in markets hostile to the press.”
5. Deals of the week. Stay on top of the dealflow all week long on ImpactAlpha.com. Deals that stood out:
- Impact firsts. CalSTRS anchors Impactive Capital’s responsible investing hedge fund… OPIC invests $10 million for off-grid solar in Chad.
- Indian agtech. Aibono secures $2.5 million to connect India’s small farmers to food retailers… India’s TartanSense raises $2.2 million to boost access to farm tech.
- Better healthcare. Africa Healthcare Network secures funding to expand care centers for kidney patients… HealthJoy secures $12.5 million to help employees navigate benefits.
6. Backstage backs 25 underestimated founders in four cities. Backstage Capital has backed more than 100 women, people of color, and/or LGBTQ entrepreneurs who together have gone on to raise $50 million in follow-on capital. Through its new accelerator, the venture firm has backed more than two-dozen underrepresented entrepreneurs in Detroit, Philadelphia, L.A. and London with $100,000 investments (for 5% stakes in each company). Among the cohort: gal-dem, a London media company for and by women and non-binary people of color, and Detroit’s Alerje, which provides alerts to people with food allergies. There’s an untapped opportunity to “invest in folks in communities who understand the needs,” says Ofo Ezeugwu, founder of Philadelphia’s WhoseYourLandlord. Backstage’s investment, he says, “helps fill the friends and family funding gap for folks overlooked by other investors.” Take a look.
- Inclusion alpha. Philanthropists and asset managers at Confluence Philanthropy’s practitioners’ gathering explored how impact investing can drive racial equity. Overheard.
7. Call to action: mobilizing talent for impact investing. Finance’s talent pipeline is in need of an impact makeover. “The institutions tasked with developing and recruiting finance professionals face entrenched, traditional, and in some cases, outdated practices,” writes the GIIN’s Amit Bouri. His post, “Impact-smart investors need new training, broader experiences and higher values,” part of the What’s Next series on ImpactAlpha, spurred responses from Bain Capital, Blue Haven Initiative, Bridges Fund Management, Equilibrium Capital, Flat World Partners, Good Capital Project, Intelligent Impact, Liquidnet, McCombs School of Business, Open Road Alliance, Spectrum Impact, SVX MX, The Legacy Funds, Wharton Social Impact Initiative and more. A sampling:
- Impact mindset. “Enterprising professionals” recognize the growing demand for impact investing and opportunity of being ahead of the curve, wrote Align Impact’s Hummayun Javed. Can this mindset be cultivated? Experts weigh in.
- Upgraded pipeline. Impact investing professionals think they know what it will take to build stronger channels for impact investing talent. In their words.
- Training grounds. Contributors dig into what’s working to build the next generation of impact talent, including experiential education and training and portfolio building. Solutions in action.
– March 15, 2019.