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The Week in impact investing: Redesign



TGIF, Agents of Impact!

There is no status quo. The whole apparatus of finance is due for a makeover. The COVID crisis will restructure the economy; the question is how. “We have to completely recreate every single aspect of the ecosystem going forward,” Bruce Katz said on ImpactAlpha’s Agents of Impact call (see No. 3, below). “We’re going to come out of this crisis with a different kind of system for community capital and for community regrowth and community wealth.” Aunnie Patton Power’s short list for redesign: sharing of risk, incentives for impact and distribution of ownership (No. 1). Thomas Venon makes the case that insurance, rather than debt, is the right tool for keeping good businesses from going bad (No. 2). Sarah Kearney, who is tweaking the venture capital model to drive capital to early-stage climate innovation (No. 4), is this week’s Agent of Impact (below). Design thinking is the order of the day. How might we optimize financial systems for the inclusive and sustainable world that is so palpably possible and so excruciatingly elusive?

Aunnie Patton Power follows up with Jessica Pothering on ImpactAlpha’s weekly podcast. Dennis Price has the backstory on how Prime Coalition’s Sarah Kearney is putting climate action on the investment agenda. Tune in to this week’s Impact Briefing, share it with your networks, and follow us on AppleSpotify or wherever you get your podcasts.

– David Bank, editor

The Week’s Big 5

1. 10 redesigns for venture finance. Impact investing was created to revolutionize capital markets. Instead, it’s replicating them. The economic fallout of COVID exposes why this needs to change, writes University of Oxford and Cape Town lecturer Aunnie Patton Power in a guest post on ImpactAlpha. “The good news is, the structures we need to reform the capital system already exist.” She offers up 10 examples, from revenue-based financing to forgivable loans. Collect the whole set.

2. Impact insurance. “Synthetic securitization” sounds like an opaque financial structure, circa 2007. In the COVID crisis, credit insurance could help backstop small and medium-sized enterprises in desperate need of cash and liquidity, writes Thomas Venon of Eighteen East Capital. In a guest post, Venon argues that today’s extraordinary circumstances mean impact investors “can and should play the extraordinary role of the willing insurance provider.” Geek out.

3. New York’s forward loans. New York state’s $100 million loan fund is a model for how to leverage community development financial institutions, or CDFIs, to shore up small, minority-owned businesses that may not otherwise be able to re-open and recover. The fund, designed with help from Calvert Impact Capital and Community Reinvestment Fund, takes CDFIs’ loans off their balance sheets to free up more lending. It is meant to be a model for a $1 billion national fund and, ultimately, a $20 billion government-backed fund for small business recovery. Learn more.

  • The inside story. For weeks, Calvert’s Beth Bafford and CRF’s Patrick Davis had been working with New York on the loan fund. They planned to discuss it on ImpactAlpha‘s Agents of Impact Call, but had to keep mum until Gov. Andrew Cuomo announced the fund the next day. Listen in to the audio replay as Bafford and Davis, along with Bruce Katz, James Bason, Cat Berman, Darrin Williams, Debra Schwartz and others, chart a broader role for CDFIs, community banks and other channels in supporting underserved small businesses. The Call (audio).

4. Better climate-impact due diligence. There’s an app for that. “Carbon Reduction Assessment of New Enterprises,” or CRANE, can assess the potential future climate impact of more than 200 technologies. That makes for some surprises among companies making a difference in greenhouse gas emissions. Here’s oneLilac Solutions’ lithium mining technology, which CRANE calculates could reduce carbon emissions by a gigaton or more by 2050. Dive in.

5. What’s really driving ESG outperformance. Amid COVID-fueled uncertainty, sustainable funds outperformed conventional ones in the first quarter. The key drivers: a focus on workers, customer relationships and governance. Go deeper.

  • Talking corporate ESG. From Nestlé to Philips to Procter & Gamble, environmental, social and governance, or ESG, issues are getting more airtime on corporate earnings calls this season, a signal of rising investor concern about businesses’ long-term value creation. Tune in.

The Week’s Agent of Impact

Sarah Kearney, Prime Coalition. Venture capital seems optimized to fund Instagram, not impact. Rather than bemoan the capital gap, Sarah Kearney bulldozed through it. Kearney founded Prime Coalition in 2014 to execute a blueprint for driving capital to early-stage technologies that can take big bites out of carbon emissions and help forestall the worst impacts of climate-change. Technology at scale for better batteries and food storage and air conditioning, for carbon dioxide recycling and ocean desalination, is essential for keeping rising temperatures in check. Typical VC’s like apps and e-commerce, not capital-intensive systems and hardware requiring years of development and testing, not to mention high risk of failure. Kearney and her team of scientists, technologists and dealmakers have now backed 16 companies, each with a promise of at least half a gigaton-scale CO2 emissions reduction by 2050 (see, Better climate-impact due diligence: There’s an app for that).

With Prime Impact Fund, which reached a first close at the end of last year, Kearney is trying to prove out a different kind of venture capital. The Cambridge, Mass.-based nonprofit built its pipeline using “program-related investments” from foundations with the patience and flexibility to finance promising climate innovations that can be tested and ultimately commercialized. Prime has rallied more than 150 philanthropic investors and mobilized $75 million for climate tech ventures that might otherwise be challenging to get off the ground. Prime’s investments attract follow-on capital, not only from Bill Gates’ Breakthrough Energy Ventures, but later-stage investors as well. Silicon Valley is coming around to the “climate tech” opportunity. Traditional venture firms like Sequoia are actively investing. So too are climate-smart VCs like DBL Ventures, Generate Capital, Fifty Years and Obvious Ventures. Kearney, who is awaiting the arrival of her third child, says the pause in climate-tech investment during the global pandemic increases her sense of urgency. “We feel that catalytic capital as a steady hand through the storm is more important than ever now.” – Dennis Price

The Week’s Dealflow

COVID response. Development Finance Corp. shores up its portfolio with a $4 billion COVID relief plan… Beneficial Returns raises an emergency loan fund for social enterprises.

Food and agtech. Apeel clinches $250 million to curb U.S. and European food waste… AgDevCo invests in grain storage to curb food loss in Africa… Imperfect Foods secures $72 million to expand affordable food delivery amid pandemic.

Frontier finance. GramCover raises early funding to insure India’s rural households… With its second fund, ADAP Capital aims to cut small checks quickly.

Climate finance. HSBC and IFC raise a $474 million bond fund for climate action in emerging markets.

Retail impact investing. Aspiration secures $135 million to expand impact banking products.

The Week’s Talent

Margret Trilli is the new CEO of ImpactAssets; she retains her role as chief investment officer. Tim Freundlich becomes executive director of strategic development… Lisa Hall steps down from her role at Georgetown University’s Beeck Center. Andrea McGrath will lead Beeck’s Fair Finance portfolio… Mitty Owens, ex- of Confluence Philanthropy, joins Transform Finance to direct its Capital Strategies program.

The Week’s Jobs

The U.N. Principles for Responsible Investment is hiring a head of Canada in Toronto… Big Society Capital has an opening for a senior public relations and media relations officer in London… PG Impact Investments is looking for an Asia-focused private equity investment manager in London… Toniic is hiring an executive vice president… RSF Social Finance seeks a business development director in San Francisco.

SJF Ventures‘ portfolio companies are hiring for 179 positions on the venture firm’s new jobs board (other impact venture firms with jobs boards include Kapor Capital and Omidyar Network)… Access Ventures seeks an investment associate in Louisville, Ky… Convergence is looking for a corporate fundraiser and senior associate of market acceleration… CREO Syndicate is recruiting an aquaculture investment summer fellow.

Thank you for reading.

–May 29, 2020

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