Impact Voices | May 5, 2021

Three ways to invest in the upskilling of workers for the post-COVID economy

Adam Rein and Charlotte Cipolletti
Guest Author

Adam Rein

Guest Author

Charlotte Cipolletti

The booming stock market has masked the wide gaps in the U.S. economy and labor markets that are increasingly a threat to a full recovery from the Covid-19 pandemic. Many low-income workers face the prospect that their jobs may never come back and are looking to acquire the skills needed to join the “new normal” workforce.  

Economic empowerment through workforce development programs, education, and upskilling is the tool needed in the wake of Covid-19 and racial inequities. While the Covid-19 recession has negatively impacted workers across the labor market, people of color and those without a college degree have felt the biggest pinch. This Brookings Institute study looks at the disproportionate decline in employment for Black and Hispanic workers, and makes the case for workforce programs that empower workers to switch industries and occupations.

The benefits of preparing individuals with the skills necessary to access high quality, stable jobs are numerous. The ‘skills gap’ referenced here exists, as “almost 40 percent of American employers say they cannot find people with the skills they need, even for entry-level jobs,” according to McKinsey. The private sector thus has an opportunity to put capital to work and help retool and reskill individuals for the shifting job market.

Here are three unique investment approaches to empower under-employed individuals with the opportunity to upskill and advance their careers:

Social Finance is a nonprofit organization that develops funding strategies to improve lives. The organization has pioneered the Career Impact Bond, which brings together student-friendly income share agreements and wraparound supports to help individuals upskill or reskill.

Through the UP Fund, Social Finance seeks to raise $40-50 million to fund eight to 12 Career Impact Bonds. Currently, there are more than 1,000 students enrolled in Social Finance’s four active Career Impact Bonds. With this model, investors provide capital to cover upfront training and support services for students who typically face barriers to access such as limited income and credit, immigration status, or involvement with the criminal justice system. Those who gain employment after graduation repay program costs as a percentage of their income over time. All parties sign a Student Bill of Rights to ensure student protections, and repayment is capped at a specified dollar amount over a fixed number of months with no extensions. Unlike traditional education financing, those who do not gain employment over a specific income threshold in any month during the repayment term are exempt. 

Over the life of the ten-year fund, Social Finance aims to prepare more than 6,000 students for careers in in-demand fields such as IT and green energy. 

Pursuit’s Bond 2.0 takes a similar approach but is explicitly focused on technology training for low-income individuals without college degrees and blue-collar workers in NYC. Founded in 2011, Pursuit is dedicated to the creation of economic transformation by training underserved adults with the skills necessary to become software engineers. The Pursuit Fellowship is an intensive two-step, four-year journey that begins with rigorous training to build computer-programming skills. The program also helps graduates land their first jobs and provides career support and mentorship over the first three years of employment. Their Fellows go from making $18,000 pre-program to over $85,000 post-program, on average.

Over the past 5 years, Pursuit has successfully trained more than 450 Fellows and created over $500 million in incremental wage gains. To expand its impact, Pursuit is seeking $10 million in investment capital through their Pursuit Bond 2.0. These funds will enable Pursuit to double the number of Fellows it serves each year and invest the capital raised to provide training, mentorship, and support to future Fellowship cohorts. Repayment for these services takes the form of an income share agreements in which students give back a percentage of their salaries based on their income. The income sharing payment term is 48 months and is capped meaning those who do not land a well-paid job do not pay. 

Pursuit is offering a 10-year investment opportunity with annual interest payments. Over the tenure of this fund, Pursuit hopes to create over $1 billion in lifetime wage gains among its future Fellows. Historically, 100% of Pursuit Fellows come from low-income populations; half are women, 70% are Black or Hispanic, 40% are immigrants, and 60% do not have a bachelor’s degree. 

Achieve Partners’ Putting America Back to Work Fund also takes a unique approach to closing America’s skills gap. While Social Finance and Pursuit focus on training the students, Achieve Partners is focused on the staffing industry to bridge the connection between individual and employer. Achieve Partners’ model focuses on establishing new “employer down” pathways to good jobs, rather than the “education up” model that begins with developing the potential employee’s skillset. 

Achieve Partners’ Putting America Back to Work Fund seeks to acquire up to 10 middle market business service and staffing companies in technology and healthcare whose clients are experiencing shortages in qualified talent. Through its ‘Last Mile Training’ model, Achieve equips these businesses with the tools necessary to provide entry-level training and development for prospective candidates, and then places these newly skilled individuals into businesses with clearly identified skills gaps. Achieve makes this approach work by adding new business functions to the companies it acquires, including talent sourcing, screening, Last-Mile-Training, and a transformed sales function. 

The Achieve team believes the benefits of an employer-down apprenticeship model are clear for both portfolio companies and their candidates. In addition to financial upside, the fund seeks to place 100,000 Americans in high-quality jobs in growing sectors, with starting salaries at $50,000. 

Over the past twelve months, the country has watched Covid-19 ravage the health and economic security of millions. The recent rapid rollout of vaccines offers hope that the end of the pandemic is within sight, but economic ramifications are far from over. Investment funds that support the most disenfranchised individuals with the skills necessary for long-term success, offer a unique approach to meaningful economic and labor market recovery.

Adam Rein is co-founder and president of CapShift, an impact investing platform, and managing director for MissionPoint Partners, an impact advisory and asset management firm.