Greetings, ImpactAlpha readers!
#Featured: Open Mic
Unnatural disasters. The devastation from Hurricane Harvey again made clear that so-called natural disasters inflict disproportionate suffering on the poor and minorities. “Nature isn’t racist, nature doesn’t target the poor,” tweeted Tulane University’s Andy Horowitz, author of How to Sink New Orleans: Katrina’s History, America’s Tragedy. “If you see disparate impacts with Harvey, ask what human choices caused them.” (Vox has a good resource for giving most effectively for relief efforts.)
Human choices and systemic biases that exacerbate inequality and leave vulnerable wide swaths of the population have long troubled Ross Baird, CEO of Village Capital, which is seeking to broaden the entrepreneurial pipeline. Through shortcuts and biases, Baird argues, venture capital directs the vast majority of startup capital to a narrow range of people in select cities (see #Signals, below). In the wake of the violence in Charlottesville, Baird writes on ImpactAlpha that to fight social inequality and build inclusive economies, impact investors as well “need to improve on how we invest as well as what we invest in.”
Read, “After Charlottesville, does impact investing even matter?” by Ross Baird on ImpactAlpha:
#Dealflow: Follow the Money
Unshackled Ventures seeks $25 million to fund foreign-born entrepreneurs in the U.S. Immigrants account for 50 percent of the founders for America’s startup “unicorns” valued over $1 billion. Backing such entrepreneurs is the compelling, if controversial, investment thesis for Unshackled Ventures’ new fund. The Palo Alto, Calif., firm will minimize U.S. immigration barriers for aspiring entrepreneurs, by hiring foreigners who are already in the U.S. for school or work. Unshackled then takes over the visa process, provides benefits and backs their startup ideas with up to $300,000 in pre-seed equity funding. Unshackled launched in 2014 with $3.5 million from the Emerson Collective, Bloomberg’s venture arm, Yahoo co-founder Jerry Yang and others.
InFaith Foundation commits $10 million to investment portfolio fighting domestic violence. The Minneapolis-based foundation is seeding the WomenInvest InFaith portfolio and opening it to donor-advised funds. The portfolio, three-quarters of which will be in equity investments, will target companies committed to equal pay, and promotional and leadership opportunities for women. Criterion Institut’s Joy Anderson and Fulcrum Capital’s Darcy Johnson, chairs of InFaith’s investment committee, led the creation of the fund, which is advised by Veris Wealth Partners and Sonen Capital. Catalyzing gender equality addresses the root causes of violence against women, InFaith’s statement says.
Rocket raises funding to expand credit options in Mexico. Three in five Mexicans have no credit history. Fintech startup Rocket’s credit assessment model links 50,000 borrowers each month to financial institutions that fit their profiles. “Rocket has created a wider funnel with higher quality and more precise leads than that of other companies in this market segment, leading to much larger approval rates,” says Camilo Kejner of Angel Ventures, which backed Rocket’s undisclosed bridge financing alongside venture capital funds IGNIA, ON Ventures, and GC Capital.
See all of ImpactAlpha’s recent #dealflow.
#Signals: Ahead of the Curve
Rise of the global rest. Steve Case’s Rise of the Rest bus tours have celebrated overlooked startup ecosystems in the U.S., including Indianapolis, New Orleans and Pittsburgh. Just as the vast majority of U.S. venture capital flows to a handful of cities and bypasses entrepreneurs who may be best positioned to solve fundamental challenges in local markets, so too does global VC funding. U.S. firms have attracted 60% of all venture capital since 2012. Firms in China (15%), India (5%), UK (4%) and Germany (3%) round out the top five. Who are “the rest”? Jakarta, Dubai, Vienna, Istanbul and Kuala Lambur are among 50 “frontier startup markets” that have collectively attracted a mere 5% of global venture capital deals since 2012, according to a new report from CB Insights that’s worth a read. Deal activity and total funding in these markets have grown each of last five years and now totals $32 billion across 5,749 deals. Why does this matter? Venture-backed startups in such markets are “providing internet connectivity in Africa, delivery addresses via mobile phones in the Middle East, financial inclusion through alternative credit scoring in Mexico, and much more,” writes CB Insights’ William Altman. “Increased access to venture capital will continue to enable entrepreneurs to execute on impactful ideas that will ultimately transform the societies in which they grow for the better.”
Tax the wealthy, the robots and…electric vehicles? According to the International Energy Agency, the number of electric vehicles on the road hit two million in 2016. Registered plug-in and battery-powered vehicles rose 60% from 2015. Tech improvements, particularly in batteries, and policy incentives in some cities, along with the hipster cred of brands like Tesla, is driving adoption. The IEA report forecasts between 9 million and 20 million electric cars by 2020 and between 40 million and 70 million by 2025. Plug-in automobiles may reach 30% market penetration in 2030.
That may clear the air (particularly if the cars are charged with clean power) and self-driving cars (most of which are electric) may make streets safer. But roads and other public good funded by gasoline taxes may suffer. If EVs represent 60% of U.S. new car sales by 2030, federal and state tax revenues would fall by $10 billion, or 14 percent, from their level if EV sales flatline at 1% of new car sales. Even a modest increase in electric-vehicle sales, to 20% of new car sales, would cut gas revenues by $3 billion. The federal government typically spends around $50 billion per year on roads; the federal gas tax, at 18.4 cents a gallon, brings in around $34 billion (and has not increased since 1993).
“Self-driving cars tend to be very fuel-efficient, and a lot of automakers have talked about how they are going to be all-electric,” said Paul Lewis, of the Eno Center for Transportation, a Washington, D.C. think tank. “That means they are imposing the same type of wear and tear on roadways without paying into the system.”
Eno suggests a penny-per-mile fee on automakers when cars are operating in autonomous mode, which could raise up to $300 million per year. Another approach would align road taxes, fees or tolls with wear and tear on the roads by basing them on vehicle weight and impact on the roads. “In the short term, the gas tax is the most efficient option for collection,” says Bob Burleson, president of the Florida Transportation Builders’ Association. “Long term, I’m a believer that we’re going to be charging people by vehicle-miles driven.”
Onward! Please send any news and comments to [email protected].