We were doing something that we rarely do. We made a field building grant.
Last week, Ceniarth announced that we have joined the MacArthur Foundation and six other funding partners to support the next three-year phase of the Catalytic Capital Consortium, or C3.
As a foundation, we are primarily a PRI-maker (program-related investments), fulfilling our philanthropic distribution requirement through high impact investments rather than grants. That said, having been an active collaborator and participant in the first phase of C3’s work, we became convinced that extending the work of this initiative would be, in and of itself, catalytic.
As defined by previous C3 working groups, catalytic capital is a form of impact investing that “accepts disproportionate risk and/or concessionary returns relative to a conventional investment in order to generate positive impact and enable third-party investment that otherwise would not be possible.”
This definition is explicitly crafted to distinguish catalytic capital from more mainstream, double-bottom line impact investing. It is a clarity that we profoundly appreciate as we have been consistently vocal, starting back in 2018, about the need to differentiate between impact-first investing and finance-first impact investing.
Our participation as a funder for this next evolution of C3 is driven by three key insights and observations:
We need partners that are less easily ignored. As a visible and provocative family office investor, our impression is that people enjoy reading our cavalier points of view, but that they can be too easily dismissed given our unique autonomy and our lack of institutional guardrails that others must navigate.
For years, we have been trying to ring the alarm about the need for more catalytic, impact-first money only to tap our microphone wondering, “is this thing on?” The team at the MacArthur Foundation, as well as the other initial C3 launch partners, the Omidyar Network and Rockefeller Foundation, made this dialogue visible and unignorable in a way that we never could have on our own.
We are delighted to be co-funders of this next phase alongside both foundation and family office partners and hope that strength-in-numbers means that this conversation will be closer to center stage rather than relegated to the sidelines.
Convening active, experienced practitioners can lead to genuinely practical insights. “More white papers is exactly what we need,” said no one, ever. Yet, the first phase of C3 has managed to produce an impressive library of reference materials that are genuinely practical and explore how to best utilize catalytic capital.
The secret to this success was gathering an impressive and diverse range of participants, all of whom are actively deploying catalytic capital at meaningful scale, to engage in a series of facilitated conversations. Practitioners providing input included representatives from development finance institutions such as the US Development Finance Corp., British International Investment, Germany’s KfW, and the Netherlands’ FMO. Participating foundations include the Ford Foundation, Visa Foundation, and W.K. Kellogg Foundation. Family office investors include Builders Vision, Blue Haven Initiative, Spring Point Partners, and us at Ceniarth.
The resulting set of Guidance Notes (“Advancing Practice in Catalytic Capital”), produced by FSG and Courageous Capital Advisors, details how three capital modalities – Seeding, Scaling, and Sustaining – can be most effectively leveraged. These materials are the best blueprint that we have seen for those leaning into this impact-first tool called catalytic capital.
The next phase of the C3 work is about driving action and that is what we do best. In our early days at Ceniarth, we were fond of quoting Herb Kelleher, the founder of Southwest Airlines: “We have a strategic plan, it’s called doing things.”
As the first phase working groups were winding down, there was widespread interest in convening active investors to regularly share catalytic capital deal flow. We raised our hand enthusiastically to champion and organize this effort.
The Catalytic Capital Dealmakers Roundtable has met quarterly in 2024. In order to maximize opportunities for collaboration, the group is explicitly limited to a select set of practitioners that are transacting on multiple deals per year and deploying meaningful sums of catalytic capital. In order to attend the quarterly roundtable, each participant is required to share a deal that they are working on and that is in need of additional investors.
This process has surfaced a database of 60+ opportunities in 2024. Funds such as Lendable’s new Decarbonization Fund, Alder Point Capital, Mission Driven Finance’s Care Access Real Estate Fund, Acre Impact Capital, Groundwork, Trellis, Open Road Impact Fund, NESsT Lirio Fund, and Acumen’s Hardest to Reach Fund are all examples where multiple participants have made commitments or are in active diligence. We are excited to continue our leadership of this initiative going forward.
If our participation to date was driven by the three insights above, our goals for the next three years of funding center on the following aims:
Continue to increase the effectiveness of collaboration. This will be primarily through the Dealmakers Roundtable, on transaction pipeline to increase the volume and pace of catalytic capital. The activity to date has been encouraging, but in the impact-first space, demand nearly always outpaces supply.
For funds and enterprises in the Seeding stage, risk-tolerant capital, as well as grants, are needed to help them pilot concepts and refine their focus. This stage has traditionally been the most starved for money resulting in fewer new vehicles getting a chance at survival. As transactions move into the Scaling and Sustaining phases of their lifecycle, the volume of impact-first money willing to invest at below market rates becomes critical.
At this point, risk has been mitigated and the opportunity for investors to preserve capital, yet generate modest returns and high impact is achievable.
Identify significant new funders willing to use catalytic capital as a tool to achieve their philanthropic mission. We can count on one hand the number of new asset owners that have made large commitments (i.e. in excess of $100M) to impact-first work in the past five years. This excludes the DFIs that have been notable bright spots in the space. We simply have been staring at the same friendly faces and preaching to the choir for too long.
Our view is that these new funders will likely not come from conventional impact investors venturing into the deep end of the pool. Most of these allocators are just too wedded, for various reasonable and unreasonable reasons, to classic risk-adjusted market rate returns.
Rather, we are more hopeful that those who have made significant philanthropic commitments through initiatives such as the Giving Pledge, will begin to see catalytic capital as an important tool to enhance and complement grantmaking strategies. We need to find ways to engage and educate these philanthropy circles.
Insure that there is not impact drift in this practice of “catalytic capital.” In the beginning, there was simply “impact investing” until it became clear that this term had been captured by mainstream, double bottom line allocators and advisors.
A small cadre of us started using “impact-first investing” to differentiate our work from our distant, finance-first impact cousins. Our small cadre continues to use this term, but we have remained just that, a very small cadre. Fortunately, “catalytic capital” seems to have penetrated wider and louder and has managed to do so while maintaining a strong integrity around its mission.
Our field already has too much terminology, so we are eager for this to stick and to not be coopted as it is tiring to be constantly rebranding.
We are hopeful that given the mix of values-aligned partners involved in the Catalytic Capital movement that it will keep its focus firmly on mobilizing the kinds of higher risk and/or sub-market money that is needed to address issues of persistent poverty, environmental degradation, and other global challenges that will not be solved with conventional, responsible investing philosophies.
