The Brief: Revenue-based financing and zero-interest debt, digitizing Kenya’s taxis and Prazil’s informal businesses, boosting organic farming, DoL’s ESG rule – ImpactAlpha

Greetings, Agents of Impact! 

Featured: Impact Voices

How creative financing structures can help companies preserve jobs and weather the pandemic. Flexible investment structures that prioritize employees and customers alongside entrepreneurs and investors are helping companies preserve good jobs through the pandemic. In a guest post on ImpactAlpha, Bhakti Mirchandani of Trinity Wall Street and Sachi Shenoy of Upaya Social Ventures round up examples of impact investors deploying flexible structures. In India, Upaya established a stabilization fund to extend revenue-based financing to its nearly two dozen portfolio companies, representing more than 16,000 jobs. Investees are eligible for loans of $25,000 on average, with a six-month repayment grace period for agreeing to job preservation targets. The companies will repay a small percentage of gross revenues, up to 1.1 times the original loan amount. Upaya’s investee companies, which have been using the funds to pay salaries and even to provide food subsidies, sustained 98% of their jobs through September.

“Our number one key performance indicator is creating quality living-wage jobs,” Jonathan Tower of Boston-based Arctaris Impact Investors told the authors. Arctaris has been using revenue-based financing agreements to provide entrepreneurs with flexibility through the COVID-related economic crisis. The fixed payments of traditional debt are hard for a company that has volatile performance and cyclical sales, and “entrepreneurs are loath to accept lower equity valuations during economic crises,” Tower said. “Royalty-based financing works in all seasons.” Agora Partnerships is using recoverable grants to stock the pipeline of high-impact enterprises in Latin America. Agora uses philanthropic capital to make zero interest loans to entrepreneurs in its accelerator programs (see, “Latin America’s micro-, small- and medium-sized enterprises need working capital to survive and thrive). Entrepreneurs who repay within one to two years are eligible for follow-on investment. Agora recycles the original capital as unrestricted grants to assist other entrepreneurs. Revenue-based financing and zero-interest debt, write Mirchandani and Shenoy, “may just be the impact investing tools needed to foster patience on financial returns and impatience on social impact.”

Keep reading, “How creative financing structures can help companies preserve jobs and weather the pandemic,” by Bhakti Mirchandani and Sachi Shenoy on ImpactAlpha.

Dealflow: Follow the Money

Data Integrated gives Kenya’s taxi operators a digital upgrade. In a country where mobile money is ubiquitous, Kenya’s Data Integrated is helping bus operators and communal taxis, or matatus, switch to digital ticketing and payment systems. Its system helps transit operators manage passenger volume and adhere to COVID-related regulatory requirements for cashless payments. 

Iroquois Valley Farmland Trust raises $2 million to accelerate shift to organic. The Evanston, Ill.-based real estate investment trust encourages farmers to shift to organic practices with access to capital, mortgages and long-term land leases. Rodale Institute, an agricultural research nonprofit, invested $2 million from its endowment and operating budget. Iroquois raised $6 million earlier this year through “soil restoration notes,” for accredited investors. 

Vox Capital backs Brazil’s Celcoin to digitize informal businesses. Celcoin’s platform for small shop owners and other micro retail businesses helps them diversify income streams with services that let customers pay utility bills, buy bus tickets or buy cellphone airtime vouchers. Business owners process transactions through a smartphone and Celcoin’s app. Vox, which invested $1.5 million in Celcoin last year, re-upped in the latest $4 million round, alongside BoostLAB. 

Signals: Ahead of the Curve

Investor protests fail to stop Trump administration rule squelching ESG investing. It’s final – at least until it’s reversed. The U.S. Department of Labor finalized an unpopular rule aimed at limiting environmental, social and governance, or ESG, investing in retirement accounts (see, “Investors find common cause in pushing back against Trump’s anti-ESG rules”). The late Friday move by the agency, just four days before the U.S. presidential election, would likely be rolled back if former Vice President Joe Biden is elected. Ceres’ Mindy Lubber said the decision “is unwelcome by pension funds and other fiduciaries and runs counter to global market trends and the mainstream U.S. and global practice of integrating ESG factors into investment decisions.” The final rule will “make it harder for investors to access strategies that consider long-term sustainability,” Morningstar’s Aron Szapiro told Think Advisor

  • Out of step. The rule drew more than 8,700 comments in a shortened 30-day comment period, with more than 95% opposing it, including all but one of 86 asset managers who filed comments. Globally, some $40 trillion in assets are managed using some kind of ESG focus. Investors have poured record amounts of capital into such funds in 2020. 
  • More.

Agents of Impact: Follow the Talent

Netflix’s Layla Ramirez, Credit Suisse’s Sherrise Pond and Barclays Investment Bank’s Amadou Sow are among 17 BLCK VC New York City fellows… Open Capital is looking for a project leader and a transaction leader in Nairobi, and a principal of consulting in Nairobi or Kampala… US SIF seeks a director of research and education in Washington DC… Two Sigma is hiring an impact investment associate in Portland, Maine. 

Impact Entrepreneur hosts “Teaching Impact Investing at Harvard” with Harvard Business School’s Shawn Cole and Vikram Gandhi Laurie, Thursday, Nov. 5… Population Health Learning Collaborative hosts “Solution Summit for the Housing Crisis,” Nov. 17-19… Impact investing platform Capshift becomes a registered investment advisor (see, “Impact drives alpha, and other lessons from 100% impact donor-advised funds).

Thank you for reading.

–Nov. 2, 2020

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Author: The ESG Channel