The Brief | April 8, 2024

The Brief: Totality

ImpactAlpha
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ImpactAlpha

Greetings Agents of Impact! Curious about today’s alignment of the earth, the moon and the sun? Good! Solar eclipses in history seem to have piqued curiosity, and are correlated with innovation and “several proxies of economic prosperity.” 

In today’s Brief:

  • Muni multiplier for the green bank
  • Sustainable tourism in the Galapagos
  • Exits to employee ownership 

Municipal bonds can be a force-multiplier for the US ‘green bank.’ With the award of key portions of the US Greenhouse Gas Reduction Fund, billions of dollars are expected to flow to thousands of green projects across the country. The public funding is intended to mobilize many times that amount in private capital. One potential source: the $4 trillion municipal bond market, historically the backbone of funding for affordable housing, schools and infrastructure. “If munis fund our roads, why not our EV charging infrastructure? If munis fund our schools and affordable housing, why not fund making them greener?” Matt Posner of Court Street Group and James McIntyre of Inclusive Prosperity Capital ask in a guest post on ImpactAlpha. The community lenders and green banks managing the taxpayer-funded GGRF could use a marketplace “that few really understand,” the authors write, to “create the necessary leverage for our national green infrastructure challenges.”

  • Financial leverage. Take the loans that community development finance institutions in each region are expected to originate for housing, transportation and distributed clean energy. “Imagine then, if every CDFI in, say, California or Illinois, went on to sell these loans to the California iBank, Illinois Climate Bank or even CalHFA for affordable housing programs,” write Posner and McIntyre. With those income streams, such entities could access the muni market. “This would create a massive supply of capital for decarbonization.”
  • Green underwriting. The adoption of standardized underwriting practices for the municipal bond market is a crucial first step (look up the Trust Indenture Act of 1939). Standardization “would enable the creation of novel decarbonization financing structures that seamlessly integrate” with fixed-income products and portfolios, write Posner and McIntyre. Such securitization channels “are essential for scaling up investments” in renewable energy and energy efficiency, they argue. 
  • Market building. The GGRF coalitions bring financial products, deal pipelines and local relationships across the country. Climate United, for example, includes Calvert Foundation’s debt securitization specialty, Self-Help’s underwriting of loans in underserved communities, and Community Preservation Corp.’s expertise originating mortgage-backed securities. Bond banks, like the Vermont Municipal Bond Bank, expand access to municipal bond markets.

Dealflow: Sustainable Tourism

Sustainable tourism in the Galapagos Islands gets a boost with Quasar Expeditions’ $14 million loan. Tourism, a key source of livelihoods in communities in the Galapagos, also poses a major threat to the ecosystem’s stunning biodiversity. Quasar Expeditions is “a model for other tourism operators, the local community and public institutions to support sustainable tourism practices that are essential to protect the Galapagos ecosystem,” said Aitor Ezcurra of IDB Invest, the venture arm of the Inter-American Development Bank. IDB Invest and Blue Earth Capital provided debt capital to help Quasar introduce more eco-friendly tour boats and training programs for local communities.

  • Ecosystem finance. Last year, Ecuador inked the largest ever debt-for-nature swap, allowing the country to refinance a portion of its debt at a lower rate in exchange for environmental protection, restoration and conservation commitments in the Galapagos Islands. The $1.6 billion swap allows the country to invest in technology, park ranger training and other wildlife protection practices. The Inter-American Development Bank provided an $85 million guarantee. The US International Development Finance Corp. provided $656 million in political risk insurance coverage for the swap at a time when the South American country is marked by political tumult and security issues.
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Dealflow overflow. Investment news crossing our desks:

  • JFF Ventures inked $15 million in a first close for its second workforce tech fund (you read it here first: “JFF Ventures aligns venture capital with a national nonprofit to invest in the future of work”).
  • Electronica Finance secured $48 million in an equity round led by LeapFrog Investments and backed by Aavishkaar Capital to finance rooftop solar installations for India’s micro and small businesses. (LeapFrog)
  • Kenya’s mTek raised $1.3 million from Verod-Kepple Africa Ventures and Founders Factory Africa to make insurance more accessible in East Africa. (Techpoint)
  • The European Investment Bank extended a $20 million loan to Husk Power to build solar minigrids and install commercial and industrial solar in Nigeria. (Husk Power)

Signals: Ownership Economy

With ELBOs and EOTs, more business owners are exiting to employee ownership. Conversions to worker ownership can be complex for retiring business owners. Financing structures like employee-led buyouts, or ELBOs, favored by fund manager Apis & Heritage Capital Partners, and employee ownership trusts, or EOTs, championed by Common Trust seek to address the needs of both owners and employees – and compare favorably with private-equity alternatives. “As a Black entrepreneur and business leader, I couldn’t be prouder to support economic mobility for all of our workers while preserving the legacy and growth of the business,” says Mowa Haile, founder of Sky Blue Builders, a Denver-based and Black-owned construction management firm that is transferring ownership to its 40 employees, more than half of whom are women and/or people of color.

  • Employee-led buyouts. Apis & Heritage is financing Sky Blue’s conversion to worker ownership, its fourth ELBO since 2021. Debt financing from VectraBank Colorado was made possible by the state of Colorado’s cash collateral program, which helps third-party lenders finance ownership-transition deals. Such programs “help subsidize some of the extra costs that sellers have to go through to help banks feel comfortable” as senior lenders in ownership transition transactions, Apis & Heritage’s Michael Brownrigg told ImpactAlpha.
  • Employee ownership trusts. “I’ve searched for years for different options, from do-it-yourself employee ownership to ESOPs, and I never quite found the right thing,” says Brad Hermann, who with Hai Nguyen is the majority owner of Texas-based telecommunications software company Text-em-all. “With EOTs, we were like, ‘That’s it!’” The partners are transitioning Text-em-all’s ownership to its 42 employees via an employee ownership trust set up by Common Trust, which last year raised $2.6 million in seed funding to prove out the model. “EOTs offer a unique opportunity for business owners to exit to their employees, protect key company values, and establish the business under a long-term ownership structure,” says Common Trust’s Zoe Schlag.
  • Ownership innovation. Business owners who have chosen employee ownership trusts as a buyout strategy say they have seen greater talent retention, employee buy-in, increased profits, and resilience in the face of economic challenges. Schlag will present those findings at this week’s Employee Ownership Ideas Forum, hosted by Aspen Institute and Rutgers’ Institute for the Study of Employee Ownership and Profit Sharing. The panel, “New frontiers in employee ownership finance,” also includes Apis & Heritage’s Phil Reeves, Sorenson Impact’s Jim Sorenson, and Amy Brakeman of the Unlock Ownership Fund (see, “Wanted: First-time fund managers with strategies to ‘Unlock Ownership’ in underserved communities”). Senators Chris Van Hollen and Marco Rubio last year introduced the Employee Equity Investment Act, which would certify Employee Equity Investment Companies, or EEICs, to finance ESOP conversions.
  • Keep reading, “With ELBOs and EOTs, more business owners are exiting to employee ownership,” by Roodgally Senatus on ImpactAlpha.

Agents of Impact: Follow the Talent

🇵🇷 Investing in Puerto Rico’s reconstruction. Platform for Social Impact will convene the NEXA: Jobs Summit this week, April 10-11, in San Juan. Email [email protected] to request an invite. ImpactAlpha is NEXA’s media sponsor.

Don’t miss these other upcoming ImpactAlpha partner events:

  • April 15-17: Big Path Capital MO Summit (Austin) – use ImpactAlpha24 for $250 off
  • May 1-2: Total Impact Summit (Philadelphia) – use IMPACTALPHA for $500 off
  • May 7-9: Mission Investors Exchange (Los Angeles) – RSVP
  • May 13-15: Canadian Employee Ownership Conference (Montreal) – RSVP

Dana Bezerra has transitioned from the founding CEO of Greater Share to an advisor… Jethro Townsend joins Nia Impact Capital as partner and portfolio manager as part of Nia’s acquisition of Addend Capital Management… Frazer Lanier is promoted to director of environmental and social risk management at Citi… Climate Central seeks a chief of staff… The US Treasury Department is recruiting a senior climate risk specialist… Fannie Mae seeks a senior strategy associate for climate impact… Lafayette Square is looking for an investor relations associate in New York… Echoing Green is hiring a summer intern for its programs team.

Applications are open for Stanford University’s Long-Term Investing Fellowship… Tideline is hosting, “Anchoring in social determinants: A closer look at health-focused investing,” with Reginald Gordon of Richmond Memorial Health Foundation, Mikelle Moore of Multiplier Advisors, John Vu of Kaiser Permanente, and David Zuckerman of Healthcare Anchor Network, Wednesday, April 17… Fi Impact Investing is hosting its “Fi Gathering Zurich” on Monday, April 22… IDB Invest is hosting its 2024 Sustainability Week in Manaus, Brazil, June 11-13.

👉 View (or post) impact investing jobs on ImpactAlpha’s Career Hub.

Thank you for your impact!

– April 8, 2024