The Week in impact investing: Inclusion alpha

TGIF, Agents of Impact! 

In today’s Brief:

• What Silicon Valley gets wrong about DEI
• Charting nature-based solutions
• Climate tech investment trends

👋 The Call: Compensating impact fund managers for… impact. To explore the hows and whys (and why-nots) of “impact carry” and other incentives, join Aunnie Patton Power of The Impact, Bjoern Struewer of Roots of Impact and other Agents of Impact, Wednesday, Jan. 17 at 10am PT / 1pm ET / 6pm London. RSVP today. 

• Background reading. “More impact fund managers tie their compensation to impact,” by The ImPact’s Aunnie Patton Power.

The Week in Impact Investing: Inclusion Alpha

🗣 Silicon Valley’s DEI blindspot. Year after year (after year) of failure to move the dial on funding for women and founders of color hasn’t shamed some parts of Silicon Valley’s elite from joining the backlash against diversity, equity and inclusion. The opposition was on full display in the campaign that ousted Harvard’s Claudine Gay. “Discrimination on the basis of race, which DEI does, is literally the definition of racism,” Elon Musk claimed in one of his many anti-DEI tweets to his 168 million followers (Musk’s Tesla, of course, maintains a DEI team; SpaceX employs a head of diversity, inclusion and learning). The All in Podcast guys nominated DEI and ESG among the “biggest political losers” of 2023. Hedge fund billionaire Bill Ackman, who led the charge against Harvard’s first Black president, called DEI “inherently inconsistent with basic American values.” Ackman’s Pershing Square Foundation backs Social Finance, Echoing Green, Kiva and other social innovators. 

Those who tear down the worst practices of diversity and inclusion in business (box ticking), open a lane for those pursuing the strategy for its best purpose (a source of outperformance, or alpha). Silicon Valley’s blindspots – from overlooked talent to misunderstood customers – mean missed opportunities. “If you understand the value of DEI, it’s not in checklists and quotas. It’s in understanding how to best compete as a company,” counseled billionaire Mark Cuban. “The loss of DEI-phobic companies is my gain,” he added. Ironically, Gay’s research made a similar case for the value of diversity for democracy. “As historically marginalized communities gain a meaningful voice in the halls of power, it signals an open door where before many saw only barriers,” she wrote in The New York Times. “That, in turn, strengthens our democracy.” Rachel Robasciotti of Adasina Social Capital, which is launching an investor legal fund to counter the attacks, says, “If the backlash is itself a sign of meaningful social progress, now is the time for forward-looking investors to intensify their efforts.” Backward-looking VCs and techies are eroding Silicon Valley’s edge, along with its equity. – Dennis Price

Must-reads on ImpactAlpha:

• “Key to the surprising health of the US economy: Small but steady gains for workers,” by ImpactAlpha contributing editor Robert Brown.
• “The opportunity to engage conservatives on climate,” by ImpactAlpha’s Dennis Price and Amy Cortese.
• “G for Governance is the key to environmental and social impact in 2024,” by Mondiale Impact’s Laurie Spengler and Rosemary Addis.

The Week’s Chart

Nature-based solutions start to attract climate tech investors. Land has long been one of the most effective climate mitigation (and adaptation) “technologies.” The powerful capacities of trees and soil to sequester carbon make restoring soil health, repopulating forests, and protecting natural ecosystems and biodiversity obvious opportunities for climate investment. Financing for nature-based climate solutions is so small, and so far below what’s needed, that it’s too early to call a trend. But amid a difficult and volatile year for climate tech, VCs are taking a second look at natural ecosystems. New impact funds are making the case for land restoration, along with land surveillance technologies and better carbon accounting.

• Seeding a market. Nature restoration saw an uptick in investment last year to $293 million, while overall agrifood venture capital flows plummeted to just $3 billion from $6.8 billion in 2022, according to Sightline Climate’s 2023 Climate Tech Investment Trends report. That was among the steepest falls in climate venture capital. But land restoration now accounts for about 10% of overall food and land VC, compared to less than 3% in 2020, as agrifood investors sour on once-hot categories like alternative proteins and vertical farming. – Jessica Pothering

The Week’s Dealflow

Deal spotlight: Climate tech looks to shake off the doldrums in 2024. Batteries, green steel and hydrogen were among the bright spots for climate tech investment in 2023. But climate tech private investment overall fell by almost a third from the previous year. Behind the decline: smaller deal sizes and a flight from high-ticket, later-stage deals. A new report by Sightline Climate, the team behind Climate Tech VC, parses the toll that high interest rates, rising supply chain costs, and a dearth of exits had on climate tech investment (see also ImpactAlpha’s own year-end climate outlook). On tap: bridge rounds, corporate acquisitions on the cheap, and industrial decarbonization. 

• FOAK funk. The path to commercialization for asset-heavy climate tech startups includes demonstration plants and first-of-a-kind, or FOAK, installations. Those projects, which typically require $100 million to $500 million per deal, fell by more than half to $10 billion. “2023 had too many open questions, with investors and startups adopting a wait-and-see approach,” writes Sightline. As rates cool and policies in the US and EU come into focus, FOAKs could be less unusual in 2024.
  
• Charged up. Battery manufacturing and recycling reigned supreme last year, attracting some of the biggest hauls even as overall EV investment declined (see, “Battery innovation speeds the energy transition”). Battery investments rose from $979 million in 2020 to $6.2 billion in 2023. Redwood Materials, a Nevada-based recycler and key player in the US supply chain for lithium-ion batteries, hauled in $3 billion, including a $2 billion loan from the Department of Energy’s Loan Programs Office. Stockholm-based battery maker Northvolt raised $1.6 billion in two funding rounds.
  
• Everyone in. Among the most active funders last year: Lowercarbon Capital and Breakthrough Energy Ventures in general climate investing, Siddhi Capital and S2G Ventures in food and land use, and Temasek in transportation. All told, Sightline counts some 2,787 private climate tech investors from seed to growth stages – more than double the 1,225 investors in 2020. VCs dominate climate tech, but they are seeing more competition in later-stage deals from corporate VC, private equity, and infrastructure and institutional investors.
  
• More. 

Climate tech. Ara Partners took a majority stake in USD Clean Fuels to expand green fuel infrastructure… Canada Growth Fund invested in Entropy and contracts for carbon storage… Indian electric vehicle fintech venture RevFin snagged $14 million.

Creative economy. Filmmaker Ava DuVernay raised $38 million from the Ford Foundation and other philanthropists for her new film Origin.

Digitalization. Egypt’s e-commerce company MaxAB is merging with Kenya’s Wasoko, which offers online inventory, logistics and financing for informal retailers.

Energy transition. French energy giant TotalEnergies invested $300 million in a portfolio of solar and wind projects in India… Netherlands-based SolarDuck raised €15 million to deploy offshore floating solar projects… AXIAN Energy secured $30 million from EAIF for renewable energy in Africa.

Investing in health. Boston-based Heranova scored $13.5 million in seed financing to address women’s health issues… India’s Larkai Healthcare snagged $500,000 for AI-based early-stage heart disease detection.

The Week’s Talent

Impact Capital Managers will honor DBL Partners’ Nancy Pfund, Caprock’s Mark Berryman and Adrianna Alterman of Salesforce Ventures Impact Fund at its second annual Evening of Impact in New York… Fernando Fabre, former president of Endeavor Global, became CEO of Kauffman Fellows, replacing Jeffrey Harbach. 

WAVE Equity Partners named Kelly Moulton, ex- of North Sea Electronics, as head of capital formation… National Philanthropic Trust, a public charity that manages donor-advised funds, appointed Jeffrey Armbrister of Hamilton Lane, and Connie Collingsworth, ex- of Bill & Melinda Gates Foundation, to its board of trustees.

The Week’s Jobs

US jobs

In New York, Rockefeller Foundation is looking for an innovative finance summer associate, and Echoing Green is recruiting a vice president of finance and operations… S2G Ventures seeks an attorney to work on its investments legal team in Chicago… Impact Community Capital is looking for a managing director of investor relations and capital markets in San Francisco.

Global jobs

PSP Investments is hiring a director of active ownership for its sustainable investments team in Montreal… Accion seeks an investment officer in Bogotá, Colombia… The Bernard van Leer Foundation is recruiting a program coordinator of mission-related investments in The Hague… Luminate is hiring a narrative change analyst in Nairobi or London.

Internship opportunities

Symbiotics is on the hunt for an intern… Abt Associates is recruiting a private capital intern… Align Impact seeks an investment analyst intern… Mana Impact Group has an opening for an impact investment intern in Singapore… In New York, Rockefeller Foundation is looking for a finance intern, and Temasek is accepting applications from undergraduate or postgraduate students for its 2025 associate internship program.

💼 Share the week’s impact jobs. View dozens of other jobs on our new job board. Want to post a listing? Submit it here.

That’s a wrap. Have a wonderful weekend. 

– Jan. 5, 2024