The Brief

The Week in impact investing: Buying the dip

ImpactAlpha · December 6, 2024

TGIF, Agents of Impact! 

  • Roundup: Undervalued propositions 
  • Podcast: How much is enough in employee ownership?
  • Deal spotlight: Impact blowups and due diligence challenges

🗣 Undervalued propositions. Climate, sustainability and racial-equity investing are taking a hammering. That’s all the more reason to lay bets on a resilient and inclusive future. Value propositions, currently undervalued, will flip sooner or later. Take climate adaptation. COP29 negotiators may have failed to meet the moment, but adaptation solutions will become more valuable the worse the climate catastrophe gets, as Louie Woodall reports for ImpactAlpha. Or diversity. Under pressure, Walmart and other corporations may be ditching their diversity, equity and inclusion programs. That doesn’t negate the opportunity in optimizing for fast-arriving majority-minority customers. If the political backlash against ESG and DEI scares off investors with less conviction, the alpha opportunity in mitigating mispriced social and environmental risks and delivering impact in underserved markets becomes even greater.  

Clean energy stocks, too, have sold off since the US presidential election. Ian Simm, CEO of the $50 billion sustainable asset manager Impax, has a contrarian view. The president-elect’s  need to fight inflation will trump his love affair with tariffs; that could ease interest rates for the capital-intensive green tech sector, and accelerate the transition. Impax is “definitely not changing our investment philosophy,” Simm told Bloomberg. Others believe that the hundreds of billions in private sector investments in manufacturing, energy and infrastructure that have flowed to Republican-leaning states may give Trump pause in rolling back Biden-era policies. And this month’s Liist of funds actively raising capital reminds us, regardless of US outcomes, climate opportunities exist from East Africa to Latin America. 

Opportunities are everywhere. Natalia Kucirkova makes the case for investments in evidence-based education technologies, while Jenna Bussman-Wise, Pooja Eppanapally and Safo Ngunga paint the landscape of care economy solutions. If un-screwing the working class goes beyond campaign rhetoric, the burgeoning pipeline of funds backing transitions to employee ownership may become even more attractive, as David Bank reports. In private equity, the conversation has already shifted from whether to share the wealth with employees, to how much, as Roodgally Senatus writes. When DOGE, or Elon Musk’s planned Department of Government Efficiency, hits inevitable snags in cutting government spending, perhaps it’ll find useful the efforts of the UK’s British International Investment to leverage public financing by deploying patient equity, concessional debt, guarantees and technical assistance to crowd in private capital for public good, as Jessica Pothering reports. Some might be lulled by distractions like “woke is dead” or “drill, baby, drill.” Agents of Impact betting on the future are instead doing like Warren Buffet: buying the dip. – Dennis Price

Next Week’s Calls 

Don’t miss ImpactAlpha’s last two calls of the year:

🔌 Plugged In: Impact Investing in 2025. Include Ventures’ Taj Eldridge wears a lot of hats – literally and figuratively. Eldridge will join ImpactAlpha contributing editor Sherrell Dorsey to talk green jobs, making climate cool, and impact investing in the years ahead. “If we keep the conversation on the economics and the value of climate action, I think we will be okay in the next administration,” Eldridge tells ImpactAlpha. Bring your own take and your questions to this lively session, Tuesday Dec. 10, at 10am PT / 1pm ET / 6pm London. Sign up now.

📞 Agents of Impact Call: Napoleon Wallace and the Reconstruction of Black Wealth. ImpactAlpha’s first documentary production charts Napoleon Wallace’s quest to build a network of organizations in North Carolina to foster Black wealth building and multi-racial prosperity – while living with the challenges of advanced ALS. We’ll screen the 20-minute video and discuss equity and ownership with Wallace through his text-to-voice “eye pad.” Join Napoleon’s friends and other Agents of Impact for this exclusive showing, Thursday, Dec. 12, at 10am PT / 1pm ET / 6pm London. RSVP today.

The Week’s Podcast

🎧 This Week in Impact: How much is enough for employee ownership? Host Brian Walsh takes up ImpactAlpha’s top stories with editor David Bank. Up this week: The tale of two different ownership economy models for increasing employee wealth; lessons learned from 10 years and $1.9 billion of catalytic investments from British International Investment; and, the untapped potential for investment and innovation in the US care economy.

The Week’s Deal Spotlight

Impact investors were not all there in monitoring AllHere. Once again, impact investors that are quick to tout their success stories have gone silent when one of their portfolio companies blows up. Federal prosecutors in New York last month charged Joanna Smith-Griffin, CEO of AllHere Education, the AI-powered edtech company that filed for bankruptcy in August, with securities fraud, wire fraud and aggravated identity theft. “Unfortunately, as a registered investment advisor we are unable to comment on specific investments,” ReThink Education’s Amy Nelson told ImpactAlpha by email. ReThink led Boston-based AllHere’s $4 million seed financing in 2020 and appointed two members to AllHere’s board. 

  • Smoke and mirrors. Smith-Griffin was once the model for an impact founder. A Harvard grad, former Boston charter school teacher and Forbes “30 Under 30” selection (she’s now 33), Smith-Griffin also attracted financing from Gratitude Railroad and Boston Impact Initiative, along with Spero Ventures. AllHere, which built an app to tackle student absenteeism, was an early adopter of AI and had secured large contracts with school districts – or so it seemed. In 2021, the company raised another $8 million in a Series A round led by Spero, which also took a seat on AllHere’s board. Prosecutors with the US Attorney’s Office for the Southern District of New York allege that Smith-Griffin misrepresented AllHere’s revenue, customer base and cash to investors. In 2021, Smith-Griffin told potential investors that AllHere had earned around $3.7 million in annual recurring revenue the previous year; the company had actually only earned about $5,400 in such revenues, according to the indictment. And those major school district clients in New York City and Atlanta? The company did not have those contracts. The feds allege that Smith-Griffin used some of the financing for wedding expenses and a downpayment on her house. Her alleged actions, according to the FBI, “exploit[ed] the promise of educational opportunities for our city’s children.”
  • Impact failures. The federal indictment of Smith-Griffin continues a series of fraud charges against social enterprise founders. In July, Jake Soberal and Irma Olguin Jr., the former co-founders and co-CEOs of Fresno, Calif.-based tech upskilling and real estate company Bitwise Industries, pled guilty in federal court to wire fraud and conspiracy to commit wire fraud. They face up to 40 years in prison and fines up to $500,000. The Ford Foundation (also an investor in ImpactAlpha) and Emerson Collective were early investors in Ozy Media, whose CEO Carlos Watson, Jr. was convicted this year of a multimillion fraud scheme that included misrepresentations of the company’s financial condition, business relationships, and fundraising efforts and “inflat[ing] Ozy Media’s annual revenue by at least 100%,” according to the charges. The failures of AllHere, Bitwise and Ozy put a spotlight on impact due diligence and the cult of founders that can often sway investors. Could investors have been more vigilant in monitoring the company in which they invested and sat on the board of?
  • Due diligence. One fund formation lawyer, speaking generally, suggested impact VCs may not be rigorous enough in their due diligence and ongoing monitoring of portfolio companies. “Maybe they’re backing the founder, or they’re seduced more by the mission rather than the company,” the lawyer said, speaking on the condition of anonymity. A case study of ReThink Education’s investment in AllHere, prepared earlier this year by Tideline and Impact Capital Managers, found that Rethink’s integrity helped AllHere execute a strategic pivot. “ReThink’s suggestion to develop strong ethical guidelines, along with the firm’s reputation for impact integrity, was critical to building trust with AllHere’s stakeholders around the use of conversational AI in child education settings,” the case study concluded. Boston Impact Initiative’s Betty Francisco told ImpactAlpha, “I am not able to comment given the pending federal case.”
  • Keep reading, “Impact investors were not all there in monitoring AllHere,” by Snehal Shah on ImpactAlpha. Catch up on all of this week’s dealflow reporting.

The Week’s Talent and Jobs

💼 See and share more than a dozen new impact jobs posted this week on ImpactAlpha’s Career Hub and view hundreds of more jobs in impact investing and sustainable finance. Have a job listing to post? Submit it here.

TruFund Financial Services appointed Stephaniee Kabore, formerly with myAgro, as senior vice president and chief financial officer… Ariel Smilowitz, previously with BlackRock, joined PwC as director of its governance insights center… DC Housing Finance Agency tapped Brichette Reid, previously with Mill Creek Residential Trust, as compliance manager, and Kira Antoine, previously with JLL, as an underwriter.

Mirova selected Raphael Lance, the sustainable investing firm’s head of energy transition infrastructure funds, to lead its new real assets division. The group combines Mirova’s energy transition infrastructure, natural capital and private equity businesses… Courtney Joyner Gage, formerly of Tolleson Wealth Management, joined Align Impact as senior advisor… Jesse Baver was promoted to head of innovative finance for mobilization at British International Investment.

Quinbrook Infrastructure Partners tapped Hilkka Komulainen, previously with Aegon UK, as global head of sustainability and impact. The firm also added Cathy Jones, previously with CVC Capital Partners, as chief people officer, Predrag Dukic, previously with DC Placement Advisors, as capital formation and investor engagement senior director, Nick Baker, previously with Buckeye Partners, as US investment senior director, and Liv Miller, previously with Statkraft, as UK investment director.

That’s a wrap. Have a wonderful weekend. 

– Dec. 6, 2024