The Brief: March 15, 2018
Greetings, ImpactAlpha readers!
#Featured: Agents of Impact
Change of leadership at Omidyar Network. Pierre and Pam Omidyar’s philanthropic investment firm has invested $1.2 billion in more than 600 for-profit companies and nonprofit organizations. The firm was a pioneer of a unique structure that includes both an LLC, from which it makes private investments, and a nonprofit arm through which it makes grants. The next stage of Omidyar Network’s work will be led by Mike Kubzansky, who has been appointed managing partner, succeeding Matt Bannick, who will step down after 11 years. Kubzansky will oversee the spinoff of several Omidyar Network initiatives, including Emerging Tech and Governance & Citizen Engagement, as independent organizations. Bannick will remain on the board.
Kubzansky joined Omidyar Network in 2013 from Monitor Group (now Monitor Deloitte), where he co-founded and led the Inclusive Markets practice. As head of Omidyar’s Intellectual Capital practice and a member of the firm’s investment committee, Kubzansky helped distill lessons learned from the firm’s investments “across the returns continuum.” Among the areas he has worked on recently are digital identity and the future of work. With Tracy Williams, he recently wrote “What Alaska’s oil dividend can teach us about Universal Basic Income,” on ImpactAlpha.
#Dealflow: Follow the Money
Carbon Lighthouse raises $27 million to improve building efficiency. San Francisco-based Carbon Lighthouse works with building owners to make energy, lighting and HVAC equipment “smarter” with monitors and sensors. Buildings are an important target for energy efficiency improvements because they account for 30% of global carbon emissions and up to 70% of energy use in cities. Carbon Lighthouse has worked on energy efficiency solutions for 500 buildings in the US. The $27 million funding round was backed by JCI Ventures, SV Tech Ventures and Radicle Impact Partners. Ulupono Initiative, a Hawaii-based impact investing firm started by Pierre Omidyar, invested $3 million, Pacific Business News reports. Carbon Lighthouse says Hawaii is a promising market: high electricity prices mean returns on the company’s technology can be three times higher than on the US mainland.
Mexico’s Yogome raises $27 million for multilingual learning materials. Yogome has a platform of 2,000 educational games, videos and books and says it reaches six million monthly users in 50 countries, mostly in the US, Mexico, Chile and the Philippines. “The teacher will never disappear. But we can have tools that [help] the teacher make smarter decisions,” founder Manolo Diaz said (translated from Spanish). Yogome wants to build artificial intelligence capabilities to analyze children’s facial expressions while they’re reading to determine whether they’re frustrated or excited. Its $27 million Series B round was backed by Exceed Capital Partners, Seaya Ventures, Insight Venture Partners and Variv Capital. It previously raised $9.7 million between its seed and Series A rounds.
WeFarm secures $5 million for small farmer peer-to-peer network. The UK-based company has built an SMS-based network for farmers to discuss problems and share advice. It hopes that will help small farmers find solutions to problems such as how to fight a crop disease or learn best practices for growing a particular crop. It has 660,000 users in Kenya and Uganda. Small farmers are responsible for 70% of the global food supply and spend over $400 billion on farm inputs and other services each year, WeFarm said in a statement. “Yet, they are often ignored by the global markets, services and leaders creating solutions to agricultural problems.” WeFarm’s $5 million seed round was led by True Ventures with backing from the Norrsken Foundation, LocalGlobe, Accelerated Digital Ventures, and founders and executives of Skype, WordPress and Blue Bottle Coffee. The startup launched in 2015 and raised $2 million in 2016.
#Signals: Impact Voices
Donor-advised funds move to provide an onramp to impact for smaller investors. Donor-advised funds have long been seen as effective philanthropic vehicles administered by public charities. In a guest post on ImpactAlpha, Gil Crawford, CEO of MicroVest and Timothy Freundlich, president of ImpactAssets, suggest another way to look at these tax-preferred investment products that are designed to do good: an untapped pool of assets that is naturally aligned with the impact investing approach. Donors who’d like to channel philanthropic dollars into deep impact investment objectives can now do so at much lower minimums than at some donor-advised funds. ImpactAssets, for example, has cut the minimum investment for its roster of private debt and equity impact funds from $25,000 to $10,000. “We believe it’s time to broaden the opportunity for smaller-scale investors to channel their money towards maximum impact,” write Crawford and Freundlich. Read “Donor-advised funds move to provide an onramp to impact for smaller investors,” by Gil Crawford and Timothy Freundlich on ImpactAlpha.
#2030 Finance: Long Termism
The economics of mobile money. The business case for bringing two billion more people and 200 million small businesses in emerging markets into the formal financial system through digital financial products and services is becoming familiar. Recent inclusive fintech deals include: Umunthu fund’s investment in Oradian in Nigeria, Aye Finance’s $3.8 million raise in India and Endeavor Catalyst’s backing of Creditas in Brazil. Less well known is what it takes to capture this opportunity, while delivering benefits to the unbanked. A new report from McKinsey takes a systematic look at the economics of mobile money. Among the highlights of “Mobile money in emerging markets: The business case for financial inclusion”:
- New loan volume could top $2.1 trillion annually.
- Annual balance sheets of banks, mobile network operators, and other third-party providers of mobile money services could add $4.2 trillion annually.
- Annual costs of established financial service firms could fall each year by $400 billion.
- Emerging markets could add $3.7 trillion in GDP by 2025, a 6% boost over the business-as-usual scenario.
Scale is the key determinant of profitability, and it requires significant up-front investment. Researchers pegged the break-even point for individual providers at between $2 billion and $3 billion in annual transactions (or revenues of $20 million). To get there, providers incurred annual information technology costs of about $1.5 million. Unit costs decrease with transaction growth and as providers reap network effects. Mobile money, the report concludes, can become a 35%-margin business – eventually. Go deeper: “Can ‘asset-light’ fintech crack the code for base-of-the-pyramid business?”
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