Market Wagon: Why We Invested

By Elizabeth Coston McCluskey and Tasha Seitz

Consumers today are more aware than ever of where their food comes from, and they are concerned about food safety, transparency, and access to local supply. Sales of locally produced foods in the US grew from $5 billion in 2008 to $12 billion in 2014 and was expected to reach $20 billion in 2019. However, the current grocery system in the US was built to serve 20th century needs. In a pre-digital era, stores focused on consolidation and centralization in order to maximize efficiency. Today, that means that mainstream retailers carry a limited amount of local food. Prominent retailers like Walmart only carry 11% local-sourced produce, and even progressive stores like Whole Foods may only have 20% local offerings. Local food producers are looking for new ways to sell to consumers who are increasingly interested in connecting directly with their food sources.

Solution

Market Wagon is an online farmer’s market that shortens the food supply chain by sourcing and distributing local food directly to consumers. Their platform enables farmers to connect directly with end consumers, creating a direct supply chain. The direct interactions between consumers and producers allows them to develop relationships and to build trust. Farmers have profiles on the site that promote brand content, list product information such as pricing and availability, and facilitate direct interaction via Q&A. Consumers are able to search by category across multiple suppliers and combine selections into a single online order, creating a true alternative supply chain to grocery retailers. The company requires vendors to fulfill customer orders at central distribution facilities, and uses a distributed labor pool to complete last mile deliveries. This enables the logistics model to remain capital-light and scalable. 

Why We Invested

The co-founders have extremely relevant and complementary backgrounds. Nick Carter, the CEO, grew up on a farm in Indiana before becoming a tech founder. Daniel Brunner, the COO, has deep experience with grocery operations and supply chains from his time as VP of Grocery Solutions at Kiva Systems (acquired by Amazon). Market Wagon has demonstrated very strong momentum and growth. Prior to COVID they achieved 200% growth Y/Y. Since COVID, they have been able to capitalize on disruptions to food supply chains and consumer preferences to expand even faster. The company has taken a thoughtful approach to launching in new markets thus far. In February of this year they had 6 locations, all in Ohio and Indiana. That number more than tripled to 20 locations in 8 states across the Midwest since then. This funding round will be used in part to fuel their next phase of geographic expansion.

Impact

Local food sold directly to consumers more than doubled from $1.3 billion in revenue in 2007 up to $2.8 billion in 2017. According to the USDA over 163,000 farms in the US market their foods locally. Of these farms, 70% reported that direct-to-consumer (DTC) was their only sales channel. Small farms (less than $50,000 in gross annual sales) account for 81% of all farms reporting local food sales in 2008. DTC is a crucial marketing channel for these small businesses, traditionally in the form of farmers markets and community supported agriculture (CSA) agreements. Many local food producers have been forced to adapt as both in-person farmers markets and restaurants have been greatly impacted by the COVID-19 pandemic. Market Wagon gives local food producers a new and potentially more efficient channel by offering an online marketplace to sell directly to consumers. 

In addition to the economic benefits for local food producers, local foods have been linked to a variety of other benefits such as enhancing the rural economy, increasing access to healthy and nutritious food, as well as improving the environment. 

Borrowell: Why We Invested

By Ander Iruretagoyena and Priya Parrish

COVID-19 has exacerbated economic inequalities globally and the need for consumers to have healthy credit profiles in order to achieve economic stability and mobility. While some consumers have been able to build stronger balance sheets amidst lessened spending opportunities, that has certainly not been the case for all, especially for those underserved by the financial ecosystem. Many impact investors are aware of the need for financial inclusion strategies in emerging economies, but the size of the under/unbanked in developed economies is also notable. Take Canada, for example, where approximately 9M Canadians (close to 1/3 of adults) have non-prime credit scores (credit scores under 660). Consumers in this cohort face constraints accessing affordable credit, which can put additional pressure on already tight budgets. 53% of Canadians live paycheck-to-paycheck and 27% still don’t have enough money to meet their needs. Outside of predatory lenders, there are few options for this group of financially insecure consumers.

Solution

Borrowell Inc. is a leading Canadian online lending platform designed to offer personal loans and free credit scores. The company's platform utilizes free credit scores and monitoring services to make AI-powered product recommendations, including money management solutions, bill alerts, and predictive cash advances. Users benefit from access to low-interest loans and financial education tools while financial partners benefit from high intent pre-qualified leads. Borrowell aims to be the go-to platform for anyone looking to see their credit reports, gain financial education, and have access to budgeting and capital products aimed at improving financial stability and mobility. This should make a difference for the more than 25% of Canadians who feel overwhelmed by debt.

Why We Invested

Borrowell’s acquisition of Refresh Financial (a fintech company enabling credit rehabilitation through its credit builder loan and secured credit card products) represents a compelling opportunity for the company. With the funding in place to finance this acquisition, Borrowell will be able to expand its product line and build out a multi-product strategy that can produce stronger financial stability for their target customer while increasing their lifetime value. Upon close, the company will immediately realize gains through cross-selling opportunities, improved unit economics related to decreased loan origination costs, and significant synergies. Having a strong first-mover advantage, Borrowell is the clear leader in the large but relatively uncompetitive (when compared to the United States) Canadian financial origination market. The Impact Engine team has conviction in Borrowell’s management team and their systematic and comprehensive plan for integration that includes continued focus on driving measurable improvements to their customer’s financial health.

ImpacT

The combined entity will target the underserved subprime credit population. 53% of Borrowell users have credit scores of less than 659 and the average starting credit score of a Refresh Financial client is 500. However, through engagement with the Borrowell platform, users are able to improve their credit score by a demonstrated 171+ points in 24 months. Borrowell has already demonstrated its ability to establish financial prosperity for its user base through raising the credit scores of its users, lowering their cost of borrowing, making budgeting more manageable, and increasing their savings. This acquisition and round of funding will amplify that impact by enabling the company to serve more non-prime credit seekers and to provide a broader suite of products and services that meet the diverse needs of each user.

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Clinify Health: Why We Invested

By Tasha Seitz and Elizabeth Coston McCluskey

Healthcare represents 18-20% of GDP in the US, and $1 out of every $6 spent on healthcare is through Medicaid programs that serve 75 million individuals in low-income households (almost $600 billion in fiscal 2018). Regulations and the Centers for Medicare and Medicaid Services are shifting the system towards value-based care, and providers will have to adapt or drop out of the system. 

The transition from fee-based to value-based care has not taken place in underserved communities where many patients are covered by Medicaid and Medicare. Value-based contracts still only represent 20-30% of the market, and adoption has come primarily from large physician groups that have the capital to invest in technology, quality experts, and customized interoperable technology platforms. 57% of the market opportunity lies outside of these large provider groups.

Physicians are time-strapped and likely to treat patients for acute symptoms and thus overlook other underlying common chronic conditions and prioritize preventive services at a population health level. Physician practices managing multiple value-based plans can find it challenging to determine which plans prioritize which cost and quality measures for which patient, and when there are more than two recommended measures per patient, compliance drops to 20%. In addition to the challenges of effectively managing patient encounters, the process to get reimbursed under value-based care programs is cumbersome, and it can take up to six months  for providers to be paid for their services.

Solution

Clinify Health supports providers and practices in underserved communities to transition from fee-for-service to value-based care by automatically risk stratifying a practice’s patient population, guiding medical staff as to which patients they should be proactively reaching out to, and providing recommendations to physicians on what actions to take during their patient engagements based on the cost/value of services in addition to clinical utility. Clinify is embedded in clinical workflows through the electronic health record; it pulls clinical data and compares it to value-based contracts to see what services to provide to the patient as part of a complete check-up based on that patient’s needs. In the future, Clinify will enable immediate verification of contract milestones and improve the cash flow cycle for providers serving Medicaid patients.

Why We Invested

Physician practices have been hit hard both emotionally and financially during the COVID19 pandemic, which has had a disproportionate impact on underserved populations. Keeping providers in business and serving their local communities is critical, and Clinify is aimed at supporting these practices to deliver high-quality care, in a cost-effective manner. With the drop in fee-for-service revenues due to the pandemic, there is a near-term opportunity to aid provider groups in shifting to value-based care contracts. Clinify’s recommendations are based on state-by-state guidelines and can give guidance on a contract-by-contract basis across multiple payers, and the company’s business model aligns values and incentives across key stakeholders.

The founding team at Clinify reflects the community the company aims to serve and has deep experience in healthcare, including primary care, value-based care and Medicaid populations. The team also has strong connections to payers, who are interested in accelerating the shift to value-based care but have struggled to get providers on board.

Impact

By enabling physicians serving Medicaid patients to transition to value-based care, we believe that Clinify will improve outcomes for patients while reducing overall healthcare costs and improving the financial viability of physician practices in underserved communities. Access to quality care is an important dimension of health equity, and Clinify will assist physicians in identifying high risk patients and proactively reaching out to those individuals to ensure they are receiving the appropriate care. The company will track quality metrics that are foundational to longitudinal care (for example, BMI and A1C for diabetic and pre-diabetic patients). In the longer term, we expect Clinify to reduce emergency visits, increase post-discharge follow-ups, and lower the overall cost of care. 

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PosiGen: Why We Invested

By Ander Iruretagoyena and Priya Parrish

With 2020 being deemed the worst year for climate change, now more than ever it is important to ensure the businesses which are combating it have enough capital to scale swiftly and efficiently. According to NASA, responding to climate change involves two possible approaches: reducing and stabilizing the levels of heat-trapping greenhouse gases in the atmosphere (“mitigation”) and/or adapting to the climate change already in the pipeline (“adaptation”). Solar panels on residential rooftops contribute towards mitigation by fulfilling the electricity needs of households with 80% lower emissions than fossil fuels. For the average household, this 8,460 pound reduction in C02 is equivalent to 432 gallons of gas (UC Berkeley). Typically, these environmental and financial ($17,000 over the life of a solar system) savings have been reserved for high income households due to the upfront investment required. There are 30+ million low-to-middle income (LMI) households in the U.S., representing 42% of the total potential for residential solar, yet they only represent 30% of installations annually. Serving these communities could create meaningful cumulative reduction in carbon emissions while driving additional benefits of economic empowerment through household savings.

SOLUTION

PosiGen, Inc. (“PosiGen”) is a developer of solar power systems intended to reduce household energy consumption and generate power. The company's solar power systems enable customers to achieve greater fiscal autonomy and energy independence by lowering their utility bills. Currently, PosiGen is the only for-profit residential solar platform that focuses exclusively on providing solar and energy efficiency upgrades to LMI households. Over the past 5 years, PosiGen has installed over 15,000 residential solar energy systems throughout Louisiana, New Jersey and Connecticut.

WHY WE INVESTED

PosiGen has a competitive differentiation with a unique product market fit focused on underserved LMI communities (enabled by a competitive moat of having 8+ years of credit history underwriting LMIs with ~100% collections). The company is well-positioned to capitalize on the $67B residential U.S. solar energy industry growing ~30% annually (driven by rising awareness of climate change, state tax incentives, and utility costs). PosiGen’s approach is fundamentally designed for affordability: standardized kit models, project clustering, and subcontractors decrease installation time/costs while a cost savings only approach to underwriting drives referrals and lowers customer acquisition costs. This allows the company to install solar systems for ~40% less than competitors.

IMPACT

We believe that PosiGen has the ability to make a positive impact on climate change and the environment by mitigating emissions, increasing efficiency, and democratizing energy independence. Management, which includes a founder with 25+ years of entrepreneurial and senior management experience and a CFO with over 20 years in renewable energy, is committed to measuring and continuously reporting impact metrics centered around energy efficiency and economic empowerment of customers served. PosiGen is democratizing access to clean energy and its related benefits by focusing on LMI communities, which account for 73% of their installations to date. In FY ‘20, the company is on track to produce over 70mm KWh of clean energy.

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2020: Impact Engine's Year in Review

By Elise O’Malley

While this year has looked and felt different than any other, much of our work at Impact Engine has remained on track, and we certainly didn’t slow down! 

During the small sliver of 2020 when quarantine wasn’t on anyone’s radar, we produced our annual Chicago Impact Investing Showcase, with another record-blowing list of attendees (thanks to all 700+ who signed-up!). The theme of the event was “The 5Ps of Impact,” outlining the ways in which companies and investors can create positive impacts. The agenda included fireside chats with Dr. Helene Gayle of The Chicago Community Trust and Rodrigo Garcia of the Illinois State Treasurer office as well as presentations from leaders at YWCA, Rumi Spice, Gourmet Gorilla, Next Street, and Fixer.

An exciting moment from this year was announcing the close of our very first private equity fund, led by Managing Partner Priya Parrish. The $31.5M fund makes investments in both impact funds and directly in growth-stage companies within our impact areas of economic empowerment, education, environmental sustainability, and health. A goal of the fund is to promote the growth of impact investors in the middle market by both allocating capital and helping them refine their impact strategies. The fund also supports operating companies. Investments include Lumos Capital Group and Footprint. 

Our second venture fund also made new investments this year: Afresh (an inventory management system that prevents food waste at the grocery store level), SupplyShift (a supply chain ESG data management platform), and TimeDoc (a chronic care management platform). Across the rest of our portfolio, notable mentions include: PadSplit and Sokowatch each respectively raised $14M and $10M Series A rounds, Pangea was named one of “The 50 Best Small Companies to Work for in Chicago,” Full Harvest won the Food Category in Fast Company's World Changing Ideas 2020 competition, Climb Credit was included in Inclusive Fintech 50’s 2020 cohort, ReUp earned a spot on HolonIQ’s North America EdTech 100 list - and much more. We are also extremely proud of the many ways in which our portfolio has participated in the fight against COVID-19. 

Back at (now virtual) HQ: Impact Engine was selected to the ImpactAssets 50, a public database that recognizes exceptional impact investors, for the second year in a row. ImpactAssets also highlighted Impact Engine as a lead contributor to SDG #8, Decent Work and Economic Growth, in their 2020 Impact Report. The Conscious Investor included Impact Engine in its “Resource Guide for Impact Investors,” and sat down with CEO Jessica Droste Yagan to talk about our aforementioned 5P Framework. Managing Partner Priya Parrish spoke with McGuireWoods as part of its “Women in PE to Know” series. And one of the brightest spots of 2020 was congratulating Principal Elizabeth Coston McCluskey on the arrival of her new baby girl, Madeline!

Our team collectively worked together to produce a dozen new pieces for our blog. You’ll find Priya’s “In Defense of Private Equity: Why Our Society Needs Middle Market Investments”, Partner Roger Liew’s “Working at a Women-Led Fund: A Man’s Perspective”, and much more on our website. We also launched an Impact Highlights page, which offers a deeper look at the outcomes of our portfolio thus far. This page showcases our diversity stats as well: 58% of our investments are based between the coasts, 22% are led by CEOs of color, and 42% are led by women CEOs. 

While much uncertainty still lies ahead, we look forward to staying connected remotely - please mark your calendars for our virtual Chicago Impact Investing Showcase series, kicking off at 12 p.m. CT, February 10th. Lastly, many thanks to our supportive Impact Engine community and to our portfolio for its collective display of adaptability during this difficult time. We wish everyone a more equitable, peaceful, and healthful 2021!

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Glass Half Full: 2020 Holiday Reading List

By Elizabeth Coston McCluskey

2020 has been quite a year. Many of us are thankful that it is almost over. Before it ends, we wanted to share some of the research and stories that gave us optimism over the past twelve months. Despite headlines having been dominated this year by environmental devastation, racial injustice, an international healthcare crisis, and accompanying economic hardship, we also saw endless examples of inspiration and innovation from the impact investing community. 

You may have seen that President-elect Biden has named his Special Envoy for Climate Change, who will be part of his National Security Council.  This is a promising political commitment, but impact investors haven’t been sitting on the sidelines waiting for the government to act. This year, Amazon announced a $2 billion ‘Climate Pledge’ venture fund, and has already made its first five investments. Microsoft also launched a $1 billion Climate Innovation Fund in concert with its commitment to be carbon negative by 2030. A PwC report published this fall found that over the last seven years, investment into startups developing tech-enabled solutions to climate change has outpaced the overall VC market by 5x.  

Traditional and impact investors have also made numerous commitments to diversity, equity and inclusion (DEI) - both in their own ranks and in portfolio companies. Blackstone issued a mandate for diverse candidates to represent one third of board seats at any companies in which they acquire a controlling interest. Vistria Group set up a new incentive plan that rewards portfolio companies’ management teams for diversity metrics. And Impact Capital Managers announced its inaugural Mosaic Fellowship, which places graduate students from traditionally underrepresented backgrounds into leading impact investment firms for a summer. Mike Asem, a General Partner at M25, shared a thoughtful framework for how other venture capitalists can adopt and execute their own plan for improving racial justice personally and professionally. 

COVID-19 has consumed most of our healthcare organizations’ attention this year. But it has also forced public and private entities alike to take action to address inequities in access to and quality of care. Earlier this month, the State of Illinois unveiled a plan to invest $150M to transform healthcare delivery for underserved communities, with a focus on holistic, relationship-based, continuous care. COVID-19 has also paved the way for rapid acceleration of the adoption of telehealth. Legislation has enabled Medicare reimbursement for telehealth services, with additional proposed bills that would eliminate state cross-licensing requirements for telehealth. Not only is this a breakthrough in providing healthcare access to millions of Americans, but it represents a substantial impact investment opportunity. 

At a time when many Americans are worried about their financial stability, there are more innovative companies and initiatives than ever to support them. The Inclusive Fintech 50, backed by the likes of Visa, MetLife Foundation, and the IFC, recently announced its 2020 cohort of startups driving financial inclusion and resilience. It’s encouraging to know that more than 400 companies applied, with solutions that address accessibility, affordability, and convenience of financial services in both advanced and emerging markets.

Finally, the total ranks of impact investors continued to grow throughout 2020. The number of signatories for IFC’s Operating Principles for Impact Management grew from 58 to almost 100. IFC published Growing Impact: New Insights into the Practice of Impact Investing to highlight case studies from 32 members of the group. The GIIN Annual Impact Investing Survey, now in its tenth year, has grown from 24 respondents to over 300. And the UN’s Principles for Responsible Investment reported a 20% annual increase of assets under management by investors committed to integrating ESG issues into their decision-making, now at US$103.4 trillion.

While 2020 had its share of meaningful challenges, we believe it has also woken more people up to the needs and opportunities of impact investing, and highlighted where we should be spending our financial and human capital in the coming year. We hope that during the holiday season, you are able to spend time (whether virtual or in person) with family, and to reflect on the ways in which you’ve made an impact this year. We encourage you to click through to the reports we’ve included in this list, as we hope that they inspire you to make new resolutions for impact in 2020.

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Impact Engine Closes First Private Equity Fund

CHICAGO, IL - OCTOBER 19, 2020

Impact Engine announced today the close of its first private equity fund. The $31.5M fund makes strategic investments in growth equity and buyout impact funds and invests directly in growth-stage companies driving improvements in economic empowerment, education, environmental sustainability, and health. 

Led by Managing Partner Priya Parrish, the fund was launched to catalyze and support an ecosystem of impact investors in the middle market. Private equity funds can create social and environmental value at scale and are an essential part of the impact investing industry. Unfortunately, high barriers to entry often hold back independent funds unaffiliated by large asset managers from launching. 

“The size and scope of the middle market opportunity set is large and growing, yet launching a new private equity fund with a strong commitment to driving positive impact has proven to be difficult unless you already have access to capital,” said Parrish. “We launched this fund to fill that gap, as companies need purpose-aligned capital throughout their life cycle. We’re here to support proven private equity professionals building high caliber investment firms that drive superior results for investors and society.”

The fund extends Impact Engine’s reputation as an early-stage investor in impact companies through its two existing venture funds. The Chicago-based, women-led investment firm believes that investment dollars can and should have a positive impact on society and the environment, and that those positive impacts can be tied to financial success. 

”Our investor base continues to grow as family offices and institutions are drawn to our team’s rigorous and authentic approach to investing and assessing impact, as well as the support Impact Engine provides them in exploring broader impact investing opportunities and connecting with their impact investing peers,” said Jessica Droste Yagan, Impact Engine’s CEO.

Limited partners in the fund include Surdna Foundation, William Harris Investors, and the Libra Foundation, as well as investors throughout the United States, Canada and Asia. Candide Group, an impact investment advisor, facilitated the Libra Foundation investment. "The fund is exciting from an impact perspective given that it provides access to a portfolio of quality managers investing in more mature businesses that are often underrepresented in impact portfolios,” said Aner Ben-Ami, Candide’s Founding Partner. “Most importantly from our perspective, Impact Engine is not just allocating capital to these managers -- it is also actively supporting them in deepening and refining their impact practices."

The fund will invest approximately 60% of its capital in growth or buyout private equity funds with a firm-wide commitment to investing in companies driving positive impact. Given the nascency of this market, many of these funds are managed by emerging managers. Others are “impact whisperers”, or established managers quietly evolving their investment process towards intentional impact outcomes. Impact Engine supports both types of funds through first-close capital, impact management thought leadership and mentoring, and its network of purpose-driven investors and companies. 

Lumos Capital Group is one of the fund’s strategic investments. “Impact Engine has been a valuable partner in helping us develop and execute on our impact management strategy,” said Victor Hu and James Tieng, co-founders and Managing Partners at Lumos. “The team understood our vision from the beginning, and has served as a trusted sounding board as chair of our Impact Advisory Council.”

40% of the fund’s capital will be invested directly in operating companies. By leveraging the fund’s network of purpose-driven investors in the middle market, Impact Engine supports its companies in scaling impact alongside profits at this critical growth stage where tensions between the two goals can arise. 

The fund recently invested in Footprint, a company on a mission to eliminate single-use plastics through its sustainable food packaging products. Footprint’s plant-based packaging products are used by leading global brands, including Conagra, Tyson Foods, Molson Coors, and Sweetgreen. The company has prevented over 61 million pounds of plastics from entering our environment to date, and thereby decreasing the carbon footprint of disposables by more than 44,730 metric tons, equivalent to driving around the planet 4,494 times.

“As our company grows, we want investors that will help us achieve our environmental mission while scaling profits,” said Troy Swope, CEO at Footprint. “Impact Engine understands that these two goals are intertwined, connected us with mission-aligned investors, and is helping us continue to improve our sustainability practices.”

About Impact Engine

Impact Engine is a women-owned and led, Chicago-based venture capital and private equity firm investing in companies driving positive impact in economic empowerment, education, environmental sustainability, and health. The firm manages $63M AUM and was included on the 2019 and 2020 ImpactAssets50 lists, which recognize outstanding impact investment funds with a demonstrated positive social, environmental and financial impact. Across its portfolio, Impact Engine has invested in companies with 44% women CEOs and 24% non-white CEOs, and 56% of companies headquartered between the coasts.