Driving Impact with Catalytic Capital - ReFED

Driving Impact with Catalytic Capital - ReFED


Driving Impact with Catalytic Capital - ReFED

Written by: Alejandro Enamorado
  |   March 9, 2021

Apeel Sciences produces edible, plant-derived coatings that can improve the shelf life of more than two dozen different types of fruits and vegetables and make them less likely to go to waste. The company launched in 2012 with a $100,000 research grant from the Bill & Melinda Gates Foundation, which enabled them to hire two researchers and ultimately led to the development of their product. Last year, Apeel was valued at greater than $1B, after raising more than $380M in total funding to continue research and development and to scale globally.

Apeel’s Gates Foundation research grant is an example of the important role that catalytic capital plays in funding food waste reduction solutions. And while the majority of financing required to scale food waste reduction solutions is expected to come from traditional market sources, there is an equally crucial role for catalytic capital.

ReFED’s analysis of current financial and industry data shows that an investment of $14 billion each year over the next ten years can lead to $73 billion in annual net economic benefit – and reach the nation’s goal to reduce food waste by 50% by the year 2030. Of that total investment amount, we estimate that $3 billion per year of catalytic capital would unlock an additional $11 billion of further investment.

Catalytic capital tends to be first money-in, thereby having a multiplier effect that stimulates larger amounts of future funding and helps overcome system-level barriers. According to The MacArthur Foundation, catalytic capital is “investment capital that is patient, risk-tolerant, concessionary, and flexible in ways that differ from conventional investment” and “is an essential tool to bridge capital gaps and achieve breadth and depth of impact, while complementing conventional investing.”

Why is catalytic capital so important? Here's how it can smooth the way for additional investment from other capital types:

  • De-risking New Innovations – Startups need early-stage funding, subsidized pilots, or flexible debt to demonstrate they are effective in real-world settings to attract follow-on private investment.
  • De-risking Novel Projects – Any project with a first-of-its-kind component faces an extra risk premium. Low-interest debt or credit enhancements can help get these projects deployed and de-risked to lower the cost of future financing.
  • Unlocking Bottlenecks – Some types of infrastructure projects struggle to attract funding due to marginal profit margins, but they are critical to lowering costs for the system as a whole. Trucks and storage facilities, for example, are bottlenecks within the recovery and recycling ecosystems.
  • Overcoming Agency Problems – Some solutions fail to get funded because no one stakeholder benefits enough to justify the costs, such as various recycling projects or standardized date labeling. Catalytic capital shifts the economics so other stakeholders are incentivized to invest.
  • Stimulating Marginal Projects – Many projects with valuable social and environmental benefits are not financed due to marginal profitability. Catalytic capital can shift the economics of these projects above the necessary hurdle rate to attract market-rate financing. That said, it's important to note that this can have negative market distorting effects if not deployed properly.

Catalytic capital often includes Non-Government Grants, Government Grants, and Impact-First Investments, all of which were included in ReFED’s analysis. Additionally, incubators, accelerators, and challenge platforms that provide funding – as well as seed/angel rounds – can be considered catalytic.

Multiple types of capital exist and can come from a variety of sources, each with unique underlying goals and investment theses. Effective action against food waste requires a smart matching of the correct type of capital with the appropriate opportunity, and in many cases, multiple types of capital are required to fund food waste reduction solutions from conception to adoption.

Learn more about the capital required to implement food waste reduction solutions here.

ReFED is a national nonprofit working to end food loss and waste across the food system by advancing data-driven solutions to the problem. ReFED leverages data and insights to highlight supply chain inefficiencies and economic opportunities; mobilizes and connects people to take targeted action; and catalyzes capital to spur innovation and scale high-impact initiatives. ReFED’s goal is a sustainable, resilient, and inclusive food system that optimizes environmental resources, minimizes climate impacts, and makes the best use of the food we grow.

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