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Catalytic capital and blended finance
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Research notes

Blended finance structure

Design funding grants
Business development companies
Structured finance
Supporting mechanisms
REIT for alt protein facilities and equipment
ETF for alt protein

From the Tideline report

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https://missioninvestors.org/sites/default/files/resources/Tideline_Catalytic-Capital_Unlocking-More-Investment-and-Impact_March-2019.pdf
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Price – accepting an expected rate of return that is below-market relative to expected risk
Pledge – providing credit enhancement via a guarantee
Position – providing credit enhancement via a subordinated debt or equity position
Patience – accepting a longer or especially uncertain time period before exit
Purpose – accepting non-traditional terms to meet the needs of an investee (unconventional or no collateral, self-liquidating structures, smaller investment sizes, higher transaction costs, etc.)
Debt instruments (loans and bonds) can be concessionary in various ways, including through below-market interest rates, flexible repayment timelines or generous grace periods, relaxed collateral requirements, and/or less rigid underwriting guidelines than those used by traditional lenders. • Equity instruments can include concessions such as willingness to invest in impact enterprises or investment intermediaries with limited track records, acceptance of significant uncertainty of return of capital relative to potential return on capital, a subordinated position designed to absorb losses before other investments, and/ or longer or undefined exit timing compared to traditional equity investments.
Hybrid instruments may take the form of debt instruments with equity characteristics or equity instruments with debt characteristics. Examples include convertible loans, royalty-based lending, redeemable equity, and preferred shares. In addition to the types of concessionary features applicable to debt and equity, a catalytic capital investor may use a hybrid instrument to offer an investee a growth or revenue-based repayment mechanism to help it manage volatility in revenue. Guarantees and risk insurance are common instruments used by catalytic capital investors to provide assurance of principal repayment to other investors in the case of default. Such credit enhancement can be a capital-efficient way for catalytic capital investors to enable investment by others, since capital is only drawn if a credit event occurs. Concessions may include a higher loss coverage ratio than conventional lenders would provide or a reduced fee for the guarantee.
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