Conference Presentation, Panel, Fireside Chat
Theory to Practice: A New Generation Transforms Impact Investing
Milken InstituteDave Chen, Matt Gee, Tobias Schimmer, Kathleen Schindler, Claire Tramm, Paul Irving, Andrew Tyndale, Candace Klein
- The panel discussion is expected to last approximately one hour, with a 20 to 25-minute initial presentation followed by audience questions.
- The International Impact Investing Challenge plans to potentially expand to an international tier following regional and national phases, aiming to train the next generation of financial innovators.
- Logistics for the current year may require alumni teams to pause their academic studies to participate in the competition.
- The University of Chicago team is positioned to address the difficult challenge of financing energy efficiency, a sector where many previous attempts have failed.
- A vocational training tuition loan program is planned for India to function as a "Sallie Mae of India," designed to structure loans and repayment for vocational training.
- India faces a skills gap where the Reserve Bank estimates a need for 500 million skilled workers by 2022, with current infrastructure capable of serving only 50 million, leaving a deficit of 450 million.
- A six-month training program has demonstrated a sixfold salary increase for students, rising from $22 to $145 per month.
- Upskill Capital intends to place trained students with corporate partners and recollect repayment from the students' first earnings.
- Investors in the Upskill Capital model can expect a return of 18% to 22% Internal Rate of Return (IRR) over the first six months of student employment.
- Approximately $25,000 of raised capital is allocated to an immediate pilot program, with a future funding target of $1.5 million required to operate two full-time staff members and scale the business.
- The team is currently soliciting capital from investors in India to enable two founders to work full-time on the ground, with specific interest in government reforms involving the private sector.
- In the energy efficiency sector, upfront home upgrades are projected to generate an energy savings annuity that pays back the investment in approximately six years.
- Homeowners apply an approximate 40% discount rate to future energy savings cash flows, while an Energy Star rating is reliably capitalized into home value by up to 14%.
- Effortless Energy aims to generate a stable 12% IRR for investors through a model where the company funds upgrades and repays investors using the resulting energy savings.
- Energy savings annuity contracts allow savings to be transferred between homeowners and can be repaid at any time, capitalizing the value into the property.
- Effortless Energy identifies a $230 billion cost-effective market for energy efficiency and plans to raise a $100,000 pilot fund before scaling to a $30 million to $50 million fund.
- To execute scaling, the team estimates a need for $1 million for community energy efficiency funds, covering 200 homes at $5,000 per home, with a long-term goal of reaching 10,000 homes.
- Effortless Energy is collaborating with LendSquare, institutional lenders, and banks to facilitate the transition from pilot to scaled operations.
- A significant challenge is the "cold start problem" regarding investor risk modeling, where capital deployment is contingent on reaching a specific number of homes.
- The Upskill model utilized a conservative 25% default rate in sensitivity analysis, with projections indicating that a 5% drop in this rate could push IRR upwards of 25%.
- The Upskill team has established a Center for Impact Measurement at the University of Chicago to ensure measurement remains core to business performance.
- A government policy in India is expected within the next two years to provide 10,000 rupees to students who complete certified vocational training.
- The Upskill team is negotiating with potential employers regarding the possibility of paying placement fees as part of the deal structure.
- Effortless Energy anticipates significant partnership opportunities with utilities mandated to meet energy efficiency portfolio standards.
- The integration of demand response technologies, exemplified by the Nest thermostat, is viewed as a positive development in the sector.
- Public utility commissions are encouraged to define cost-effectiveness for energy efficiency and advocate for legislative changes to support bill repayment structures.
- Educational institutions are increasingly integrating curriculum and mentorship regarding these impact investing challenges into business courses.