When Does Blended Finance Actually Work? Joan Larrea on Naming the One Risk That Blocks a Deal

Blended finance is a structuring device, not a funding solution, according to Joan Larrea, chief executive of Convergence, the global network for blended finance. It works when the specific risk blocking a viable commercial transaction is named, isolated and addressed with catalytic capital. Without that discipline, soft money thrown at vague risk turns blended finance into expensive complexity in search of a problem.

Key takeaways

• Joan Larrea, chief executive of Convergence, argues that blended finance works only when catalytic capital targets one named risk that stops a viable deal from being a standard commercial transaction.
• Climate blended finance reached $15.5 billion across 84 deals in 2024, the second-highest annual volume in six years, according to Convergence.
• The overall blended finance market reached $18 billion across 123 deals in 2024. The median deal size rose to $65 million, up from $38 million over 2020 to 2023.
• Across roughly 340 blended transactions, each $1 of catalytic capital has attracted $4.10 of other investment on average. Only $1.80 of that is private, for-profit money; the rest comes from multilateral development banks, development finance institutions or philanthropies re-entering the deal.
• Government development agencies, not philanthropies, supply most catalytic capital: about 65% over three years in published Convergence data, and about 80% in practice by Larrea's estimate.
• The UAE's ALTERRA alone committed $1.5 billion to two blended funds in 2024.
• Philanthropies that demand senior-investor returns from a junior position, or ask for investment committee veto rights, reliably kill deals.

"Concessional capital is the yeast in the bread. It is not going to get the same return as everybody else. And if you insist on that, the transaction will not happen. In fact, that insistence is the proof point that you were needed."

Joan Larrea, Chief Executive Officer, Convergence, RootsToFoods Capital Series, Episode 2

What unlocks a blended deal

Larrea sets out three conditions. First, a viable financial proposition has to exist: positive expected returns blocked only by a specific, nameable risk, such as a currency mismatch, an untested off-taker or a missing credit market. Second, the catalytic party has to accept its role: a junior position, patient returns and no management authority. It is the yeast, not the baker, and insisting on equal returns kills the deal. Third, competition has to set the price. Auction structures force fund managers to reveal how little catalytic capital they actually need, which keeps concessionality honest.

What kills a blended deal

Three things reliably derail blended structures. The first is soft money thrown at vague risk, with catalytic capital deployed before anyone has diagnosed the blocking risk. Larrea's test is to ask first: "What exactly prevents this from being a vanilla transaction?" The second is governance confusion, when philanthropic investors ask for veto rights or investment committee seats that do not match their position. The third is regulatory misalignment: credit rating agencies and Solvency II frameworks that do not recognize blended protections inflate capital charges and keep institutional investors away.

What is working

Auction-based deal origination

Fund managers compete for catalytic capital. The price discovery keeps concessionality honest and limits how much soft money gets allocated.

Philanthropies as first-in, design-stage funders

Small feasibility grants bring structures to the investment-ready starting line and unlock far more than their dollar value.

Portfolio-level blending

One blended fund distributes pre-mixed capital to hundreds of small and medium enterprises, which is far more efficient than blending transaction by transaction.

Domestic capital mobilization

African pension funds and insurers are a new pool of capital that can be drawn toward building the continent through the right vehicle design and differentiated maturities.

What is not working

Soft money without a diagnosis

Throwing soft money at a transaction without naming the specific risk is the most common structuring mistake. Without a precise diagnosis, catalytic capital becomes expensive complexity.

Junior position, senior expectations

Philanthropies that accept a junior position but demand returns in line with senior investors tank deals directly. The yeast cannot demand the baker's share.

Veto rights for philanthropic investors

Asking for investment committee veto rights is incompatible with how funds are governed and reliably kills deals.

No public performance data

No one reports on whether blended deals delivered, so the field cannot learn why transactions succeed or fail.

Frequently asked questions

Data points

Rapid insights: Joan Larrea's verbatim closing answers

Blended finance works best when…

"There is an actual viable financial proposition on the table."

The most common mistake in structuring a blended deal is…

"Throwing soft money at the equation without asking what you're solving for."

Private capital engages when philanthropic capital…

"Has gone in early, de-risked a high-risk idea, and proven that it might work out in the wilds of the capital market."

Blended finance is overused in… and underused in…

"Overused in conferences and underused in reality. More talk than action."

Too many blended deals try to fix… when they should fix…

"Multiple problems at once, when they should be surgical and pick one issue to solve."

The sector most ready for scale that is not getting attention is…

"Adaptation. We are all going to live in a different world in five years, especially in emerging markets. We need to hustle and figure out how to use every tool we have, including blended finance."

Practical implications for capital allocators

Before seeking catalytic capital, complete this sentence precisely: "The specific risk that prevents this transaction from being vanilla is ___." If you cannot complete it with one nameable risk, such as a currency mismatch, an untested off-taker or a missing credit market, you are not ready for blended finance. You are ready for a different conversation.

About the practitioner and the host

Related episodes

• Episode 1, Nathaniel Heller: Why Doesn't Capital Intent Become Deployment? Nathaniel Heller on the Conditions That Decide What Gets Funded
• Episode 4, Dr. Frannie Léautier: Why Does Africa's $4 Trillion Sit Idle? Dr. Frannie Léautier on a Routing Problem, Not a Scarcity Problem
• Episode 7, Michael Meehan: How Do Trusted Capital Corridors Form? Michael Meehan on the Network That Moved $100 Million Without Asking For It

Get every Capital Insight Brief as it is published: subscribe to the Capital Deployment newsletter on LinkedIn.

Series Partners

Founding Partner

Media Partner