ImpactAlpha, November 3 – Impact investors deserve credit for pushing business and finance to be more mindful, accountable and transparent. Acumen this week gets bonus points for sharing what most other impact fund managers will only whisper in private or off the record: their failures.
“Investors often accentuate the victories, but we all know failures occur just as frequently, if not more so, than successes,” Acumen’s Amrita Bhandari wrote in a guest post on ImpactAlpha. “We need real conversations about where we struggle, what we have learned, and what we need more of.”
In a new report, the impact fund manager spotlights examples of the quarter of its portfolio company that has failed from both a financial and impact standpoint, and the additional half that has fallen short either financially or impactfully (the firm considers one-quarter of the portfolio to be “home runs.”)
Lose some, win some
Acumen invested in AgInfo, an information service for smallholder farmers. What it learned: Optimizing just one part of the agri-value chain is often insufficient in heavily fragmented and inefficient markets.
“Companies that integrate market access, in addition to inputs and advisory services, are better suited to manage risk, coordinate distribution, and improve the incomes of farmers,” Acumen wrote.
Uganda’s Gulu Agricultural Development Company provides local farmers with inputs and training, then purchases their harvest, helping them “achieve sustainable growth and scale” as well as reliable incomes.
The private equity and venture capital world is feeling the fallout of the market highs of 2020 and 2021. A lot of startups are failing, including in the impact world. Investor pressure for fast growth, sometimes at the expense of solid business models and unit economics, is one reason.
Agri-processing company GrainCo’s targets depended on an ever-growing network of farming partners. “The company repeatedly missed its projections,” Acumen wrote, “and ended up scaling a growing deficit.”
Another portfolio company, solar ag-equipment seller S4S, has been more successful by taking a measured approach and having a clear focus on operational drivers.
Sharing is caring
India-based SELCO Foundation celebrates failure stories and lessons through events, videos, podcasts and blogs. Other examples get reported in ImpactAlpha and elsewhere (see: Bitwise’s blowup, the Riker’s Island social impact bond, E+Co’s restructuring, the Abraaj scandal, Mobisol’s distressed sale, South Pole’s carbon project collapse.)
Bhandari calls on the impact community to share hard lessons more openly for the sake of the field’s collective impact and financial objectives.
“Risk is inherent in the work that Acumen and many of our peers take on… and greater risk means a greater chance of failure,” she wrote. “In a world of dire problems and limited resources, the only real failure is to keep making the same mistakes.”