Can impact investing in countries like Mexico, Guatemala, Colombia, Chile, Peru, Argentina and Brazil fight inequality and boost social outcomes, perhaps even more systemically than traditional development efforts?
Investments in health, education, agriculture, energy and other high-impact sectors are pathways to the region’s next growth market: the emerging middle class. The bulk of the 565 million people in Latin America are now middle income. At this week’s Latin America Impact Investing Forum in Merida, Mexico, the question of just what is “impact” is high on the agenda.
Need and opportunity are converging to drive the growth of impact investing in the region. More than $10 billion in impact investing assets now sit in Latin America, according to the latest Global Impact Investing Network research.
For traditional tech investors, investments into startups that attract talent and create jobs can drive “impact” in capital-starved cities and communities in Latin America. Venture capital investments in Latin America in the first half of 2017 topped $475 million, almost double the same period a year earlier. Chinese investment capital is pouring in.
What is impact? The answer, as impact investing expands globally and in Latin America, will likely define whether current efforts really do reshape historically unbalanced economic systems.
“This movement is going to redefine the capital markets,” Amit Bhatia, head of the Global Steering Group for Impact Investing, said in his opening address at FLII. Last year, Mexico and Brazil became members of the global body, which is charged with promoting impact investing around the world. Bhatia estimates that the global market for impact investments will grow to $300 billion by 2020, touching a billion poor people globally. “It’s critical that what binds us is the quest for a fair and equitable world.”
Impact crash test
Magma Partners, a venture firm with offices in Los Angeles and Santiago, Chile, earlier this month announced the close of its second, $15 million fund, to back early-stage fintech and blockchain companies in Latin America. Magma partner Nathan Lustig created a stir when he told ImpactAlpha most investments in Latin America should be considered impact investments “if they’re creating jobs, training employees, and seeding the next generation of entrepreneurs, while not creating an extractive business model.
By the same token, PC Capital, a Mexico City-based private equity firm, made B Lab’s Best for World Funds this year for its Mexico Development Fund I. The fund makes working capital loans to Mexican small businesses, including firms like Cesar Pizza, the Mexican franchise of U.S. fast-food chain Little Caesars.
Others argue the equation that investment = new jobs = growth isn’t enough to qualify as impact. Mexico tops lists of both hours worked and lowest wages in the OECD, as well as income inequality, notes SVX Mexico’s Laura Ortiz.
“Job creation isn’t the issue for Mexico,” Ortiz told ImpactAlpha. “Our issue is the growth of the working poor (as it is in many other countries). So new jobs is no guarantee or promise of wellbeing for Mexico.”
At the FLII, SVX Mexico’s Ortiz and Fabrice Serfati of Mexico venture capital IGNIA will join ImpactAlpha’s Jessica Pothering for a session titled “Impact Crash Test.” The session will explore how “impact” is and should be defined in Latin America.
Instead of tech driving impact, maybe impact can guide tech investing. So says, Marcelo de la Garza, a partner at Auria Capital, a Monterrey, Mexico-based family office. Auria is an investor in impact funds from Adobe Capital, which in October announced a $21 million first close of its second fund. Adobe targets growth-stage companies delivering healthcare, education, affordable housing and energy services to low and middle income Mexicans.
Adobe’s “impact” lens, de la Garza told ImpactAlpha in an earlier interview, gives Auria access to a new crop of companies that were serious about serving Mexico’s emerging middle market. “In Mexico, that’s very profitable,” he said.
Recent impact investing news and deals from Latin America:
Innovative financing is helping overcome barriers to small-business finance. A new report looks at range of alternative financing models attempting to boost the flow of capital entrepreneurs in Latin America. Holding companies, like Encourage Capital’s Pescador Holdings for example, can relieve pressure to exit an investment prematurely. More.
Impact investors shine on list of women venture capitalists in Latin America. If there really is a diversity dividend impact investing is poised to reap it. The Latin American Private Equity and Venture Capital Association lists 43 women venture capitalists in the region, and a tally shows that nearly a quarter of them are impact investors. More.
Replication is Connovo’s innovation for improving education in Mexico. In a sector that worships “innovation,” Connovo’s new idea is that for many challenges, solutions already exist. “We believe if you do social enterprise, you are here to solve problems. It doesn’t matter if it’s your idea,” says Nicolas Demeilliers, co-founder of Connovo, the Mexican “replicator” that brought Hipocampus to Mexico and plans to scale it to 100 sites in five years. More.
Ejido Verde is reversing land degradation while providing long-term revenues for the indigenous community. Sustainable practices can prevent the destruction of ecosystems. Regenerative approaches can restore land — and communities — that are already degraded. Ejido Verde, an initiative in the Mexican state of Michoacán, is turning once-degraded lands into profitable pine forests, while mitigate climate change and generating wealth for the indigenous Purhépecha community. More.
- Temasek backs low-cost healthcare chain Clinica SIM in Brazil
- In Latin America, VilCap backs fintech startups Mutuo Financiera and Fintual
- DOMO Invest backs low-income lender Noverde
- Oikocredit exits Peruvian microfinance institution
- Green Visor Capital backs Colombia fintech startup Tpaga
- Santander backs Mexican mobile-payments startup ePesos
- TPG’s Rise Fund invests $20 million in Latin American education venture
- Adobe Capital invests in workforce training and education venture IPETH
- Edtech venture Kinedu raises $1.1 million from DILA Capital, Promotora Social Mexico, Social+Capital, others
- ESCALA Educación closes seed round