TGIF, ImpactAlpha readers!
One day soon, legacy investors will be beating a path to the solutions that impact investors have been incubating for years. That goes not only for the what of impact, such as inclusive fintech (see No. 1, below), forest conservation (No. 4) or off-grid energy (No. 7), but the how. As the impact faithful flock to San Francisco Bay for next week’s Social Capital Markets, er SOCAP, conference, it’s worth taking stock of how far the practice of impact investing has come.
Investors have at their disposal cutting-edge impact measurement tools (No. 2). There’s growing agreement about what to measure. A set of shared principles is taking shape (No. 6), not only to stem ‘impact washing’ but to balance risks and returns among stakeholders. A growing corps of intermediaries are becoming expert in herding cats and stacking capital to make high-impact deals work (No. 3). We know how to build entrepreneurial ecosystems that work (No. 8). Impact pioneers have spent years on the nuts and bolts of financing the sustainable and inclusive future. When the fog clears over the Golden Gate, it may be possible to catch a glimpse of the financial architecture you all are building.
– Dennis Price, editorial director
Featured: The Brief’s Big 9
- Investors flock to fintech to crack a growing market: the global not-so-poor. The chance to reach billions of potential new customers far from established financial hubs has investors scrambling to find companies that can successfully go down-market, where volumes may be high but margins are thin. Low-income customers want value, says Catalyst Fund’s Jane del Ser, and products that are accessible, appropriate and affordable and tailor technology to meet the unique needs of the poor. Such fintech solutions undergird other opportunities to serve an emerging global middle class that could have $70 trillion in annual spending power by 2030. “We’re investing in enormous markets where the penetration is low,” says Quona Capital’s Monica Brand Engel. “There’s pent up demand.” Stocking the pipeline.
- Get inclusive. There’s a full roster of fintech workshops, pitch events and happy hours at SOCAP18 next week.
- Measure Better. Put customers at the center of impact measurement strategies. That’s the singular takeaway from ImpactAlpha’s Measure Better series, developed in partnership with Acumen. Lean Data, a tech-enabled, rapid-response customer feedback tool, is Acumen’s attempt to get beyond what should happen for customers, and gather data to understand how strategies play out in their lives. Not to worry, entrepreneurs: Acumen thinks investors should bear the burden. “We had spent years making a data ‘ask’ of these companies, and now we could show up with a data ‘offer’ that gave great results and was hassle-free,” write Acumen’s Sasha Dichter and Tom Adams in the series opener. “Suddenly, our conversation with our investees flipped.” Get grounded.
- Better service. “Lean Data opens up a channel for listening to customers or beneficiaries, and it has the potential to be deployed across portfolios,” writes Tufts University’s Alnoor Ebrahim in the second post in the series. Real feedback.
- Better data. The customer-mindset, combined with cost-effective technology means “You end up with even higher quality data because it’s controlled by the voice of the consumer and the community resident,” measurement pioneer Jed Emerson said in a Q&A with ImpactAlpha. “It’s about creating a system from the inside out, from the customer as the measure of value…out to the enterprise, out to the market, out to social change.” Raise the bar.
- “And yet, so few of us ever connect with the customers, much less credibly incorporate their needs/concerns in an investment strategy beyond ‘selling something to them,’ tweeted Caprock Group’s Matthew Weatherley-White.
- More to come.
- An ode to intermediaries. Quick, who organized the new Climate Finance Partnership that involves France, Germany and BlackRock, along with the Hewlett, Grantham and IKEA foundations? Answer: Aligned Intermediary. Who put together a pair of development impact bonds targeting girls education and maternal health? Instiglio and Palladium. Guarantees for infrastructure projects and cross-currency swaps? Private Infrastructure Development Group and Cardano Development, respectively. Let’s hear it for the unsung advisory firms, fund managers, and even NGOs who put the pieces together for impact, writes Convergence’s Dean Segell in a guest post on ImpactAlpha. “If we’re going to mobilize the private sector and go from billions to trillions to support sustainable development, we need to start giving intermediaries the recognition and support they deserve.” Structural support.
- Impact investment banks. “What is still missing is more bankers like Big Path Capital and ClearlySo,” tweeted MainStreet Partners’ Steve Rocco. “What impact folks seem to miss is that intermediaries make capital markets work.”
- Financing forest restoration by enforcing supply-chain standards. Speaking of intermediaries, Lestari Capital, based in Jakarta and Singapore, has put together the first deal under its new Sustainable Commodities Conservation Mechanism. Cargill, the world’s largest private company, will finance a 25-year conservation project run by the Nanga Lauk community in Indonesia’s Heart of Borneo region, enabling community members to protect the forest and develop ecotourism and wild forest products. The mechanism leverages the necessity for global commodity producers to maintain certification under standards such as the Roundtable on Sustainable Palm Oil into financing for large-scale forest conservation. Conservation finance.
5. Agent of Impact: LeapFrog Investment’s Andy Kuper. The South African entrepreneur founded LeapFrog Investments in 2007 to invest in companies that provide access to financial services and healthcare to underserved people in emerging markets. In just over a decade, LeapFrog has grown to manage assets of more than $1 billion and has built a portfolio of companies that have reached 140 million people with financial tools or healthcare. Revenues of its portfolio companies have grown an average of 40% per year, the firm says. LeapFrog was named the “impact asset manager of the year” at the recent GSG Impact Summit; Fortune ranked it as one of the top five companies changing the world. “It’s a decent beginning,” Kuper says. “In the next decade, we aim to help portfolio companies to reach one billion people with essential services.” Check out our Instagram.
6. Operating principles for impact management. The world’s largest pension funds, insurers, family offices and sovereign wealth funds are waking wake up to financial opportunity in impact investing, says recognized Agent of Impact (see above) Andy Kuper, CEO of LeapFrog Investments. “But they also want to know that they’re not going to wake up with their name in the paper for something that apparently is impact but actually turns out to be extractive and exploitative.” Kuper helped the International Finance Corp. develop its new “operating principles for impact management.” Such principles, along with outsized returns, could help attract trillions, Kuper says. “In the financial markets, demonstration is more powerful than remonstration.” Impact standards.
- The impact nine. The IFC’s nine impact principles include “Establish the investor’s contribution to the achievement of impact,” and “Conduct exits, considering the effect on sustained impact.”
- Deals of the week. Drink from the deal firehose all week long on ImpactAlpha.com. A few that stood out:
- Spotlight Brazil. China’s Tencent invests $180 million in Brazilian credit unicorn Nubank… Quona Capital leads $5 million round for Brazilian small business lender BizCapital… Factory loan to Guayaki will support jobs and preserve rainforest in Brazil… Brazil’s Mundo Verde acquires natural products e-commerce platform Natue.
- Clean and green. Land Life Company raises $4 million to plant trees in arid soils… Alphabit backs Sun Exchange’s crypto-enabled solar finance model… Coord raises $5 million to streamline city mobility.
- Passage to India. responsAbility backs Indian organic food company Suminter… Japanese investor ARUN backs Indian domestic service platform BookMyBai.
- New Revivalists. Vermont Innovation Commons acquires equity crowdfunding platform Milk Money.
- Investing in ecosystems that invest in entrepreneurs. Here’s an idea coming out of North Carolina: Target investment in the systems nurturing founders and budding entrepreneurs. Our ongoing New Revivalists series looks at North Carolina, as Charlotte-based tech journalist Sherrell Dorsey tunes into Durham-based NC Idea Foundation. Since 2006, NC Idea has invested millions to support startup cultures in cities and towns across the state. It’s an experiment, says CEO Thom Ruhe, in ensuring more communities of color have entrepreneurial and economic opportunities. Democratizing entrepreneurship.
9. Peru tops Mexico to lead Latin America in impact investments. Back in the fùtbol-crazed days of July, Adam Spence of MaRS in Toronto speculated on which country would win the World Cup of impact investing. His picks for Latin America included Mexico, Brazil and Colombia. Anything can happen! The new edition of the “Impact Investing Landscape in Latin America” put Peru on top with $218 million deployed in 152 investments (Mexico fell to third). The report from the Aspen Network of Development Entrepreneurs and LAVCA, the association for private capital investment in Latin America, shows impact investors deployed $1.4 billion in Latin America in 2016 and 2017. Driving the uptick from the previous two-year period: a doubling (from a small base) of capital from homegrown investors. Goooal!
— October 19, 2018.