ImpactAlpha, April 8 – Pomona Impact is making the case for impact investing in Central America one investment – and one fund – at a time.
The fund manager, co-founded by Rich Ambrose in 2011, is busy raising a $35 million second fund to deploy into high-growth enterprises in Central America, in agriculture, as well as basic services including health, education, water and renewable energy.
Pomona backed 20 companies through its $2 million pilot fund. It has exited 12 of them, mainly through repayments on mezzanine debt loans it deployed to notch strong returns while not having to depend on hard-to-come-by exits.
Pomona is among a handful of impact fund managers in the Latin America, and one of the very few in Central America, parlaying perseverance and an early track record into capital for second funds to demonstrate the impact investing opportunity in a region long overlooked by even legacy capital markets.
“More capital will flow to the region if we do our job well,” Ambrose told ImpactAlpha’s David Bank at the Foro Latinoamericano de Inversión de Impacto, or FLII, in February.
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Pomona has found success investing in sectors such as agriculture and basic services, sectors where innovation and productivity, as well as government support, has lagged other industries.
Ecofiltro, one Pomona portfolio company, makes and distributes home water filtration systems throughout Central America. The firm has sold nearly a half-million filters through its cross- subsidization model, in which it sells high-end filters in urban markets to subsidize filters sold to poorer families. It plans to reach a million families by 2020.
“If you look at who has done more in terms of access to potable water for rural communities, I would say this company has done more than perhaps the Guatemalan government in the last 100 years,” says Ambrose.
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Pomona has also backed Organic Gum, which produces and sells a biodegradable and sugar-free gum sourced from the Petén region in Guatemala. “These companies are bringing real-life solutions to an area that needs this,” he says.
Pomona was one of the first impact funds in Central America, where many markets lack basic investment infrastructure. Pomona’s accelerator, with Village Capital, helped jumpstart its agriculture and agtech pipeline. The firm helped create FLII Central America, the region’s first impact investing conference. Pomona joined Capria’s network of emerging-market fund managers to build its investment capacity.
“Pomona is literally an impact pioneer, investing in a region where nobody else had the skills or willingness to invest,” Capria’s Will Poole told ImpactAlpha. “I expect that their success in attracting notable regional investors into their second fund will encourage others to take opportunities in Central America seriously, as good companies and talent are there, and growth capital is badly needed.”
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Pomona is filling a market gap in Central America: early-stage, value-add capital. The fund manager uses venture capital-like equity, as well as mezzanine debt structured as revenue-based financing, to match the needs of investors to those ventures that may need more time to grow. Pomona “smartly applied a mezzanine debt strategy to realize a strong IRR while not having to depend on elusive exits,” says Poole.
In Central America, where opportunities are still are to find, Ambrose told Bank, Pomona aims to “have the flexibility to deploy the right type of capital to the entrepreneurs we’re excited to get behind.”