Impact investing is becoming mainstream. Colonial houses are hosting innovative leaders.
The greatest ideas arise from collective ideas, from collaboration, from “ideas builders”. As Helen Keller said: “Alone we can do so little; together we can do so much”.
Image Courtesy – Trover
At Mérida, an old colonial city in México, I had the opportunity to join 400 other people, all gathered to talk about impact investing for 3 full days at The Latin American Impact Investing Forum (FLII). Beautiful old colonial houses and a modern hotel, hosted innovative leaders from Latin America and others from around the world. Whoever still thinks impact investing is not becoming mainstream is wrong. JP Morgan and Rockefeller Foundation, in their report titled ‘Impact Investments: An Emerging Assets Class’, estimated that the impact investment sector could reach US$ 400 billion to US$ 1 trillion by 2020. A good example of this trend is TPG raising a US$2 billion for a social impact fund.
Over the course of the Forum, investors, fund managers and entrepreneurs shared views and their approach to generating financial returns along with positive social/environmental impact. It’s not just something that they do, it’s a reflection of who these people are and of the future they would like to build for generations to come. Many of them shared their thought processes that shifted their interesting professional careers fully into Impact Investing.
Interesting topics discussed at FLII 2017
Some interesting ideas I heard during the event were the following:
- Accelerator for Impact Investors: There is still a large unmet need for overall education to continue to build on the momentum that has been created. We need to better “evangelise” impact investors and “accelerate” them, so HNWIs not only meet fund managers but also learn how to think of impact investing in the context of their asset allocations (Thank you Anna Cable!).
- Fund structures: Alternative options for structures outside of the traditional GP/LP structures, such as Evergreen Funds/open-ended vehicles, were discussed in depth. Most of the debate revolved around considerations pertaining to aligning the needs of companies, entrepreneurs, and investors. Considerations such as debt vs equity, timing of distributions and seasonality were part of the discussion. There is no one-size-fits-all approach, but alternative structures will raise additional questions with investors.
- Fund sizes:
- We know launching a small fund is hard. Very hard. Overall, most people felt (as we do at Capria), that a minimum fund size of US$20M was wise.
- However, there are a lot of factors to be taken into consideration and in some cases a smaller fund may be the place to start depending on your market, ability to deploy capital effectively, etc. Even at US$20M AUM, covering operating costs to effectively operate will be challenging and require creativity and grit.
- As we were talking about the right size for a fund, I realized that there is a “missing middle” or “pioneer gap” at fund level.
- The relevance of measuring impact was largely emphasized as well as the need to standardize impact measurement as much as possible. The group also discussed the importance of clearly and genuinely stating the “intent” – why do we incorporate impact into our strategy and why is it important to us (Thanks Daniel Izzo!).
- When measuring impact, you can´t compare organic yoga mats with saving lives through a breast cancer device, so systematizing it will not necessarily be always possible without subjectivity.
- At Capria, we will continue to pursue market rate returns as we believe that fund managers that invest in profitable businesses will make those companies more sustainable, more scalable, and ultimately the overall social and environmental impact will be higher. There are others we respect taking different approaches, have different strategies, and solve other needs.
Huge interest from Latin America
We have received over 900 application requests and over 250 full applications since launching Capria just over a year ago. Approximately 30 per cent of the applications from emerging markets came from Latin America, with growing interest that has been consistent since we began our work.
I was excited to hear that many of those in attendance had heard about Capria and that our value proposition to advance impact fund managers in emerging markets has been well received. We’re looking forward to continue to build deep connections and relationships with the most innovative impact investment funds in the region and having them join the growing Capria Network.
While I was there, I also had the chance to connect with Richard Ambrose, Managing Partner of Pomona, a fund manager based in Guatemala that is part of the Capria Network and participated in Cohort 1. He was invited to speak on a panel called “Venture Capital vs Impact Investing: Convergence or Divergence?”. He believes Central America is “hungry for more innovative new companies that can address the many social and environmental challenges and help bridge the rural BoP with the modern economy by leveraging technology”.
Richard went on to state, “That said the investor landscape remains sparse in the region … greater participation by both venture capitalists and impact investors could do a lot to accelerate the rate of adoption of proven technologies and introduce more commercially sustainable solutions for the region’s challenges”.
We couldn’t agree more and we’re grateful to have had the opportunity to have Pomona in the Capria Network. They’ll continue to make investments in small growing businesses in Central America, Mexico, Colombia, and Ecuador, so keep a look out for their investments in firms that improve the lives of people living in the bottom of the economic pyramid and/or benefit the environment.
FLII 2018 – Impact Investing is just like gravity
After an enthusiastic final dinner, I took the 6 am flight to start my trip back to Seattle, happy and looking forward to FLII 2018 already. Next year the event might be hosted in Cartagena, Colombia. It’s another city with a deep cultural past and beautiful historical houses where we hope to keep building history.
Time traveling, I am certain that by the next FLII event, as impact investment continues its trajectory of exponential growth we will feel that impact investing has always been there, everywhere, indisputable, unable to be rejected, like gravity.