Twenty-one years ago, the idea befuddled donors and people in the nonprofit sector.
Jacqueline Novogratz, a former banker at Chase Manhattan and manager of special projects at the Rockefeller Foundation proposed a venture, Acumen, that looked like a philanthropic venture capital fund.
Acumen would be a nonprofit charity that also invests in companies tackling global poverty around the world. Novogratz proposed a different approach to sustainably solving the world’s problems and pioneered the impact fund movement.
Five years after its launch, Acumen launched in Africa in 2006 when its Kenyan office was set up. Its Lagos office was later created in 2012.
Over the years, Acumen has invested in West African countries like Nigeria, Ghana, and Sierra Leone, as well as East African countries like Kenya, Rwanda, Uganda, Ethiopia, and Tanzania. Altogether, it has invested over $40 million in African companies, and the company’s African operations account for about 30% of Acumen’s global footprint.
In hindsight, after deploying $146 million in philanthropic investments and $156 million in for-profit impact funds which have impacted 380 million lives, the Acumen approach to tackling global poverty appears successful by many indicators.
Over a chat with TechCabal, Acumen President Carlyle Singer spoke about Acumen’s mission, how it uses investment as a tool for peace, and the spectrum of tools it uses to invest in Africa and the rest of the world.
Daniel Adeyemi: Let’s go back to the beginning. Why did Acumen want to change the way the world tackled poverty?
Carlyle Singer: Changing the way the world tackles poverty came about because Jacqueline Novogratz saw that the traditional aid system wasn’t working. She noticed that the private and development sector wasn’t doing enough in trying to address issues of poverty. There was a big gap in terms of dealing with these issues, and her theory was that you could find entrepreneurs and innovative business models that could harness market forces to actually make a difference in poverty.
Jacqueline believed that entrepreneurs could actually treat the poor as customers, offer them solutions and change their lives by helping them move out of poverty. Back then, Jacqueline and a handful of others started the impact investment space, which of course has become more mainstream and much more subjected to traditional economic returns.
In general, what we do is very early-stage investing at very high risk. At this stage, commercial capital doesn’t work because they don’t place a value on impact.
I’d like to add here that technology cuts across everything we do. It can be the basis for the investment because it enables you to create a new platform that makes something affordable. For example, the pay-as-you-go model in the off-grid solar sector. We’re working in healthcare, and most of our investments are based on technology, and our investment in workforce development is in companies that use artificial intelligence.
The big idea for us is about harnessing market forces to make a difference in the lives of the poor. We’ve seen some level of success, as we’ve invested in many companies and created a growing off-grid energy space sector by investing in 27 companies, most of them in sub-Saharan Africa.
Notably, our slogan of changing the way the world tackled poverty is going to change to solving problems of poverty and building a world based on dignity.
DA: Tell me about Acumen’s efforts to use investment as a tool for peace.
CS: The first time we tried that was a few years ago in Northern Uganda, where we actually created a working facility for an agricultural company that was bringing refugees back and rebuilding the community.
Now we’re doing something similar in Colombia. It’s all about working with communities that have been ravaged by civil war for many years, and where they’ve lost all trust.
Here’s what we do: we create a business joint venture with the community, where we usually own the majority share and teach them how to run the business, usually agriculture. One of my favourite examples is a rice processing plant that was funded by the United States Agency for International Development (USAID) and it wasn’t being used because nobody knew how to run a business. We organised the community and started investing in building the company and teaching them how to run the rice processing plant.
They learnt how to process rice, package it and sell it. We’re still in the early stages, but over time they’ll buy us out and we’ll not get a high return because we’ll be bought out at a very predicted return rate.
What that does to the community is that they end up establishing relationships because doing business with another person forces you to relate with others and trust them. This in turn helps rebuild the social fabric of the society.
DA: That’s profound.
CS: Yes it is. Now we’re doing a study based on East Africa, where we’re looking at helping displaced persons and refugees. We don’t know what the answer is but we’re looking at how we can use some of our tools and apply them differently to cause meaningful change. There are probably not going to be any returns like in Colombia, but this is something we believe has to be done, because no one else will do it since it’s very high risk and will take a long time to see results.
DA: Talking about the risk and reward ratio, Acumen’s 20-year anniversary report states that for every dollar Acumen invests, you recoup 90 cents.
CS: That’s right. When Acumen started, it promised philanthropists that $1 would come back for every dollar they invest in—that’s not including the costs.
But unlike building a school where once it’s built, the project is over, when they invest in a company, if it’s successful, the impact grows and this lasts over the lifespan of the company.
The 90 cents created the assumption that we’ve monetised every company based on a certain valuation. But there are certain aspects of the companies that haven’t been monetised yet, meaning the super-conservative valuation we use can still rise or fall, so it could be more or less than 90 cents.
What makes us feel good is we’re close to one dollar and we’ve impacted 380 million lives which are not factored into this equation.
So if anyone is asking themselves why they’ll want a 90 cents return, remember that between the 90 cents and the $1.20 they’re probably expecting is the value they place on impact. That’s the type of mental shift we want people to make.
DA: Fair enough. What type of financing instruments do you use to fund your projects?
CS: We now have a structure that’s called a returnable grant. Here’s how it works: For instance, a foundation gives us a $10 million grant, out of which $3 million is for our expenses. The foundation then says whatever return we receive up to $7 million will be returned to them, so they can redeploy. Returns above $7 million will be split between Acumen and the foundation.
It’s a novel approach. We’re constantly thinking about novel approaches to bringing more capital into this space.
Traditionally people give to their school or different causes and get a tax break, which is what most wealthy individuals do. Now we’re looking at a whole spectrum of possibilities; donors get to choose whether they want to give to charity or to impact investors.
DA: Yes, it’s a whole spectrum of possibilities. Let’s talk about your profit fund, grants, and even carbon credits.
CS: We’re known for using philanthropy in a novel way, but what led to the profit fund is that we gained an enormous amount of expertise in the off-grid solar market. Some of the companies that we had invested in needed more capital, and more traditional impact investors weren’t coming in. So we decided to create a more traditional fund that promises returns. We weren’t promising market returns and we made impact criteria for the management to get the upside, which is very different from traditional funds. It’s embedded in their carried interest—the percentage of profits that are paid to the managers of a fund.
It can be confusing to some people because they wonder why we’re doing impact and also doing traditional. We’re doing them for the next stage of capital that is still needed because those companies still have problems raising money because they are impact-oriented.
Think of it as a spectrum. We’re starting to experiment and pushing out the spectrum to see what it looks like.
In the spirit of experimenting, we’ve also gone back to these companies at a very early stage and started an angel programme. We’re giving out $50,000 grants once a year to those building a super early stage. It’s a grant because they’re not stable enough to make promises and we don’t want to have to deal with that.
One of the biggest mistakes early-stage companies make is promising that they can pay back a debt. There’s just too much uncertainty.
We’re also exploring carbon credits and thinking of how we could develop a fund that helps our portfolio companies. I visited Koolboks, one of our portfolio companies, and they use carbon credits because they are offsetting diesel costs with their products.
Carbon credits are a way to bring more funding into the space. Companies like Koolboks can use carbon credits to enable them to grow faster, and it doesn’t have to raise equity and debt.
DA: Fascinating. Beyond companies, I know you also invest in individuals through the Acumen Fellowship programme which has been running for a few years now.
CS: The fellowship is pure philanthropy, but it’s also more traditional because we’re funding a fellowship by training these change agents.
Having said that, we’ve always been focused on using a bunch of financial tools but the objective is the same: to use market forces on the investment side to actually solve problems.
But we’re also focused on leadership as a tool to drive change within the private and public sectors. Capitalism has shown its flaws. It has too much power, you could argue it has more power over the government. You could also argue that civil society isn’t powerful enough and is actually controlled by capitalists because they’re the donors.
We believe in moral imagination: the humility to see the world as it is, and the audacity to imagine the world as it could be.
What I think is admirable about Acumen is that it believes fundamentally, you have to stay close to problems and you have to listen to the voices and solve their problems through human-centred design. Beyond seeing, you also have to have the courage to imagine how the world could be and then work on it.
If you sit with these fellows from across Africa, you’ll notice that it’s deeply ingrained in their mindset that they have no choice but to do what they’re doing. All of them have a very high opportunity cost of living in Nigeria instead of moving to Canada or the UK or the US because there’s a brain drain that’s happening, yet they choose to remain on the continent.
They see a problem and sincerely believe it can be solved. They believe they can make a significant difference in whatever it is that they choose. That’s moral imagination.
Now we’re thinking about building a bigger community and including other accelerators that teach some of the same things or where members can take multiple courses from Acumen Academy. We want to keep on building a local and global community.
A Nigerian fellow had earlier mentioned she found another fellow in Bangladesh who was doing the same work that she’s doing. We’re looking to create a global community where people solving similar issues can connect and learn from each other.
It’s the support of the community, the network, and the resources that make them able to move faster to solve these problems.