Impact investing firm breaks a billion

The leaders of Leapfrog Investments are out to prove those who doubt that impact investing can scale and attract big dollar figures wrong. Last week, with a big commitment from the Overseas Private Investment Corp., it took a step in that direction as it became the first billion dollar equity impact investing firm.

Leapfrog, which invests primarily in African and emerging Asian countries, has always been “obsessed with scale,” according to CEO Andy Kuper. Since then the obsession has grown both because scale matters in financial markets but also because the scale of the need from the poor is immense. It’s a balance he describes as “scale for profit and purpose.”

Leapfrog’s strategy has been to have development finance institutions anchor each of their fund raises, but the bulk of the capital is coming from major private sector investors, including Zurich, Swiss Re, TIAA-CREF and AXA.

Leapfrog’s current funds reach 51.8 million people, the majority of which are low income and emerging customers in Africa, Asia and Latin America, who live on less than $10 a day. The company makes private equity investments of between $10 million and $50 million primarily to businesses in the financial services, insurance and healthcare industries. It then provides a lot of technical support from experts on staff to those companies to support their growth.

Devex talked to Kuper to learn more about how Leapfrog reached this milestone and what it means for the company and the industry.

Impact investing skeptics have often questioned the industry’s ability to scale. This is a pretty significant landmark for Leapfrog. What do you think it says about the broader impact investing market?

We’re at a transformational moment in the history of impact investing. I should say that the skepticism on scale and commerciality have been there from the start. When I started leapfrog in 2007 many people thought you couldn’t raise an impact fund of more than $100 million and you couldn’t do an impact deal of more than $3 million. Here you see Leapfrog with over $1 billion in approved commitments and doing investments that range up to $50 million.

So the perception that the field is uncommercial or is not at scale is no longer correct. Reality has proved the skeptics wrong. None of that is to say that there isn’t a spectrum in impact investing. There are people making very small investments, there are people making big investments. There are people doing impact investments instead of philanthropy and there are people who are trying to outperform KKR, Carlyle and TPG … It is that combination of profit with purpose, of not compromising or considering it a trade off between profit and purpose but rather seeking the synergy of profit and purpose that’s been so appealing to so many investors, so many team members and so many companies where we’re now invested.

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Eight Reasons to Invest in African Tech Innovation

Astute international investors are finding promise in the African digital renaissance, where a decade of rapid economic growth is cause for consumer spending to exceed an estimated $1 trillion annually by 2020, according to Forbes.

In Africa, the middle class is growing, populations are urbanizing, IT infrastructure is improving and cell phones and mobile payments are more widely used than in most of the world. All of this has combined into a recent technology startup boom that has international investors salivating for more.

The company I founded, 3G Direct Pay, is an online payment processor servicing the African market. And we have seen the result of the mobile payment technology boom firsthand. In a region where many consumers do not have debit or credit cards, mobile payment technology has undergone drastic development in recent years, and it is continuing to advance. With providers like 3G Direct Pay, along with M-Pesa, Airtel, MTN and Tigo, among others, it is clear that the mobile payment technology sector in Africa is growing, developing and becoming an integral part of society.

Not only mobile payment technology is on the rise. Technological developments in other sectors are also becoming stronger. There are eight main reasons why African technological innovation is a wise investment:

1.    POPULATION GROWTH

While other countries, most notably Japan and Eastern Europe, are seeing a decline in population growth, Africa is home to 1.2 billion people and is growing at more than 2 percent a year.

Six of the 12 fastest-growing countries in the entire world are in sub-Saharan Africa.

2.    ECONOMIES OF SCALE

Kenya, for example, has the third-fastest growing economy in the world, behind only China and the Philippines. Kenya accounts for 40 percent of the gross domestic product of the East African Communities (EAC), and its currency is the best performing one in the region. Its nascent economy is bolstered by a highly educated, English-speaking and youthful workforce. Some 60 percent of Kenyans are 25 years old or younger.

Another great example is Nigeria, Africa’s largest economy – even ahead of South Africa – boasting telecom companies and advanced banking options. The Economist reports that its economy has been growing at an average rate of around 7 percent a year over the past decade.

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The Challenges of Starting Your First Impact Fund

Why It’s So Hard To Launch One And What Capria Is Doing About It

Starting an impact fund is HARD. New fund managers need to overcome major challenges, such as:

• Convincing investors their investment/impact thesis is credible and they possess enough practical experience to compensate for a nonexistent track record.
• Effectively managing the fund and sourcing investments in high-quality entrepreneurs.
• Having a viable exit strategy.

My partner Will Poole and I started Capria earlier this year to help first-time global impact fund managers address these challenges and bring more early-stage capital into impact investing.

My first fund, the $23 million Unitus Seed Fund, is now the leading impact seed stage investor in India. In addition to the challenges listed above, at Unitus, we are:

• Investing in a challenging market known for corruption
• Building a quality investment team and operation on a lean budget
• Restricted as a foreign capital investor to only investing with “equity”
• Raising a good portion of capital inside of India
• Trying to make money and improve the lives of millions at the same time

The support of Unitus was critical to our success. In 2000, Unitus’ founders sought to pool their resources and talents (hence, “unite us”) to help rebuild broken capital markets serving low-income populations in emerging economies such as India, Africa, Latin America and Southeast Asia. Unitus sees opportunities through the eyes of local entrepreneurs and then invests capital to build new profitable, scalable businesses with built-in community impact. Capria is the next logical step, bringing the successful Unitus model of incubating first-time impact funds to the rest of the world.

To show why Capria is valuable for new fund managers, below are the major challenges, suggestions on how to mitigate them, and how we believe we can help.

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Did Zuckerberg and Chan Just Become the World’s Biggest Impact Investors?

Much like a cheery Facebook status update, millions of people immediately clicked the “like” button when they saw the announcement by Mark Zuckerberg that he and his wife, Dr. Priscilla Chan, plan to give 99 percent of their Facebook fortune toward somewhat vague social, environmental and health causes. The announcement, which came in the form of a letter to their newborn daughter, seemed to have had something for everyone, including the social enterprise community, which picked up on this line: “Can we cultivate entrepreneurship so you can build any business and solve any challenge to grow peace and prosperity?”

But after it sunk in that the happy couple would be placing most of their (as of now) $45 billion in Facebook stock into a limited liability company (gasp) that could invest in companies that generate profits (double GASP!), the excitement cooled just a bit. In fact, many might have reached for an “unlike” or at least an “uneasy” button on the Facebook dashboard (if one existed) when they learned from news sources like The New York Times that:

“An L.L.C. can invest in for-profit companies (perhaps these will be characterized as societally responsible companies, but lots of companies claim the mantle of societal responsibility). An L.L.C. can make political donations. It can lobby for changes in the law. He remains completely free to do as he wishes with his money. That’s what America is all about. But as a society, we don’t generally call these types of activities ‘charity.’”

And as reported in DevEx:

“… Zuckerberg and Chan are also positioned to gain from this gift. The vehicle for the $45 billion is an LLC, which will allow Zuckerberg and Chan to transfer their private assets into a family foundation without paying capital gains taxes. The move could also lead to tax benefits of as much as $333 million on the first $1 billion transfer.”

Many critics pounced, with some railing against the notion that we as society have now turned to the mega-rich, instead of government, to cure social ills. Others, including Jessie Spector, executive director, Resource Generation on Huffington Post, took it as another sign of rich protecting rich interests:

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