February 2, 2017
Authors: Amanda Kee and Khadija Ahmed
AVPN kickstarts 2017 with lessons learned by Jack Knellinger of Capria and Ray Chen from B Current Impact Investment Co, members of AVPN.
Capria is a global impact investor that accelerates the flow of capital to businesses in emerging markets by addressing the “missing middle” finance opportunity. In short, Capria provides seed capital to relevant existing and promising fund managers, positioning themselves as anchor investors. Thus, Capria is successful in amplifying emerging funds’ performances while accelerating their impact. B Current Impact Investment Co, is the first impact investment fund in Taiwan. BCI2 was founded in April 2014 by 42 angel investors across Silicon Valley and Asia.
The Webinar kicked off with laying the foundation for launching an Impact Fund. Impact investing refers to investments made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside financial return. Jack Knellinger described the two types of impact Investors. While some prioritize high financial return (profit-maximizing firms), others focus solely on social impact (traditional philanthropists), Capria and B Current balance both types of returns – high financial and social returns.
But in order for a high return and high social impact model to be successful, there are numerous obstacles that must be overcome through challenging tactics. Here are 4 key insights to build your sustainable and strategic investment models:
1. Research + Preparation are key foundational touchstones.
Ironically, the stamp of success is not plunging headfirst into the foray to bring aboard as many investors as possible. Indeed, the preparation process, or as Capria likes to call it, The Art of the Preview, is arduous. From reaching out to successful fund managers who perform optimally and consistently (identifying traction), looking out for good deals that speak to your investors (value alignment), to ensuring sustainability (right-sizing your fund) – there are numerous cracks that must be covered before launching your mission.
Knellinger emphasized the importance of fund managers’ track records that will exponentially help build investor confidence. The ideal fund manager will be a seasoned professional with angel/venture/financial investing experience, i.e,“skin in the game.” They will demonstrate quality dealflow, and have a modest amount of LP capital already committed proving their interests are aligned. Moreover, investors should also be committed for the long-run–around 10 years on average.
While fund managers may have overcome challenges establishing vital networks and accumulating experience in the process, they must also prove their intangible values, like integrity. This is a must in order to unlock that first level of barrier between you and the other investors and fund managers.
Knellinger and Chen could not emphasise enough the importance of personal engagement with investors even before finalizing a team. Don’t abruptly and overwhelmingly launch deals at your first meetings with potential investors. But also don’t peak the investors’ interests and then take months to get back to them.
Chen reinforced Knellinger’s point to give the research step due diligence in order to drive a sustainable business model. For Chen, sourcing for ‘good’ deals through continuous development, testing, and refining of ideas is the toughest part of the research process, but essentially always pays off.
2. Be personal; build that trust.
Once you have selected the right team, Knellinger and Chen advocate for mutual communication to involve investors more deeply in your projects.
A key step, therefore, is to: listen. After introducing your team direction, prioritize getting feedback and advice from your investors in order to understand what they are excited about. Seek their recommendations and referrals, and show that you treasure them as your mentors and advisors. Investors have a variety of needs and requirements which you should assess and tailor to your impact investment model.
And above all: transparency; make sure your mission and primary drivers are articulated clearly upon meeting with investors. This can also be done through sharing knowledge.
Chen recognizes that experience record is crucial to securing investments and, thus, offers “Welcome Packs” for his investors in order to bring them up to speed with what B Current does, thus, inspiring further mutual and personal involvement between the parties.
3. Market-Ready Awareness
Once fund managers and the project team have completed their primary fundraising, they must:
– prepare all legal documents
– master topic-specific due diligence
– follow all the laws of the country where the investment is taking place
Only then is the team ready to launch!
4. Construct an Impact Measurement (IM) system.
For Chen, IM is not just a communication tool to present your portfolio, but IM is also a criteria for investment.
Knellinger prioritized the need to incorporate IM into the investing process and focuses on gathering meaningful metrics to quantify impact which can be difficult because the intangible and abstract nature of data. IM looks into both qualitative and quantitative measures to assess both impact and investment in relation to one another.
Knellinger went into detail about the multiple potential standards for impact measurement and reporting: He provided thorough and thoughtful advice for each one with a link for more detail.
o IRIS – comprehensive set of metrics to choose from and create your own framework. Standardization of the metrics makes it broadly comparable to other funds. IRIS is easy to align to given the comprehensive nature of their metrics and standardization across sectors and geographies.
o B-Analytics –a web analytics platform to measure, benchmark and report impact created by funds and social enterprises, B-Lab offers a Comprehensive Assessment of social and environmental data, thematic & industry data assessment and custom data assessment.
Capria believes these assessments are not always suitable as all aspects are not measurable by seed stage companies.
o GIIRS Ratings and Analytics – B-Lab also provides GIIRS ratings for venture funds that are rigorous and comparable across companies and funds.
Capria agreed with the intent to create a gold standard and cause systemic change in the impact investing space over time. However, until very recently, it did not consider the size/stage of the business.
o PRISM – Recently launched at Sankalp 2014, it is a venture fund rating tool normalized to the Indian context. Considering multiple perspectives, the tool is adaptable to each fund’s mission and needs in terms of the assessment and reporting.As one of their Pioneer Funds, Capria participated in their Beta testing and provided feedback from a seed fund’s perspective.
Chen emphasized that sharing and transparency facilitates IM.
By sharing knowledge on IM, B Current Impact Investment Co facilitates an open system. This open system allows for a steady flow of communication within the team. And successful rapport about authentic assessment and review allows and guarantees productivity in the investment team.
Build the right team; Perfect the Preview; Know when to Go-To-Market; Measure what Matters.
Look out for more webinars on interesting topics and be ready to tune in and ask questions!