7 minutes read
At the AVPN Global Conference 2023 held in Kuala Lumpur, Malaysia, from 21-23 June 2023, the session Discovering Best Practices in Catalytic Capital Deployment in Asia explored specific challenges and tangible ways to overcome them. Jenna Palumbo, the Executive Director of Effective Philanthropy at Minderoo Foundation, Ritu Verma the Co-founder and Managing Partner at Ankur Capital, Wonyoung Kim, the Executive Director of Crevisse Partners, took part in the conversation which was moderated by Stacy Xiao, Program Officer at C3 and New Venture Fund.
Several key insights struck a chord with us:
Viewing Philanthropic Capital as Catalytic Funding
“Foundations can play an important role in blending grant making and impact investing to build investment readiness and the ecosystem. It’s challenging, but worth the investment.” – Jenna Palumbo, Minderoo Foundation
While grant making is powerful – given its impact focus and risk-tolerance – it is undeniably finite. Long lasting systems change can only occur by tapping into the entire continuum of capital. However the transition of philanthropic capital into catalytic funding continues to be impeded by a two-pocket mindset which sees philanthropic and investment capital as entirely distinct. Pioneering philanthropic organisations like Minderoo are dismantling this dichotomy, recognising that a combination of both philanthropic and investment capital is essential to supporting organisations in being able to take on bigger investments and building a stronger and more resilient pipeline.
Jenna Palumbo noted that pragmatically speaking, the shift beyond traditional grantmaking takes both enduring patience, internal promotion and education, and trusted partnerships to realise. With distinct and independent approval and reporting processes, different information about the grantee is required to conduct due diligence and effectively deploy catalytic funding.
Jenna also emphasised how neither approach is inherently “better’’ than the other and that mutual respect and understanding must be fostered among stakeholders, both internal and external. An interested philanthropist would need to be willing to invest time to explore their options, learn about alternative financing mechanisms and identify like-minded partners once they have chosen the approach that addresses their particular impact objectives. In addition, identifying the right grantees can potentially help alleviate gaps in information, and even support funders and resource providers in navigating legal and governing regulations in their communities.
Collaborating with investees to align objectives
“The blended finance structure with private equity provides a ground for private capital to be invested in deals that might be less market-ready. However, the key to the success of the investment lies in the value-up process of the investees, wherein investors must ensure that the blended finance actually work for the team, [including] the investees” – Wonyoung Kim, Crevisse Partners
As Wounyoung Kim observed, investees within innovative financing structures often have to bear other responsibilities like additional restrictions and multiple reporting standards to cater to different investors. This can make navigating innovative financing structures more complicated than single investor funding. It is important to understand and execute the funding and the transaction structures of various blended finance archetypes in compliance with local laws. This must be done while upholding the integrity of investment decisions and effectively managing stakeholders’ interests.
This is particularly crucial for impact investors targeting market-rate or above market-rate returns so that the blended finance structure does not compromise the investment strategy but instead remains aligned with the investment thesis. Regardless of the type of blended finance structure employed, the effectiveness of the financing solution ultimately boils down to high touch engagement with investees, keeping capacity building at the core.
The panellists emphasised the importance of journeying alongside investees, who in most cases, have nascent business practices and models. Minderoo and Crevisse actively engage with investee companies as board members, co-creating impact metrics and providing guidance on business strategies. Crevisse in particular, prides itself on the private equity approach wherein the company establishes close partnerships with investees, engaging in business development, resource allocation, and talent development. This is seen also as an opportunity to strengthen and grow the entrepreneurship ecosystem. For instance, should an investee company fall short on its impact targets, Crevisse holds intimate, on-site workshops in Korea to collectively identify and evaluate problems.
Managing externalities for long-term impact
“A misalignment between your impact vision and what can be done realistically on the ground would be setting oneself up for trouble” – Ritu Verma, Ankur Capital
Ritu Verma of Ankur Capital noted that underserved geographies and sectors often present key challenges, where core elements of robust markets are absent. There is unregulated risk and greater margin for error that could potentially hamper funding and transactions in the long term. Coupled with an incomplete understanding of markets and unproven business models, there are bound to be externalities to manage when investments are made.
An attendee raised a question about how investors should account for negative externalities and unintended outcomes. For example, farmers may start to use chemical pesticides to boost food production, but this increases exposure to toxins which can affect our health. Similarly, while funding agricultural production improves food security and tackles poverty, crop yields are threatened by climate change.
Ritu stressed the importance of crafting strategies that are in tune with local markets, keeping in mind potential long term outcomes. Innovative financing solutions need to be rooted in the needs and circumstances on the ground for them to work effectively, and leverage existing systems, inadequate as they may be, to find solutions that would aid the transition towards more sustainable, productive systems.
Despite their differing approaches and focus areas, the panellists were in agreement that maximising the impact of catalytic capital requires alignment between investor and investee and is a key to achieving effective solutions which can lead to lasting change.
This article is part of an ongoing partnership with Catalytic Capital Consortium. The Catalytic Capital Consortium (C3) is an investment, learning, and market development initiative to promote greater and more effective use of catalytic capital, in recognition of its essential role in realising the full potential of the impact investing field, including in achieving the Sustainable Development Goals.
About the AVPN Conference 2023
Held in Kuala Lumpur from 20 – 22 June 2023, the AVPN Global Conference 2023 convened more than 1,300 delegates from 44 countries. Most notably, the inaugural Impact Investment Day was held on 21 June 2023, bringing together a gamut of stakeholders dedicated to exploring innovative solutions for achieving both sustainable market and impact objectives.
Meet the panel
Jenna Palumbo is the Executive Director of Effective Philanthropy at the Minderoo Foundation where she heads their Effective Philanthropy team. In line with the foundation’s pursuit of driving change through bold and innovative solutions, Minderoo actively works to bridge the gap between traditional grant making and impact investment. Catalytic capital is seen as complementary to advancing their philanthropic aims. As part of Minderoo’s $250 million Strategic Impact Fund, $3 million has been allocated to catalytic capital.
Ritu Verma is the Co-founder and Managing Partner at Ankur Capital, an early stage venture capital firm that invests primarily in digital and deep science technologies focused on creating impact in responsible agriculture, inclusive growth and climate action. Ankur Capital was a first-mover in Indian agritech and prides itself on channelling capital to underserved segments and industries.
Wonyoung Kim is the Executive Director at Crevisse Partners, an impact investment firm investing in early and growth stage startups. Crevisse manages impact funds and blended finance, totalling over $50 million in the area of forestry & agriculture, as well as energy & environment. The company has been running ImpactX since 2016, a sustainable trade investment programme, in Southeast Asia and East Africa, to promote cross-border trade and increase firm value.
Stacy Xiao is a Program Officer at C3 and New Venture Fund. New Venture Fund manages the C3 Grantmaking Program, an initiative that supports field-building work in promoting greater and more effective use of catalytic capital.