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Venture capital with a difference

Venture capital with a difference

Markets have failed the world’s poor, governments cannot reach everyone in need and charity creates dependence.

So how can the world help its poor who form a third of its population? There is no simple answer to that.

But innovators around the globe are constantly seeking to find solutions to the problem and help mitigate the sufferings of the poor.

Jacqueline Novogratz, who had spent 15 years in finance and started Rwanda’s first micro-finance bank before she went on to found Acumen, the patient venture capital fighting global poverty since 2001.

“...I have seen that markets create great efficiency, but they do not help poverty. Other topdown traditional approaches to government and charity alleviate immediate suffering, but too often create dependence,” Jacqueline, who was in Lahore earlier this month to share her experiences at the Lahore Literary Festival (LLF), told Dawn in an interview.

Patient capital combines philanthropy and power of markets to create choices and opportunity for the poor and ‘develop sustainable, private sector solutions to widespread, public sector problems’.

“And if I have learnt one thing it is that the opposite of poverty is not wealth; it is empowering people to make their own choices and create their own destiny. If we really want to give people choices and solve poverty, we need to focus on dignity,” she argued.

Patient capital is money invested for an extended period of time in entrepreneurs building companies focussed on solving problems like water, housing, alternative energy, healthcare and education, and enabling the poor to change their lives.

“What we do (at Acumen) is take philanthropy but invest in entrepreneurs for trying to solve the problems where governments and markets have fallen short... When money comes back to Acumen - and we intend to take our money back - we invest it in other entrepreneurs,” explained the author of The Blue Sweater, the New York Times best-selling memoirs detailing her story and inspiration behind her pioneering work.

Globally, Acumen has invested around $100m in 85 companies in India, Pakistan, East and West Africa, and Latin America.

Its unique market-based model has created 60,000 jobs, impacted approximately 125m lives, brought around half a million dollars into the companies it has supported, and is changing the way the world tackles poverty.

“Working in Kenya and Rwanda I have seen so many good intentions leading to nothing... to poor results. The more I worked with the poor the more I saw human potential in all of us. Charities depress that potential, governments cannot reach everybody, the private sector overlooks or exploits (the poor). So I thought there has to be a better way (of helping the poor),” Acumen’s founder reminisced.

Acumen had been operating in Pakistan since 2002. During this period, it has invested $15m in 11 companies working in agriculture, education, energy, healthcare, housing, and water and sanitation, created 3,500 jobs and impacted the lives of about 4m people.

“The poor live in a market system. They cannot get anything if they don’t pay for it. So what if we found individuals who are trying to build systems that allow the poor to pay a price they can afford.

“The patient capital approach we are pursuing at Acumen represent integration of charity and commercial sector to allow the poor greater choices. It is all about trying to build systems that solve problems,” Jacqueline emphasised.

She is confident that the market-based model she had pioneered 15 years ago has helped the poorest of the poor to ‘extraordinary levels’ and that the businesses Acumen has supported over the years will continue to serve them even when the venture capital exits them.

Acumen raises funds from individuals, foundations and corporations. More than 60pc money is raised outside the US in countries where it operates. “People want to support us because they see that we are making a difference.”

Acumen is for all purposes a venture capital but with a public spirit. “We’re different from venture capitals in the sense that we invest between $250,000 to $1m for an extended period of 8-12 years in early-stage companies that serve the poor and no one else will invest in them, and we are very much focused on measuring social impact. For us success is not profits, but that we are serving people and changing the systems. Our objective is to help businesses that improve the ability of the poor to live with dignity,” Jacqueline concluded.

Published in Dawn, Business & Finance weekly, February 29th, 2016

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