A Patient Capitalist
BY Keith Recker | June 3, 2009
Jacqueline Novogratz and the founding of the Acumen Fund
Jacqueline Novogratz founded the Acumen Fund in 2001 as a hybrid entity acting with the necessity and purpose of a non-profit, but the pragmatism and clarity of a financial organization. Eight years later, its 40-plus investments are helping transform the lives of the very poor.
In her new book The Blue Sweater, Acumen Fund founder Jacqueline Novogratz describes the road from banker to international development specialist to an innovative combination of both. Her journey took her to Rwanda, where she helped create a women’s lending organization called Dutirimbere. The women she befriended in the process each experienced a facet of the terrible genocide that later occurred. Theirs are among the stories that are told in the book, along with that of the founding of the Acumen Fund. Novogratz spoke with HAND/EYE about the book and about her innovative and successful venture, its ambitious goals and trend setting methods.
H/E: The Blue Sweater traces the arc of a non-traditional career path. In light of recent events in the banking world, your choices seem inspired and perhaps clairvoyant. But at the time you couldn’t know what was coming. Why do you think you were willing to leave the well-trodden path of a banking career?
JN: Actually, at the time, we were in the midst of another economic crisis, not that dissimilar to the one we’re facing now, except then it was loans to developing countries that got the banks into trouble. My decision to leave banking was really fuelled by an appetite for adventure and, more importantly, by a lifelong desire to make a difference. I didn’t quite know yet what was needed for the latter, but leaving banking gave me the opportunity to find out.
The Blue Sweater chronicles my journey to understand global poverty and find new ways of tackling it. Along the way, I witnessed how traditional charity often fails, but how a new form of philanthropic investing called “patient capital” can help make people self-sufficient and change millions of lives. What I learned from those experiences formed the basis and philosophy on which I founded Acumen Fund.
H/E: The first sections of your book describe a wide range of personal experiences in the developing world, from initial rejection in West Africa to total acceptance and friendship in Rwanda. What was your most vivid and influential friendship in Africa? How did it influence your vision of the continent and of what you might accomplish there?
JN: It is impossible to select a single friendship from my time in Africa, but in many ways, the book is a love letter of sorts to the women with whom I built Dutirimbere, the microfinance bank in Rwanda. My experience with them was such a contrast to their experiences during and after the genocide – indeed, they played out every conceivable role in that tragedy, from perpetrator to victim to bystander. In fact, one of the women, Agnes, the first executive director of the microfinance bank, was recently convicted in Rwanda for crimes of genocide and sentenced to life in prison. I started writing the book as a way of sharing their stories, and to focus on this journey as part of the larger one, starting as a young banker on Wall Street and ending with Acumen Fund as a model that can help the world think – and act – more effectively in building a more inclusive and creative global economy, one that enables all people to pursue their own sense of purpose.
H/E: It sounds as if listening to learn was a fundamental lesson of your early times in Africa. Is this a skill most Northerners usually need to learn with each other, as well as in multicultural settings? Any other key lessons you would like people to consider as they follow their own career paths, no matter the setting?
JN: Listening is a core value of Acumen Fund – one that’s critical at every level at which we work and shared by every member of the organization, but especially so when working with our investment enterprises and the customers they serve. The entrepreneurs with whom we work share this value – and their business success requires that the products they provide are not just critical and affordable, but responsive to the needs and wants of their low-income customers. Our most successful entrepreneurs listen constantly to the needs and the nuanced preferences of their customers and respond with solutions designed around the customers’ behaviors and desires.
From our investments, we gain insights not only about the poor as consumers but about where the market fails entirely. We listen to the poor to understand who they are – how they make decisions, what they prefer when it comes to basics like safe water, healthcare, alternative energy. We regard low-income individuals as customers (even if they have no ability to pay) rather than as passive recipients of charity. In the end, it’s about allowing people to make their own decisions and solve their own problems.
I’ve learned that people usually tell you the truth if you listen hard enough. If you don’t, you’ll hear what they think you want to hear. I’ve learned that there is no currency like trust and no catalyst like hope. There is nothing worse for building relationships than pandering, on one hand, or preaching, on the other. And the most important quality we must all strengthen in ourselves is that of deep human empathy, for that will provide the most hope of all—and the foundation for our collective survival.
H/E: How does the Acumen fund work?
JN: Acumen Fund is a nonprofit venture capital fund that invests in the poor. We don’t believe in traditional aid. We raise charitable funds and then invest – i.e., only equity and loans – in companies delivering affordable, high-quality, critical goods and services like safe water, healthcare and alternative energy. We hold the recipients of our loans and equity stakes accountable to clear goals. We invest philanthropic capital into transformative businesses that are working to deliver critical goods and services to poor customers in Pakistan, India and the East Africa region.
H/E: How did you develop the model that became the Acumen Fund? It’s one of the topics in the book I wanted to understand better: how did your experiences as a consultant with the World Bank and other global institutions lead you to the creation of a new paradigm?
JN: Three trends emerged in the late 1990s: the communications revolution that connected people across the globe; a proliferation of wealthy individuals looking for greater results and engagement from their philanthropy; and more social entrepreneurs using business approaches to address tough problems. I was then at the Rockefeller Foundation and interested in the next frontier of philanthropy. So a small group of committed philanthropists and I worked together to launch a new model based on venture capital and focused on solving tough problems of global poverty.
Since our inception in 2001, the model has been revised based on our learning about the world, especially around how we structure our investments, measure change, and focus on talent and knowledge in addition to capital. Based on our early experiences, we decided to focus on debt and equity investments because of the clarity those instruments provide to both investor and investee. Using our approach of providing “patient capital” is the best way to help our investees transition to more traditional forms of capital which we believe is the best way to help them grow. Indeed, helping our investments move to both scale and sustainability is core to our theory of how big public problems can be solved using private initiative. The organization and approach have evolved over time, as we learn (through trial and error) more about what it takes to build enterprises that can have a sustainable, scalable impact on problems of poverty.
H/E: How many businesses have you invested in? What’s the benefit to the developing world’s entrepreneurs? And their customers?
JN: Over the past eight years, the organization’s investments have enabled over 300,000 of the world’s poorest farmers to double their yields through the purchase of a low-cost drip irrigation system; a quarter million rural Indians to access affordable safe drinking water for the first time in their lives; and more than 300,000 women in Pakistan to access small loans. Acumen Fund’s investments have also resulted in the provision of emergency ambulance services for all in several Indian cities; in a company producing 20 million long-lasting malaria bednets per year; and in a new public-private toilet system enabling 20,000 people a day in Kenya to access clean, safe facilities. In total, the organization has invested more than $40 million in 42 investments in South Asia and East Africa, and it is just the beginning.
H/E: I love the phrase “patient capital.” Can you explain that, and perhaps a couple of other terms unique to the Acumen Fund?
JN: Language is so important. Unfortunately, in the emerging sector of social enterprise, there isn’t always a standard vocabulary that fully describes what we do. So we’ve often had to coin phrases that help us to talk about our work. “Patient capital” is capital invested, often for a long time at below-market returns and supported with management assistance, to help enterprises scale to a level at which they can leverage traditional sources of capital. “Moral imagination” – the willingness and ability to put oneself in another’s shoes – is another phrase that we use frequently to explain what we look for in the entrepreneurs, in our Fellows, in the staff at Acumen Fund.
H/E: What is Acumen Fund’s most impressive success in Africa?
JN: The most commonly cited one is probably our work with bednets. Nearly one million people in Africa die each year from malaria, with children and pregnant women at greatest risk. While bednets are one of the most effective means for preventing the transmission of malaria, traditional nets typically have a lifespan of about six months, and the cost of re-treating a bednet with insecticide every few months is too heavy a burden on many people.
A solution has been a better bednet – one impregnated with a long-lasting insecticide, making them effective for up to five years with no need for re-treatment. But until Acumen Fund became involved, there was no manufacturer in Africa making those nets. We worked with A to Z Textile Mills, a Tanzanian manufacturer that produces bednets, and in 2003, in addition to a loan for the purchase of plant and machinery, Acumen Fund facilitated the transfer of the technology to manufacture the net to A to Z and provided project management expertise in a complex public-private partnership that includes Sumitomo, ExxonMobil, WHO, UNICEF and A to Z.
Following Acumen Fund’s investment, A to Z committed significant resources to production of the long-lasting bednet. They’ve since expanded their facilities, taking their production capacity to 20 million nets per year. A to Z currently employs more than 7,000 low-income workers (mostly women), creating a social and economic benefit to the community – not including the ability to protect millions of families from malaria.
But our presence in East Africa also encompasses investments in other anti-malaria interventions, including the processing of artemisinin and insecticide-treated wall linings, as well as in affordable health care, nutrition products, safe housing for former slum-dwellers, and sanitation services.
H/E: Do you have plans to test any new ideas in terms of the kinds of businesses you invest in, the models you use for Acumen Fund participation, or regions where you might become active?
JN: Every investment is different, so each is really a test of sorts, allowing us to look at different financial structures and solutions. Everything we learn goes into helping us better support existing and future enterprises. In the end, what we’re looking for are models that work, and we’re starting to see that with a number of our investments. Acumen Fund’s focus right now is on creating the largest amount of impact with its capital. This entails concentrating on the investments we’ve made thus far and building up capabilities and resources in the countries and sectors where we work. That said, we’ve always needed to be flexible in how we approach our work, and we adjust according to what we learn. For example, based on our work around issues of water, we’ve learned a lot about the needs of smallholder farmers – who make up a huge percentage of the world’s poor – and have thus added investments in agriculture as a specific focus area.
H/E: What do you think US audiences take away from the book, and from your speaking engagements?
JN: My hope is that the book raises awareness of these approaches and challenges readers to grant dignity to the poor and to rethink their engagement with the world. I hope audiences are inspired to become part of our community that is thinking and talking about solutions that work.
H/E: Any advice on how HAND/EYE readers can participate in efforts to bridge our world’s economic inequities?
JN: Everyone has a blue sweater story, an instance that highlights how interconnected we truly are. The key is to continue to find and build those connections to strengthen communities and systems. For example, there are growing networks of people – students, professionals, practitioners - who are working together to take a new look at the problems of poverty. For whatever issues most concern you, find and engage with the communities looking at solving those.
For more insight into The Acumen Fund and Novogratz’s life and career, read The Blue Sweater, published by Rodale Press, 2009.
To donate to the Acumen Fund and help them expand their enlightened investment strategy, visit www.acumenfund.org.