NB Financial Innovation
Live from SOCAP, Thursday
Wednesday at SOCAP16 was mind-spinningly hectic (read our recap here) and today promises to be just as busy. We’ve got more Facebook Live interviews lined up with key attendees (follow our Facebook page for updates), plus we’ll attend and report on various sessions, monitor the tweet-o-sphere and otherwise meet and greet as many people as possible. We’ll update this post throughout the day, so check back often!
Kristina Skierka, campaign director of Power for All, doesn’t love the term “patient capital.” After all, the working assumption behind Power for All is getting more people, as in billions more people, connected to affordable energy sources by 2025. Being patient, Skierka explained during the “Advancing Clean Energy in the Developing World“ panel, doesn’t exactly mesh with that goal. Danny Kennedy, managing director of California Clean Energy Fund, who moderated the discussion, didn’t miss a beat, coining the term “urgent capital” as a more apt phrase. The exchange highlighted a sometimes dimly lit issue for energy tech in emerging markets: What form of capital best pairs with an early-stage enterprise? When is patient capital appropriate, when is long-term capital better – and seriously – what’s the difference between them?
“The patient capital is mainly around getting (the company) to the solution right before you scale,” explained Karthik Chandrasekar, a partner at Sangam Ventures. “The long-term part … is everybody just wants to turn the (light) switch on.”
Put another way, patient capital is probably best suited to the startup solar lantern maker, for example, where a financial exit is on the five-to-10-year horizon. Long-term capital investors, who would like to see a steady return on investment, probably should be putting money behind larger-scale technologies, such as microgrids, which incidentally may not be the best investments for venture capital firms.
“Aligning the right type of capital with the right stage of technology is something we need to get a lot better at,” Alexia Kelly of Allotrope Partners said.
The question of what is the right technology solution for low-income people still depends on who you ask.
“Solar home systems are not scalable and do not give people the choices you and I enjoy,” said Paul Makumbe, founder and CEO of Sunergise, which has constructed two microgrids in Fiji.
But Justin Guay, program officer at the Packard Foundation, said it was unhelpful to pit one sector against the other. The bigger issue, in his view, was getting money off the sidelines through new funds that de-risk what is often an inherently risky investment.
“(Nothing progresses) if we don’t align our own risk appetite with the realities of the market … if that’s the role we’re playing we’re not catalyzing anything,” he said.
Remittance fees. Overdraft fees. Account maintenance fees. “The amount that we spend because someone else is holding our money is staggering,” says Ram Palaniappan, president of Activehours. He was part of a lively discussion (in a packed room) called “Low Money, No Problem: The Potential for Tech to Empower Low-Income Individuals.”
In Palaniappan’s view, low-income customers need tools to help them time their income to their expenses, so they have money when needs arise, and don’t have to resort to paying these fees. (Not coincidentally, his company provides that by helping working people tap into their pay before payday.)
But what if, even when financial tools exist that can help low-income customers, they don’t use them? That’s a problem plaguing the mobile money sector, said Dave Kim of the Gates Foundation, where there’s a “huge chasm between awareness of mobile money, and actually using it.”
One reason for that gap: trust, which Kim called “a critical infrastructure point” for sectors like mobile money that offer financial tools to low-income customers. As Juntos CEO Ben Knelman put it, these companies are asking hundreds of millions of people to do something they’ve never done before, in using mobile finance – and the stakes are particularly high, because they can’t afford to make mistakes with their money.
Further complicating the trust issue is the fact that these customers are often reluctant to ask for help when they’re confused by unfamiliar financial technologies. “Having a bank account is part of the clothing of being in the middle class,” Knelman said. “Customers think: ‘If I ask a question, I may reveal that I don’t really belong here.’” According to Kim, mobile money agents could be a key to overcoming this reluctance and making customers comfortable with digital finance technology, serving as “stepping-stones in the leap from cash to digital.”
In discussing other solutions, Knelman spoke of the value of working with existing ecosystems – if incumbent players change a tiny bit, he said, it can impact tens of millions of people. But as Palaniappan pointed out, these established institutions are not always happy about the work of impact-focused finance companies, since helping customers avoid fees is not so good for banks’ bottom line.
An audience member brought up another much-discussed solution to transforming finance: blockchain technology. In response to the question of whether it’s harder to build customer trust in a decentralized system like blockchain or a centralized one like traditional finance, Knelman didn’t mince words: Though blockchain technology has great potential, he said, the way this technology is used currently (ie: bitcoin) is “noxious and actively regressive … built for a world that doesn’t believe in trust.”
Today’s Facebook Live Interviews
Convergence describes itself as “the first and only platform that connects and supports private, public and philanthropic investors for blended finance deals in emerging and frontier markets.” NB contributing editor Scott Anderson talks with Convergence CEO Joan Larrea about the platform’s approach and the growing momentum behind blended finance.
Maya Chorengel, founder and managing director of Elevar Equity, sat down with Scott Anderson at SOCAP to talk about the future of impact investing, the present state of impact metrics and (to the extent she could) the role Elevar will play in a new $1 billion fund that TPG Growth is creating. As The New York Times reported earlier in the week, TPG, which was an early venture capital investor in the likes of AirBnB and UBer, will is now putting together a $1 billion fund targeting social enterprises. Elevar will be partnering with the VC giant to execute on it.
Anish Thakkar, CEO and co-founder of Greenlight Planet Inc., which makes ultra-affordable solar home lighting for people in the developing world, gives some insights into his business and tells NB’s Scott Anderson that this is his first year at SOCAP, and he’s enjoying the partnership vibe he’s experiencing.
Morgan Simon, managing director of Pi Investments, talks with James Militzer about transformation in the world of investing. Key quote: “I don’t want to wake up in 30 years feeling like we had incremental change but the fundamental economic structures didn’t shift. So that’s the opportunity that we have. Let’s be both patient and impatient in how we make that happen.”