NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Saturday, April 5, 2008

By Joel Dreyfuss

The Acumen Fund, a non-profit global venture fund with a mission, celebrated its seventh anniversary this week. A relative newcomer to the world of philanthropy, Acumen has drawn a lot of attention for its entrepreneurial approach to doing good: investing in new companies in developing countries that use technology to make a difference in the lives the people at the bottom of the pyramid.

Acumen?s web site (www.acumenfund.org) bluntly declares founder and CEO Jacqueline Novogratz?s goals on its home page: invest $100 million and make an impact on the lives of 50 million people by 2011. She should easily achieve her objective. Acumen has some $32 million invested up to now in Kenya, India, Pakistan and Tanzania. Funding comes from wealthy individuals as well as institutions like Lehman Brothers, the Bill and Melinda Gates Foundation, and Google.org, the charitable arm of Google.

Some of Acumen?s investments include A to Z Textile Mills, a manufacturer of long-lasting insecticide-treated bed netting in Tanzania to combat malaria. It is now that east African country?s second largest employer; and Water Health International, which distributes potable water to Indian villages using a UV purification technology. Acumen is no micro-lender. Its investments run from $300,000 to $2 million and the intent is to create business models that can be duplicated and scaled up.

Ms. Novogratz, a University of Virginia grad with a Stanford MBA, started out as a banker at Chase Manhattan Bank but soon moved into philanthropy, with her own micro-finance enterprise in Rwanda, then as a director of special projects at the Rockefeller Foundation. We met at Acumen?s modest offices in Manhattan?s fashionable meat-packing district.

Red Herring: How did you come to market-oriented approach to social entrepreneurship?

Jacqueline Novogratz: When we started Acumen, I was looking at three big trends in the world. One: the increasing proliferation of individual wealth and that led to looking for real opportunities. Two: the information revolution that was changing the nature of everything, particularly global, that we were doing. Three: the rise of the social entrepreneur. People my age who had been working trying to build things in the developing world for 20 years realized we were never going to scale innovation unless there was greater access to capital. I started asking why couldn?t we think about financial resources across the spectrum and not worry about whether it was for profit or non-profit and build enterprises that really served the poor.

RH: What does the market do that traditional philanthropy cannot?
JN: The market is the best listening device that we have. If I offer you a gift, you?re going to tell me that you like it. If I offer you something you have to pay for you may tell me you can?t afford to pay — but you may tell me you really want it and I have to figure out a way to get it to you for free. Not all my customers are really going to need it for free. Some of the people are going to have to pay some of the cost. Market-driven doesn?t mean that capitalism will change the world. It?s using the best of markets to deliver basic goods: health care, water, housing, and alternative energy to people who live at the bottom of the pyramid.

RH: What is the role of technology in your investments?
JN: We started in health care and technology. Then we realized people don?t buy technology; they buy services. We then moved toward those innovations in technology that are being driven by the right design, distribution, and marketing.

RH: How do you decide where to invest?
JN: One example is WaterHealth International. The conversation in India and at the UN is that water is a human right and everyone should have it absolutely for free. But 450 million people in India don?t have clean water so let?s experiment. We put $600,000 of equity into a new startup company that?s trying to transfer new technology into India. We support it with knowledge and talent: knowledge around helping with business planning. We sent in an architect to help them with the design of the actual plant and connections. We also saw that for this to work, again, it needs to scale. We worked with ICICI (India?s second-largest) bank, putting up a guarantee so the bank could lend for the first time into rural areas. The company has over a quarter million customers now and they? re sustainable in over 100 villages.

Another example would be East Africa, which is completely different. You not only need manufacturing, you need jobs. Sumitomo had developed a technology to make bed nets in Vietnam and China that last for five years and don?t need to be dipped in insecticide. We made a $350,000 loan to a local entrepreneur in Tanzania (A to Z Textile Mills); again we provided some management assistance. That company now employs 7,000 people.

In all these cases we are the enabler. We find the right entrepreneur. They?re extraordinary individuals and then they grow these amazing businesses. It proved itself to the point that Sumitomo came in as a partner. The company has since raised $12 million.

RH: How do you identify which technologies to invest in?
JN: We identify the entrepreneurs. When it is about a technology play, the technology is already working. We will find an entrepreneur who, more than technology, has a distribution system and an understanding of the market where he or she is operating.

They have to be able to repay in one to three years. Talking to an entrepreneur like Dr. Sono [an advocate of MicroDrip, a drip irrigation technology company in Pakistan] who had a very simple technology that had been proven but who understood what it takes to get poor farmers, who are the most risk-adverse, to adopt it.

RH: I?ve heard that Silicon Valley is stingy about philanthropy?
JN: Silicon Valley has a different culture of giving than New York City. It?s not focused around big events and galas. When there?s real innovation there?s a real willingness to get behind it. They want to give of their time and brains and energy. Older Wall Streeters do as well.

Continue reading “Acumen Fund’s Big Ambition“