Scott Anderson

Weekly Roundup: E+Co’s Slow Burn and What it Means for Impact Investing

For months the story of E+Co, the veteran non-profit investment group that has financed nearly 200 small enterprise, renewable energy firms serving low-income customers, has simmered.

In January, CEO Christine Eibs Singer left the nonprofit she co-founded back in 1994. Press releases from E+Co that paid tribute to departing managers soon followed. In July, the company announced its lenders had authorized a restructuring process that would likely be completed in September. Then earlier this month, in an Impact IQ article titled E+Co Avoids Liquidation – Barely – and Emerges Persistent, things boiled over. According to the article:

“After months of difficult negotiations with its own lenders, E+Co as a nonprofit financial institution will largely cease operations and transfer what remains of an approximately $30 million loan portfolio to private-equity fund managers. The rump of E+Co’s African investments, totaling about $5 million, will be managed by a for-profit spinoff of E+Co, to be called Persistent Energy Partners, with offices in Ghana and Tanzania as well as New York.

“The restructuring has approval by five major institutional investors, led by the International Finance Corp., that hold 80 percent of E+Co’s debt, and is being reviewed by more than 30 smaller holders of E+Co notes, including foundations, churches and individual impact investors. About half of the value of E+Co’s portfolio has been written off or written down. Under the restructuring plan, creditors will cancel E+Co’s debts in return for a stake in the remaining assets and a portion of any loan payments collected.”

That may be the tough bottom line, but many other issues further up the balance sheet are in dispute. For instance, of the 190 companies that E+Co invested in, 75 repaid their obligations in full and E+Co oversaw six equity exits, Eibs Singer has said.

But after a review of the outstanding loans, “the board had concluded that E+Co had breached covenants of its agreements with its own investors and was required to disclose the problems to its five largest creditors, including International Finance Corp., an affiliate of the World Bank,” according to the Impact IQ story.

The question of what is next for the entity now known as Persistent Energy Partners followed Christopher Aidun, who had been a managing director at E+Co and assumes the role of CEO for Persistent. At the Columbia Social Enterprise Conference last week, here’s some of what he had to say about the restructuring:

“In the process E+Co will be shedding its portfolios in Asia and Latin America. We will adopt a different form, that of a B Corp that is mission-driven not profit-driven, but we will run ourselves like a professional fund,” Aidun told the audience. “Going to the B Corp allows us to use a structure that everybody is comfortable (with). We are really investing in the business that we are funding, we are really operating like a finance company or private equity company so we might as well adopt that DNA, but we don’t have to be driven by profits. So for us it was an easy fit.

“… When we and our creditors looked at how to restructure the organization one of the conclusions that we came to is that it is not necessary to be a non-profit. Certainly there is nothing wrong with being a nonprofit theoretically, but frankly our creditors had a problem with it,” he added.

As Impact IQ pointed out, Eibs Singer in a case study in MIT’s Innovations journal last year advocated for a hybrid model at E + Co. Under that strategy, non-profit activities such as capacity building and technical assistance for entrepreneurs would remain with E+Co, while investments would be managed in a separate for-profit equity fund. Moving solely to a private equity model presumably means jettisoning those services, which aim to develop entrepreneurs hand in glove with investments.

Arbitrating who’s right in this he said-she said volley is next to impossible. The board seems to have had a tough call to make – liquidate or try something new. At the same time however, perhaps Eibs Singer’s strategy toward a hybrid model could have proven successful, if given more time.

E+Co’s effective demise raises questions beyond those of the immediate management, governance, due diligence and investment squabbles. Those factors are relevant of course, but the central point illustrated by the E + Co story is what it means for the impact investing sector writ large, especially because E+Co was (rightly) viewed as a pioneer and a success story. But what about all other operational funds out there, or those just taking shape? How many are engaged in the same push/pull over appropriate models? And how many boards/investors are fully attuned to the risks their capital is taking? And how many truly understand (and are comfortable with) what patient capital means in practice?

These are questions we need to ask, and we’re going to keep asking on NextBillion. In the coming weeks, I hope we can learn more from the E+Co situation – not to assign blame but to provide lessons and advance understanding in the sector.

Sadna Samaranayake provided reporting for this article.

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impact investing, renewable energy