Guest Articles

December 9

Dave Richards

The Challenges of Starting Your First Impact Fund

Why it’s so hard to launch one and what Capria is doing about it

Starting an impact fund is HARD. New fund managers need to overcome major challenges, such as:

  • Convincing investors their investment/impact thesis is credible and they possess enough practical experience to compensate for a nonexistent track record.
  • Effectively managing the fund and sourcing investments in high-quality entrepreneurs.
  • Having a viable exit strategy.

My partner Will Poole and I started Capria earlier this year to help first-time global impact fund managers address these challenges and bring more early-stage capital into impact investing.

My first fund, the $23 million Unitus Seed Fund, is now the leading impact seed stage investor in India. In addition to the challenges listed above, at Unitus, we are:

  • Investing in a challenging market known for corruption
  • Building a quality investment team and operation on a lean budget
  • Restricted as a foreign capital investor to only investing with “equity”
  • Raising a good portion of capital inside of India
  • Trying to make money and improve the lives of millions at the same time

The support of Unitus was critical to our success. In 2000, Unitus’ founders sought to pool their resources and talents (hence, “unite us”) to help rebuild broken capital markets serving low-income populations in emerging economies such as India, Africa, Latin America and Southeast Asia. Unitus sees opportunities through the eyes of local entrepreneurs and then invests capital to build new profitable, scalable businesses with built-in community impact. Capria is the next logical step, bringing the successful Unitus model of incubating first-time impact funds to the rest of the world.

To show why Capria is valuable for new fund managers, below are the major challenges, suggestions on how to mitigate them, and how we believe we can help.


Challenge 1: How do you raise money without a track record?

According to the latest Preqin Biannual Survey of over 100 limited partnerships (LPs), less than 20 percent were interested in investing in first-time funds. Even in impact investing, which is relatively new, almost 90 percent of the funds listed on ImpactBase have some sort of track record. LPs are justified in wanting to invest in managers with a record of success, but there are ways that new funds can give potential LPs confidence.

The easiest way for a new fund manager to make LPs more comfortable with investing is with a branded anchor investment. These investments give credibility to first-time fund managers as well as access to the anchor investor’s network. New general partners can also commit a percentage of their own cash to their fund, as little as 1-3 percent of the target AUM (assets under management), to demonstrate they are confident in their own success and have “skin in the game.”

Capria’s solution is to give fund managers the opportunity to start implementing their investment thesis while they raise capital. By “warehousing” investments (investing in companies on behalf of the GP), GPs can use Capria’s balance sheet to start developing a track record as they fundraise.


Challenge 2: How do you effectively manage your fund and portfolio?


Once a new fund manager reaches first close, the next challenge is running the fund efficiently. First-time managers should ask themselves:

  • How will I find the top entrepreneurs in my sector/geography?
  • What value will I bring in addition to capital?
  • How will I convince the entrepreneurs in my portfolio to listen to me?

Unitus Seed Fund has found creative ways to identify high-quality investments. For example, we created StartHealth, an incubation program to find early-stage tech start-ups innovating for the masses. UE Lifesciences, which has developed a new low-cost way to scan for breast cancer in India, came out of this program.

Fund managers in the Capria Accelerator program will learn about our strategies as well as what has worked at other funds incubated by Unitus. (We hope our 15-plus years of experience can help new managers avoid some pitfalls and get off to a solid start.)


Challenge 3: How do you exit?

Exits are challenging in any market, and even more difficult in developing economies. According to INSEAD’s recent study on first-time fund managers in Asia, 50 percent of respondents said the lack of exit opportunities was their top challenge. There are a number of aspiring fund managers who can raise capital and find deals, but the ability to grow companies and deliver returns to investors is just as essential.

As you can see in my colleague David Riley’s recent post, we are thinking hard about the challenges of venture finance in emerging markets. Revenue-based financing is an interesting alternative that can address some of the liquidity challenges in markets with early-stage capital gaps. We will work with the members of our accelerator to help them navigate their respective investment landscapes and realize returns.

Starting my first impact fund was one of the hardest things I have done. I hope my suggestions are helpful, and for those looking for more support, visit to learn more about the application criteria for our accelerator.

Photo credit: World Bank Photo Collection/Flickr.

Dave Richards is managing partner and co-founder at Capria.

Investing, Social Enterprise
impact investing, social enterprise