Every month, Capria hosts a webinar with network team members to share thoughts and insights on topics such as operational best practices, sector trends/knowledge, effective portfolio management, maximizing exits and commitment to impact. In November, teams from India, Zimbabwe, and Turkey met virtually to discuss common questions from investors, deal flow competition, the investment screening process, and how to leverage the growing ecosystem.
Below are some of the key takeaways:
1. Show Me (Something Besides) The Money! – Investor FAQs for Fund Managers:
Investors generally take a left vs. right bucket approach when evaluating impact investment funds. In one bucket are your investors focused on impact and in the other you have your investors focused on IRR. We’ve found that integrated examples help in terms of evangelizing the unconvinced that as a fund manager you can produce competitive returns on both fronts.
One such example is Unitus Ventures (formerly Unitus Seed Fund) (USF)’s partial exit from CueMath, which earned a 10x return for investors and has delivered a network of tutors that are running over 1,200 centers across 6 cities. Another key to impressing investors is to anticipate questions and answer them before they’re asked. Managers should especially emphasize the intangibles. Investors want to know what are you bringing to the table besides money? Do you have proprietary deal flow channels or something else that will set you up to be a top performing investor in your given geography?
2. You (Compete With) Me – Deal Sourcing:
One take away from the group discussion was to not compete with dumb money. Many angels are simply drive-by investors and have less stringent (if any) due diligence requirements. Another point made was that a good story will attract many investors, but the truth is that most companies fail. Companies fail for a multitude of reasons, but usually it isn’t about having bad luck or picking the wrong product/service – it goes beyond that to how the team was built, how they chose to execute and the overall systems/processes that they put in place. Understanding why previous investments have gone wrong, what the team learned from them and being able to communicate how the team will adapt in the future is a good way to build investor confidence.
3. De-Risky Business – Investment Screening Process:
The next topic was best practices in screening investments. The challenge many investment firms face is managing this process efficiently so they don’t waste time and energy. Teams suggested spending significant time upfront outlining what information is required and being extremely transparent with the target company. In many environments where our fund managers are operating, entrepreneurs are not always well versed in the investing process so a simple walk-through can be highly efficient in the long run, especially as it relates to managing expectations for the timeframe of initial screen to actually deploying capital.
4. Mission: Possible – Leveraging the Impact Investing Ecosystem:
Depending on where a fund is based, there may be a perceived lack of domestic institutional capital. We recommend all funds in the Capria Network identify ways to unlock domestic capital which builds global investor confidence. Many markets are evolving and assumptions that there is no local capital to unlock can hinder progress. If there is a real dearth of local capital, it will be important to get creative and identify how this will be addressed over time. Although there will most likely be external pockets of monies dedicated to a specific region or country, the most successful managers we have seen have figured out ways to tap into both local and global sources on some level. It absolutely behooves managers to keep abreast of both local and global markets to draw these connections.
The final topic covered was information sharing. Being able to tap into expertise and knowledge from other managers as you are evaluating deals, approaching LPs, or considering the long-term strategy of your firm is extremely valuable. For example, idacapital, a Turkish fund in our portfolio, used the Capria network to better analyze a company in the education mobile application space by leveraging the knowledge of another fund manager in the network that had deep experience in evaluating education focused start-ups.
The life of a fund manager is challenging and as with many entrepreneurial journeys, it can be lonely – particularly depending where your fund is based. Being part of a network committed to increasing access to impact capital globally can make it easier, increase the odds of success, and make it a bit more fun as well! If all else fails, what would Tom Cruise do?