Tag: Impact Investing

Impact Investing Success Story: Lending in Developing Countries – Improving Lives and Livelihoods While Generating Market Rate Returns

Recently, I got to visit a long time friend and mentor of mine, Gloria Nelund, Chairman & CEO of TriLinc Global. Gloria is a leader and innovator in the impact investing space so I was thrilled to talk to her about the impact investing “a-ha” moment she had partway through her career as well as the details of a recent international lending success she’s particularly proud of.

Sonya: How long have you been working in impact investing and community lending?

Gloria: As a full time career endeavor it has only been since 2008 when I started TriLinc; however, I have always been a believer in it – even before it had a label. Growing up in Ohio with a father who was a business owner, it just made sense to me that you would make better returns if you invested in “good companies” with quality management teams and ethical business practices, and who gave back to their communities. So, in the late 90s when I had the opportunity to support the development of a socially-responsible investment (SRI) product at Scudder, I was excited. It wasn’t that easy though – as you know, it really hasn’t been until the past few years that you could easily get the information needed to make that analysis.

Then, when I was at Deutsche Bank, a leading institutional supporter of microcredit, I led the effort to create multiple programs to help Private Wealth Management clients learn about and invest in the sector. I also served on the Board of the Deutsche Bank Americas Community Development Group, which provided loans, investments and grants to targeted organizations throughout the U.S. and Latin America.

Sonya: So in your current role, which is 100% impact investing focused, can you tell me about a meaningful impact project that you have worked on?

Gloria: Wow. It’s difficult to pick only one.

There is one of TriLinc’s loans though that I do love – it’s a loan to a grain processor in Uganda. The owners started the company because they felt a personal responsibility to help the people of Uganda. They operate their business with an ethical and moral compass that leads them to employ business practices that allow them to run a profitable business, while at the same time, advancing the economy in the region, and significantly improving the lives of smallholder farmers and their families.

This grain processor company sources, processes, and stores maize before selling it all across Uganda, Kenya, and Rwanda to clients such as the relief organization, World Food Programme. The company sources 80% of their maize from local farmers, thereby reducing the carbon footprint of the production process. Additionally, the company provides the local, supplying farmers support centers where they can sell their maize, access competitively priced agricultural inputs such as seeds and fertilizers, and borrow working capital at reasonable rates. To date, these support centers have provided over 45,000 farmers with agricultural finance. All of these activities facilitate the farmers’ ability to sell their harvests through a reliable process at fair pricing. This improves farmers’ livelihoods and contributes to regional food security. The resulting increased stability of harvests creates regular and more predictable income to both the farmers and the grain processor.

Sonya: That’s great. What about on the risk side of the equation?

Gloria: Occupational health and safety risks can significantly hurt the financial performance of a company – accidents, spills, employee strikes, etc. are costly to a company. To that end, this grain processor sought to meet the standards of, and was approved by, the National Environment Management Authority for its “sustainable business practices.” They know that by paying fair wages, understanding and managing the environmental impact of their business, and by ensuring compliance with national environmental and social standards around waste management, occupational health and safety, and community concerns, the company avoids these costly operational risks and enhances their own profitability.

Sonya: Tell me more about how you see risk management in relation to impact investing and the direct lending work you do.

Gloria: Purely from a risk management perspective, understanding a company’s environmental, social and governance (ESG) practices can help reduce the risk of the investment. There are many great examples, but Nike is probably the one that got the most press. In 1991 when it was discovered that they were exploiting workers in their Asian manufacturing operations, their stock suffered almost overnight and sales dropped dramatically. That is an example of a social risk that could have been known if there had been analysis of the company’s practices and policies. In our analysis at TriLinc, in addition to evaluating standard ESG factors, we also look for companies with strong management teams and ethical business practices because we believe they just make better investments.

Loan structuring is where we have an advantage over more developed markets where there is not as much of a supply-demand mismatch. We make loans to private companies in emerging markets where there is a significant lending gap and so, as the lender, we have an advantage. We could use that advantage to simply “extract” more return (which we do not do) instead we use that advantage to reduce the risk of the investment by the requirements, terms and covenants. For example, we over-collateralize our loans with hard assets that have been discounted to liquidation value.

Sonya: What are your thoughts on your company’s role in contributing to positive social and environmental impact?

Gloria: To solve the big challenges the world faces, we need private capital, at scale, focused on investing in sustainable, responsible companies committed to making a positive impact.

Bringing an institutional quality investment opportunity that allows investors to get both market rate returns and proof of positive impact has allowed us to bring more private capital to projects and companies that create impact. It’s a win-win!

Sonya: What interesting project are you working on now?

Gloria: In addition to launching a new fund for institutional investors, the TriLinc Global Sustainable Income Fund, we are also launching a new event series called RIA Impact Roundtable with the purpose of gathering like-minded impact investors and money managers to identify ways that we can collectively advance the impact investing industry.

For more information on TriLinc Global – https://www.trilincglobal.com

For more on Sonya and Solutions with Sonya – www.solutionswithsonya.com

There are many paths to a career in impact investing. Some impact fund managers began their careers in traditional venture capital[1], whilst other investors have found success previously as entrepreneurs[2].

I am an impact investor and I’m an entrepreneur in the impact investing industry. I found my way here after beginning my career as a Chartered Accountant (now Chartered Professional Accountant) after decades of working closely with, advising, and financing entrepreneurs. A defining phase of my career was a 10-year period in London, when I was as a corporate finance advisor and investment banker. During this time, I refined my due diligence skills and gained the critical and foundational experience of understanding how capital moved in private and public markets. Most importantly, I experienced how people made investment decisions – individually and in committees – and I began to influence capital decisions directly.

My career reached a critical point 8 years ago when I myself started to adopt an entrepreneurial mindset and sought to answer three critical questions:

• How can we move money in a more purposeful way?
• Where are all the women investors?
• What does it mean to be an entrepreneur in the investment industry?

For me, the answer to all three questions was Pique Ventures, an impact investment and management company that I founded in 2012.

After trialling different models for Pique Ventures (such as something resembling a boutique corporate finance advisory firm and an investor network), my early adopter investors wanted a fund. I realized that an impact venture fund was a way to move money more purposefully and with intentional design, and it could attract more women investors to the space. Even though some start-up founders didn’t consider me a founder, I soon discovered for myself that a new venture fund is a start-up business just like any other new business – a start-up with a very particular business model of aggregating and deploying capital.

Through Pique Ventures, I started out advising organizations on developing new venture funds, while in parallel planning my first fund. A turning point came in 2014, when I launched the Pique Fund, an inclusive angel fund focused on leadership diversity. It was the first step to Pique Ventures, evolving from a consulting firm to an impact fund manager. After managing Pique Fund for three years, still working closely with entrepreneurs, and even being a hands-on operator within another business that I manage under Pique Ventures, I finally embraced the entrepreneur in me. I enjoy finding investment product-investor market fit and continually thinking about how our investment thesis and strategy needs to evolve with our economy and society.

Someone asked me recently if they should focus on making a lot of money early in their career and then do something impact-focused later. That is essentially an investment decision about how to spend your time and resources along your career path. Every person’s path is different, but from my experience, earning enough to have your own seed capital is helpful – particularly for being an entrepreneur in the investment industry and starting a new venture fund. I seeded Pique Fund with my own capital. It wasn’t a lot, but it was necessary because investors wanted to see that I was putting my own money where my mouth is. What I lacked in capital, I made up for in terms of expertise and network.

My career choices were almost always guided by curiosity about the unknown and a passion to observe and understand how people make decisions, which is what led me to investment banking. Although I learned that investment banking was not my final destination, it was a great way for me to gain the financing expertise I needed to later launch an impact venture fund. The fascination with decision-making continues to this day, defines much of my work, and is core to who I am as an investor, entrepreneur, and author. I went on to document an impact investing decision-making methodology called Integrated Investing[3], and published it as a book in 2016.

I recall being thrown into networking situations very early in my career, starting with wine and cheese events during the recruitment season for accounting co-op students at the University of Waterloo in Canada. But it wasn’t until I started building my own businesses and taking a more entrepreneurial path that I realized the importance of making connections and building relationships, and how to do it well, authentically, and in a fun way. Private venture investment is a capital network, not a capital market – at least not yet a market – and therefore personal and professional relationships are critical for moving capital in a purposeful way.

In addition to curiosity and passion, like any entrepreneur, I also needed creativity to fuel the solutions to design, develop, and execute on a new venture fund and the persistence to follow-through on my vision. There were many people that doubted me along the way. A mere 15 months before Pique Fund launched, I thought about giving up on the idea of a new venture fund having received more negative feedback than positive. As I noted earlier, I was also in the middle of writing Integrated Investing, an impact investing decision-making methodology. I shared some of concepts from Integrated Investing with a small group of change-makers at a dialogue in New York focused on systems change. There, I met a senior executive from a large asset management firm who told me I was on to something. He was particularly enamored by a concept I developed called Access to Essential Resources[4]. It took prime spot as the first chapter of the Integrated Investing book (an alternative title for the chapter would be, “What Start-ups Do We Still Need?”[5])

Only a few days after the dialogue in New York, I was in Toronto and had my first conversation with Lally Rementilla, who would go on to be the first external investor in Pique Fund and join Pique Fund’s Board. It was not only the beginning of a wonderful working relationship of making investment decisions together; it was the vote of confidence that catalyzed the launch of Pique Fund. Finding a lead investor helped give five other pioneering women the confidence to invest in Pique Fund when it was merely an idea.

Leaders and pioneers helped me create a place where investors – new and experienced, of moderate and high levels of wealth, particularly women – could gather and invest in a way that took care of the village. Pique Fund now has 39 investors, of which 31 are women, representing 80 percent of the fund’s capital. We have so far invested in seven impactful women-led technology ventures, themselves quite diverse, employing 42 percent women and 36 percent people of color. 40 percent of our portfolio companies’ management teams are women and 30 percent are people of color. In Canada, Pique Ventures is one of only two fund managers with a gender lens and Pique Fund is one of only two gender lens investors as identified in Wharton Social Impact Initiative’s Project Sage[6]. Pique Ventures and Pique Fund are the longest-standing fund manager and fund, respectively, in Canada investing with a gender lens.

In summary, a sense of purpose, curiosity, and the persistence to pursue purposeful aims are the key motivators for a career in impact investing. Whilst capital can certainly accelerate or make easier that pursuit, expertise and network are critical ingredients for success.

There’s a reason I named my business Pique. I endeavor to pique people’s curiosity about the unknown and pique their interest about impact investing. Pique is a diverse community of investors and together we are investing to take care of the village and help create a better world.

Article by Bonnie Foley-Wong, founder of Pique Ventures (http://piqueventures.com) and founding investor in Pique Fund . She is also the author of Integrated Investing: Impact Investing with Head, Heart, Body, and Soul (http://piqueventures.com/book). Bonnie helps a diverse community of leaders pursue integrated investing. With over 20 years experience of mobilizing capital for entrepreneurial businesses as a financier, investor, and entrepreneur, Bonnie has financed over $1 billion dollars of alternative investments in Europe and North America.

Bonnie is a CPA (Ontario), CA, and CFA charter holder. She has a Bachelor of Mathematics and Master of Accounting from the University of Waterloo.

Article Notes:
[1] http://www.dblpartners.vc/people/nancy-pfund
[2] http://www.catalystatlarge.com/about
[3] http://integratedinvesting.ca
[4] http://piqueventures.com/impact-introduction-to-access-to-essential-resources
[5] http://piqueventures.com/what-startups-do-we-still-need-2
[6] https://socialimpact.wharton.upenn.edu/wp-content/uploads/2017/10/ProjectSageReport_10.25.17.pdf