Next move of the nonprofit impact fund: a for-profit spinoff

In 2009, Eva Yazhari co-founded Beyond Capital Fund, a nonprofit impact fund aimed at supporting companies serving bottom-of-the-pyramid clients in emerging markets. But this nonprofit status limited the fund’s ability to grow. With that in mind, last year she formed a for-profit spin-off called Beyond Capital Ventures, also focused on India and Africa. She is about to make her first investments.

Like the first fund, the new one invests in companies where, according to Yazahari, “impact is built into the business model, with the capacity to scale.” It focuses on healthcare, financial inclusion and agriculture.

Evergeen

Yazhari worked for about five years on Wall Street. But after the financial crisis, she decided to do something more meaningful, which drew on her passion for social justice. She already had deep family ties with Africa; her grandfather had moved his family and opened a health clinic in rural Tanzania in the 1960s. So, in 2009, she co-founded Beyond Capital Fund, focusing on India and East Africa, focusing on India and East Africa. particularly Kenya, Rwanda, Uganda and Tanzania. She created it to be what she calls an “evergreen” nonprofit fund making seed money investments in startups with financial and social impact; when the benefits of the investments were returned, they were reinvested in new businesses.

Since then, the fund has made 14 investments; so far there have been three company exits in eye care, sanitation and agriculture, with what Yazhari describes as “strong returns and impact from top quartile companies” .

Seed and Series A

Then, in early 2020, just before the pandemic hit, she decided she needed to form a for-profit fund. That’s because, according to Yazhari, the nonprofit model was limiting growth. That is, the original fund was unable to grow beyond the “single digit million,” with a pilot portfolio of around $ 1 million. “Philanthropy has limits, donors often have very specific sectors or geographies, others are unwilling to get involved with grants under $ 1 million,” she says. With this in mind, for 19 months, she worked to raise a second fund with the goal of reaching $ 30 million.

Unlike the first fund, this one will target low-income and underserved markets more broadly, focusing on areas such as women’s lack of access to health care or creating pathways for smallholder farmers. to transport their products from the farm to the market and benefit from better prices. . “We have found these areas to be tremendous in terms of the opportunities they present for investors,” says Yazhari. Investments will be made in the same countries as before, with the exception of Tanzania, because, according to Yazhari, government regulations make equity investments there more expensive and more difficult.

Another difference is that the new fund will include both Starter and Series A rounds, so Beyond Capital can follow up with cash later. That means bigger checks – the investments were around $ 50,000 and will now be $ 250,000 to $ 700,000 for seed funding and $ 400,000 to $ 1.1 million for Series A – and the ability to be a lead investor. The plan is to finance 21 companies, around 15 in the start-up phase. About 70% of them will also likely receive Series A funding. Businesses will come from more than 100 venues, such as accelerators and business plan competitions.

A challenge for the founders

The overall approach must be collaborative. “It’s not, we’re going to give you the money and you have to do what we say,” she said. One important point: The founders will get a portion of a 5-10% stake in the fund’s earnings when they reach the Series A stage, what Yazhari calls “fair businesses”. This is because the for-profit status will provide a larger pool of capital that can be allocated to the founders.

The most important thing is to invest in founders who are what Yazhari calls “conscious leaders” – that is, those who focus on all stakeholders. “They are the key ingredient in impact investing,” she says.

The first investments will be announced soon. In addition, a number of companies from the first fund could receive additional funds from the second.

As a potential example, Yazhari cites the women’s health start-up Kasha, based in Kenya and Rwanda, which provides access to products ranging from contraceptives to soaps and lotions. Kasha also employs local women to sell its products and earn a living in a sustainable way. The nonprofit fund contributed $ 60,000 in 2018 in a start-up cycle; Kasha has gone on to breed what Yazhari calls an “important” Series A.