The Beyond Capital Fund
The Beyond Capital Fund is a non-profit organization based in Zurich, Switzerland that makes impact investments in healthcare, water, and energy in India and East Africa. The Beyond Capital Fund is a charity that reinvests the profits from its investments into new ideas over time. Their innovation lies in providing investment capital in the critical early stages of a social business while simultaneously taking a traditional investment approach to maximize social impact.
Eva Yazhari, the co-founder and Executive Director, takes a serious interest in impact investing, early-stage social finance, and the match of social and financial returns. Throughout her career, Eva has been involved in fund raising efforts in both non-profit and corporate settings. Eva was previously a Vice President at EnTrust Capital Inc., an asset management firm where she focused on due diligence, portfolio construction and business development. Eva leverages her experience at EnTrust in ensuring that the capital allocated from the Beyond Capital Fund portfolio is put to effective use in accordance with due diligence best practices.
Why has your organization chosen to focus its work in India and East Africa, specifically in the areas of health, water and energy?
When deciding where to place our focus we ask three questions: where can we enable the entrepreneurs who will have the most impact on their community; how can we capitalize on the expertise and experience of our team members; and how can we keep the approach and process simple.
Within our networks we collectively possessed many contacts in India and East Africa. Furthermore, parts of these regions lack the infrastructure to meet basic needs, which are the first challenges we aim to address in our quest for sustainable development. Health problems, water-borne illnesses, lack of sanitation and energy poverty persist in both India and East Africa; simple solutions are available but have remained unattainable due to lack of funding and a professional approach. This is where our approach to project finance can make a difference.
India and East Africa have been the focus of a tremendous amount of grant aid over the past few decades. While we believe strongly in the power of grant capital coupled with investment, we think it’s time to foster sustainable systems in these areas after decades of blind grants.
Finally, both economies are growing rapidly: India’s GDP growth rate is hovering around 7%, and Tanzania’s is roughly 6%. They are both attracting foreign investment, and the environment for entrepreneurship is ripe.
Time is an important element of your work, it seems. Beyond Capital Fund invests in organizations at critical early stages and then re-invests the profits into new ideas over a longer time horizon. Why do you choose to invest in this way?
Our foundation model is structured specifically to enable and empower early stage social enterprises. We are a capital provider, but also contribute pro bono and in-kind services on the beyond capital side of the coin.
There is a bottleneck of early-stage social enterprises with great ideas that lack capital and a professional engagement with investors. Not only do we need to fund the right ideas, we need to impart professional rigor via our due diligence practices and mentoring from their nascence. Specifically, we offer the entrepreneurs pro bono legal counsel, consulting, and sector specific or technologically specific advice as a part of our total investment. As a foundation and non-profit organization, we are able to uniquely attract these high-quality committed pro bono and volunteer resources to Beyond Capital Fund and the enterprises in our pipeline.
Many entrepreneurs act professionally and have a strong ability to attract resources. We just aim to augment the skills they already have.
Regarding the long-term nature of our investments, we take a patient capital approach. Social enterprises are often working in informal markets that lack distribution networks and consumer understanding of the benefits of the product or service being offered. These conditions present a tremendous opportunity for the enterprise to forge change; however, the process takes time and patience. As such, we view our investments as long term. In a conversation with the entrepreneur(s) we try to understand the time frame for the implementation and scale of their product/solution and discuss the possibilities for an exit. In most cases we anticipate that in 5-10 years our investment will become profitable and our capital will be returned to us.
In limited circumstances, Beyond Capital Fund will invest on a short-term basis, providing bridge financing for a few months before a larger round of funding is ready to fund. Not only does our short-term capital fund immediate cash-flow needs but also we are able to give our mark of confidence and potentially mobilize additional funding in subsequent capital raises.
One of the key questions we ask when determining the length of our investments is whether the entrepreneur will continue to need our social capital. At a certain point, we may decide to call back our capital if a large investor significantly trumps our investment size and our investment could be better utilized to catalyze a new start-up social enterprise.
What are the key stages in early growth of a social business, and how do you know that one has reached maturity?
Scale of social value is the most important indicator of success for our social-impact focus. We utilize IRIS indicators to track specific metrics such as the number of clients served, and, in specific sectors, the number of well visits or screenings, or potable water production capacity per unit over the lifetime of the product. In our definition, a business has reached a critical scale when it has been able to scale its social impact.
The businesses we review are often operating a pilot to prove the feasibility of their models. As such, we view the most important test for the businesses in our pipeline to be their ability to move past the first few pilots to a stage where they can begin to prove social and commercial viability and move toward sustainability.
In the case of our first investment in E-Health Point, the business began with 3 units in 2009 and scaled carefully and considerably to reach over 100 units in 2011 with support from government and local partners. E-Health Point was also able to break even on some of its units within 8 months of operation.
We also consider the ability for the enterprise to raise capital and attract resources -- a key indicator of the future success of a business. Without resources (financial, human capital and necessary frugal technologies) any good idea can fail. As such, we spend time speaking with other co-investors and getting to know the community surrounding the business and management team.
How do you define social value? Can lessons learned in India and East Africa about social value and investing for social impact be educational for European SMEs and social investors?
Mathematically, social value can be defined as the outcomes (changes to the system) minus what would have happened without intervention.
While we consider this equation in our investment process, we also focus our attention on engagement with the target community of the product or service as a way to maximize social value and decrease investment risk.
Some of the important questions we ask social entrepreneurs around social value are:
- How was the local community involved in the design, governance and ownership of this product/service?
- Does this enterprise add value or extract value? Net value? Build a community foundation into the model?
- Balance returns to investors, entrepreneurs and communities?
In my opinion, social value should be designed and measured from the bottom up. Whether investing in India, East Africa or Europe the target community should be the starting point for the design of the approach to meet their needs. There have been countless stories of community empowerment that can also be profitable long term.
Following your attendance at SOCAP, you wrote a blog post on downtoearth.sequoialab.com that called for more early-stage investment in social businesses, writing, “More players need to participate to move the needle.” What concrete steps can European social investors take to reach that tipping-point with early-stage social investment?
A low risk tolerance is keeping many investors on the sidelines, but there has been proof that shared due diligence, experiences and co-investing can help investors make stronger decisions in markets that are sometimes uncharted or simply new to an investor. Anecdotally, Toniic, a network of social impact investors, has been breaking ground in fostering an ecosystem around this type of funding. Toniic member organizations share investment ideas, due diligence, and monitoring and evaluation tools. At Beyond Capital Fund, we are looking to do just that on a broader level. Members of the BCF team and board leverage their networks to attract resources that can professionally and cost-effectively complete thorough due diligence and structure capital raises for young social enterprises. We are able to bring together these resources because they share in our understanding of professional rigor in due diligence and a sustainable approach to philanthropy. Then we share our work with our network and supporters in hope that they will co-invest with us.
As a community we can also coordinate our capital at different stages. “Coordinating Impact Capital,” a paper by John Kohler and Santa Clara University, Center for Science, Technology, and Society describes the need of social enterprises for carefully layered capital. Beyond Capital Fund agrees that without the appropriate mixture of funding the complexities of social enterprises will not be solved.
Accordingly, the tipping point will occur when for-profit and non-profit entities begin to work together and public-private partnerships become the norm. Operating in silos will not progress our collective goals.
What can the Social Innovation Europe initiative do to support your work?
We need to think beyond ourselves as investors. It takes more work, but in order for social impact to become a viable investment strategy, an ecosystem must be developed around our work. We should share best practices, co-invest and support one another. We should also act professionally and not overstate our promises as a group.
I believe we will witness the broad movement of commercial, institutional and retail capital into social impact investments over the next decades. However, the $4 billion inflows into social impact investments predicted in J.P. Morgan’s 2011 report will not be achieved unless we create a framework to support the inflows. More concretely, I would ask the Social Innovation Europe community to collaborate and lay the groundwork for case studies and examples that cannot be turned down by mainstream funding.