Jacqueline Novogratz – Legatum Lecture at MIT

We are a connected world said Jacqueline as she described the story of her blue sweater, also the title of her recently published book. Once discarded by her at Goodwill, it turned up 25 years later in Rwanda where she found it on a boy in the countryside.

Speaking at the Legatum Center’s Lecture series at MIT, she described the innovative work of Acumen fund and how it helps build social solutions through its venture philanthropy.

She prefaced her talk by some of her observations from her work helping to build enterprises around the world that she undertook since her time in Rwanda.

  • Dignity is more important than wealth for the human spirit.
  • Traditional models of charity won’t solve problems of poverty.
  • Markets can’t solve poverty. 100 Million people went back into poverty last year and that is what happens when you only rely on market forces to solve these problems.
  • What is needed is patient capital that will address these problems

The Acumen fund model is simple. It relies on social investors to seed its funds. It then identifies enterprises and invests in them thru loans and equity. It continually assesses progress with management and collects information on successes and issues in implementation. It shares these learnings with its investments to ensure that they learn from the past. The output from the portfolio companies are reinvested in the next round of new enterprises and the virtuous cycle goes on.

Here are some of the examples of Acumen investments that she shared with the audience.

  • Water Health International and Naandi providing safe drinking water in India. Invested $600K in an Ultraviolet based water purification system that was being franchised to villages. In order to help finance the facilities it provided a 30% first loss guarantee to ICICI Bank. Now scaled to 200 villages, raised over $15 million and have reduced the loan guarantee to 15%.
  • Malaria nets in East Africa. At one time 100% of the malaria bed nets were made in China while 90% of the world’s malaria cases were in Africa. Acumen worked to identify a local entrepreneur, Anuj Shah, in Arusha, Tanzania who had the expertise in clothing and plastics. Acumen invested $300K to set up a factory with Sumitomo in Tanzania. The initial target was to have 100K nets per year. The company has now grown to produce 10 Million nets a year and employs 7000 people, mostly women, who come mainly from rural areas. In addition it provides dorm facilities for its employees thereby avoiding the typical slums and shanties that spring up when rural migrants come into town to provide labor at urban factories.
  • 1298 Ambulance service in Bombay. A combination of non-profit and for-profit entities provides state of the art ambulance service within the city. The ambulances charge based on where patients are going – Rs 1500 for a private hospital and free for a public hospital. 1298 service is successful in Bombay and has challenged the government in court for illegally handing out $1 Billion in ambulance contracts in other cities.
  • Provide affordable loans for women to buy housing outside Nairobi. Also provides livelihood loans. Jane was a prostitute who contracted AIDS. She bought a sewing machine with a $50 loan and is now refurbishing used clothes from the foreign consignments (maybe the same ones that got the Blue Sweater) and reselling them. She has saved enough to put a $400 deposit on a $4000 house.

In her answers to questions from the audience she said that:

  • No better time to start innovating than when things are broken. Now is a good time to start
  • It is most important to know the local market and the business needs before applying a technology solution.
  • Typically Acumen does not charge a management fee though it is considering doing this in India as its customers perceive value in what they are doing.
  • Biggest problem is talent – How do you find and keep talent.
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