Impact Investing: A Conversation With Kanini Mutooni.
By Fiona Njagi
Kanini Mutooni is a Managing Director at Draper Richards Kaplan, a Venture Philanthropy institution focused on investing in global early stage entrepreneurs creating impact. She is also a Senior Adviser for Toniic, the global action network for impact investors with over 300 asset owners representing over $16b in investible wealth. Prior to this appointment, Kanini was the Director for Investment at the USAID-funded East Africa Trade and Investment Hub, a $65m, 8 country initiative to attract investment and increase trade in the East Africa region.
She is the immediate former Board Chair of The Global Innovation Fund, a $250m investment vehicle supported by the UK, US, Canadian, Australian and Swedish Governments. The fund focused on investing a range of capital for early stage innovations in emerging markets with a focus on Food and Agriculture, Healthcare, clean energy and Fintech.
Kanini Mutooni is also a business angel on this week’s episode of The Nest. I sat down for an interview with Kanini, to discuss impact investing in emerging markets.
Let’s get into your background.
I am an impact investor, but I believe what I bring to the table is the experience of being an entrepreneur and understanding what it’s like to be on the entrepreneur’s side and now on the investor’s side. I think it’s an important quality for any investor to understand what it’s like to be on both sides.
I started in a very traditional role as a chartered accountant in a large consulting firm. I then moved into investment banking in London for about 11 years. When the financial crisis hit, I decided to shift my focus and do something that was going to change my career and maybe even change the world.
I set up a fintech company which I ran for five years that was focused on democratizing finance, mainly in the crowdfunding sector. Those five years were the real starting point for me to understand what it means to be an entrepreneur raising capital, and the difficulties that come with building a model from scratch, finding customers, scaling, and exiting. I went through that entire process in five years.
When I exited I made a little bit of money and decided to start angel investing, mainly in Sub Saharan Africa. It was this process that built up my curiosity and knowledge in investing and social impact. That’s when I got into this space of investing for good and impact investing as a whole.
I am now a managing director at Draper Richards Kaplan which is a venture philanthropy institution based in the USA. I’m based in London where I meet the international team’s efforts in expanding the pipeline. We invest in early-stage startups across the world but my focus is mainly the international portfolio; Western Europe and Africa. I’m excited by the prospect of deploying capital where it’s needed most, the early stage. Early-stage companies need capital, mentorship, intellectual capital, and all the venture support that often seems to be ignored but I feel that we at Draper Richards Kaplan (DRK) do quite well.
Before DRK I was running Toniic which is a global investors network that has about $18B in assets and represents impact Investors from around the world who deploy their capital for good.
I’m born and bred in Kenya and very proud of my heritage.
What distinguishes Impact investing from mainstream investing?
Mainstream investing is short term investing with a clear vision on when you’re going to exit. There’s a very clear return on capital. Also, there’s no intentionality around doing good and impact. It’s a purely for-profit motive, and there’s nothing wrong with that. The world needs to move to a form of investing that incorporates doing good. That’s what impact investing is saying financial returns are okay, what is primary in terms of purpose is social return and doing good.
I think that one day the world will move solely to impact investing. The 2008 financial crisis was as a result of a purely for-profit purpose, no one was thinking about doing good or long term investing. That’s the main distinction, intentionality around social purpose.
Impact investing is long term. It’s patient capital, intentionality, social and financial return.
What are the key areas you invest in?
At DRK we are sector agnostic. We generally tend to invest in sectors where we see real potential for impact and scale. That’s sectors like agriculture and food, education, technology, and fintech. We don’t necessarily pick sectors but, we end up being in specific sectors because of the potential for high impact and scale.
As an angel investor, my focus is in food and agriculture.
What are the most interesting investments you’ve made?
All the investments I’ve been involved in either as an investor, board member, or facilitator, have generally done well from a social and return perspective when they’ve involved a female entrepreneur.
I think women understand grassroots problems, and also appreciate the context of social and financial returns. They can understand it and apply it to the models they build. I’ve always been involved in supporting female-run enterprises that I think are going to grow and develop at scale.
Another interesting area of investment is in frontier markets. Not to say that Europe doesn’t need the capital, but the biggest SDG gap is in frontier markets, especially sub-Saharan Africa. Africa has the largest proportion of youth in the world. It’s a youthful continent and population and education levels are growing fast. I see this as the future of investing. Any capital that I can deploy, I will always pick this region first.
What Key Metrics do you look for when investing in an early stage startups?
At DRK we first look at the founder. We are a very hands-on investor, we don’t invest and walk away. We work with the founder to help build the team, the board, and the overall organizational capacity. The founder has to be someone who has leadership qualities, is a good listener, a doer, and knows how to form partnerships.
We also look at the impact pathway and model. We need to see a path for impact and growth over some time, because we are about impact at scale.
We also invest in companies that are at the early post-revenue stage. There has to be an indication that the organization can generate revenue and be financially sustainable. That’s for both for-profit and non-profit organizations respectively.
Is Venture Capital the right funding model for Africa and other frontier markets?
Currently, we’re picking models that have worked in Silicon Valley and transplanting them in Sub-Saharan Africa. That will never work because even though we call this the Silicon Savannah it is not Silicon Valley. The venture capital model invests in organizations that have potential for blitz scale growth; year on year growth levels that are almost impossible to find in Sub-Saharan Africa.
Venture capital funding is also very short term focused in terms of 5X or 10X over 5 years maximum. In Sub-Saharan Africa and most frontier markets, it’s very difficult to make a return on capital within 5 years. This is where impact investing comes in. We look at impact capital as being a holding period of at least 10 years which means you’re building the organization, creating value, and supporting the entrepreneur. At the end of ten years, you’re ready for an exit or strategic purchase. In venture capital, within 3–4 years we already have the investor asking, ‘when are we getting our money back?’, which puts a lot of pressure on the entrepreneur, the model, and the overall scale path of these organizations.
Additionally, exit options are limited in frontier markets especially in Africa. We don’t have a stock market that is highly capitalized and we don’t have IPOs. You could do a strategic sale, but even those are rare. With that in mind, we need to create a model that works for us.
Lastly, we need local capital. We need to deploy local capital using our methodologies and models.
How can we motivate local investors to invest in local innovations and local startups in Africa?
There are a lot of cultural issues that need to be acknowledged around how local investors deploy their capital. Local investors put their money into a building or land because they think that’s the best way to get a return on their capital. That’s the old mindset and it needs to change. What we’re seeing now is the emergence of groups such as the Chandaria family who are doing angel investments which is now encouraging others to follow the same path. Local capital will have to be driven by example.
We also need to get local companies in a proper investable position for local investors to put capital in. Networks such as the African Venture Philanthropy Alliance are doing great work in bringing together philanthropic and commercial capital from local investors. That convening over some time will help local investors understand what they need to learn in terms of making a direct investment and measuring impact.
Lastly, we need a change in policy. The United States of America gives tax benefits to investors investing in startups, the United Kingdom as well. Why can’t we do the same in Kenya?
How has COVID19 changed investor attitudes?
It’s opened up areas that I had not thought about before. The idea of home learning which, I didn’t know I’d be using homeschooling as often as I do now. I’m a parent of three school-going children who are not able to go to school because of the pandemic. So as an investor what I’m looking for now is any type of technologies that will enable learning and education remotely at scale, and that can also engage parents, children, and teachers at the same time, because that’s been the biggest gap. We’re in the process of investing in a local Kenyan company that does exactly that.
Health is also an area of focus now. As an investor, I’m looking for telemedicine platforms that allow individuals to monitor their health and get diagnostics done from home or at a distance. We need much more of that both here at home and in western democracies as well.
COVID19 is a black swan event. No one would have imagined that this would happen. As investors, we now need to think about the worst-case scenarios when considering investments. Will this company’s model still hold up if the work physically stops? It is a very difficult situation to think through as an investor. Every time I look at a deal now, I’m thinking about it through a COVID19 lens, can this organization get through a significant systemic shift such as the one we’re going through right now?
Some companies will not be around after this (COVID19) is over
Absolutely. Which means there was a problem in the underlying model which nobody could have anticipated.
How do we prevent that from happening in the future?
That depends on the sector. As an investor, it’s about challenging the entrepreneur’s assumptions. As entrepreneurs, we’re very optimistic but now, we have to look at the projections and bring them down to reality. We need to look at the ‘what if’ scenarios much closer. There will be another pandemic, it’s just a matter of when.
It’s about challenging the entrepreneur, the projections, and the business models to make sure the team sees the inherent risks and how they would be mitigated.
What advice do you have for the entrepreneurs pitching at The Nest?
Confidence, passion, and belief in what you do are key, irrespective of whether the investors’ buy-in or not.
Failure is not a bad thing, you learn through failure. It’s about getting up every time you fall. Resilience is what takes you further.
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