Accelerating Impact Fund Managers to Spur Investments in the Base of the Pyramid

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ImpactAlpha.com -- First-time fund managers have a hard time raising capital in any area of private equity. Add in low-income customers, challenging frontier markets and a requirement for demonstrable social impact and first-time social-impact fund managers face even greater obstacles.

Yet without the ability to raise their first funds, even the sharpest impact fund managers won't be able to establish the track record needed to raise capital for their second and third funds from risk-averse institutions and high-net worth limited partners.

That, in turn, is starving many enterprises aiming to meet the needs of low-income consumers in India, Africa and southeast Asia of the capital they need to build their businesses. And that is depriving potentially billions of consumers of higher quality products and services at lower prices.

Having confronted these issues themselves, the founders of the Unitus Seed Fund, based in Seattle, have designed a new kind of accelerator to nurture the creation of dozens of similar investment funds to finance early-stage companies targeting so-called "base of the pyramid" customers. Most accelerators train and invest in startup companies; the new Capria Accelerator will train and invest in new fund managers.

"Without having fund managers operating or investing early in the market, at a higher-risk stage, there won't be any companies for later-stage impact capital to invest in," said Will Poole, a managing partner of Unitus Seed Fund and a co-founder of Capria. Poole first discussed the concept of the accelerator with ImpactAlpha in a Q & A last April.

Capria will host its first cohort of three to five first-time fund managers for four weeks of intensive training in Seattle in January (applications are open through Oct. 31 here). Each selected manager will receive an initial $5,000 investment to cover travel and other costs, and then an additional investment of up to $45,000 at the end of the program.

In the course of the program, each manager will find and prepare a deal, in which Capria will invest on their behalf. Capria will make up to three such investments and "warehouse" them for the fund manager until that first fund is raised. At that point, Capria will transfer the investments to the new fund, quickly creating a portfolio the new manager can market to potential investors. Capria will sell the investments at cost, while retaining some of the upside potential or "carry" on each deal. Capria will also retain a percentage interest in the general partnership itself.

Capria plans to seed at least eight, and perhaps a dozen or more new fund managers in 2016, and to warehouse 10 to 15 investments of $50,000 to $300,000 each.

"That creates a portfolio of companies they can then take to their investors to sell them on their fund," Poole says. "It's not just themselves and a strategy. It's themselves, a strategy and a portfolio."

Unitus Seed Fund will anchor a network of new funds, providing not only expertise, but access to due diligence on the more than one thousand companies the fund has reviewed. Unitus, which has raised $23 million, including from Bill Gates and Vinod Khosla, has made 18 investments so far.

Capria is raising its own fund to finance its investment-manager and warehoused investments and has secured funding for the first year of its three-year plan. Poole declined to specify how much money Capria needs, nor how much has been raised. "As you know, the accelerator business model is tough to get going," Poole said.

Unitus Labs, the nonprofit incubator that helped launch Unitus Seed Fund as well as Unitus Impact and Elevar Equity, is providing a philanthropic grant to cover Capria's operating expenses, Poole said.

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