Acumen Fund helping improve lives through investments

With a proven record of success since its inception in 2001, the Acumen Fund has recently been attracting more and more large donors such as the 'Bill and Melinda Gates Foundation' and 'Google.org.' Such providers of philanthropic capital have approached the not-for-profit fund with millions of dollars in support of Acumen's mission-to use entrepreneurial approaches to solve the problem of global poverty. Through the application of a rigorous framework derived from the venture capital industry, this social venture capital fund has emerged as a leader in its domain. The current $27million portfolio under Acumen's management spans five countries (South Africa, Tanzania, Kenya, India, and Pakistan) and fours sectors (health, housing, water, and energy).

Brian Trelstad, the Chief Investment Officer of the Acumen Fund, visited Ross this past Thursday and Friday to speak about Acumen's business model, which helps entrepreneurs deliver critical goods and services to the base of the pyramid (BoP) consumers, generally defined as the four billion people, or two-thirds of the world's population, that earn less than four dollars a day.

The Acumen Fund's model is a market-based approach that is changing the traditional view of development organizations. To focus on more sustainable solutions for poverty alleviation, the Fund moved away from providing grants in 2003. While Acumen recognizes the role and need for this short-term focused funding, it sometimes makes small equity investments in the form of convertible notes for high potential research and development opportunities. Acumen mainly focuses on debt investments that tend to be around one million dollars each. Expected return on investments, though not a hurdle rate, is eight to ten percent, and the payback period is five to seven years.

Acumen generally takes a minority stake in the BoP enterprise and mitigates risk through due diligence, significant business training for the local entrepreneurs, and continued managerial support of the ventures. The Acumen fund manager reviews financial and other metrics with investee companies on a regular basis. Capital, once paid back by the investee, is not returned to those who donate to Acumen, and instead it is reinvested in other ventures.

While Acumen provides ventures with capital, it is changing the development paradigm by focusing also on talent and knowledge. Talent at the local level is recognized by Acumen as one of the greatest impediments to achieving growth and scale in enterprises. Talent of the local management team in terms of experience, motivation, and dedication is the most important of four factors considered in evaluating a venture for acceptance. In 2006, Acumen also started a fellows program where a fellow would get trained in the US for a few months and then be placed in an investee organization for nine months. This not only helped train managers and generate innovative solutions for the local enterprises, but it helped build leaders for the development community as well.

The fund is working with universities as well as other institutions and journals to increase its impact through knowledge sharing and communication. Acumen believes that strategic partnerships with corporations or foundations can help accelerate change, it partnered with Google to develop a web-based portfolio data management system. The system, which stores financial metrics and other qualitative data, has been adopted by several other non-profits including Google.org.

Currently, the Acumen Fund serves a critical role as an intermediary between BoP ventures and charitable donors. But as Trelstad said, "what do you need a middle man for?" The answer is simple. "Either there is a market opportunity.or there is a market failure. In this case, there is a market failure, clearly in capital. There is nobody that has money that is willing to take bets on million dollar investments."

As Acumen focuses on growing to have $100 million in investments by 2011, the question they face is- how do you invest and grow strategically such that you have the biggest impact at the base of the pyramid (BoP)? "When you think about the scope of poverty alleviation, that ($27million currently invested) is still a drop in the bucket," said Professor Ted London. Acumen's new approach to focus not only on capital investment but also on knowledge sharing and talent development could be the direction that the non-profit sector needs to take, in order to solve this significant issue.

For more information on the Acumen Fund, please visit http://www.acumenfund.org.