Swiss-Asia Cap Intro Interview Series – Insitor Impact Asia Fund
April 5, 2016
Written by Swiss-Asia
Insitor Impact Asia Fund (IIAF) is an impact venture capital fund. It deploys private equity funding for start-ups and early-stage companies that serve basic human needs in emerging and frontier Asian markets. Ahead of making its debut at the Cap Intro by Swiss-Asia event, we sat down with Portfolio Manager, Valerian Fauvel, to discuss the issues at hand.
- Hi Valerian, how does Insitor Impact Asia Fund deploy private equity funding?
IIAF plans to make equity investments in 10 to 15 start-ups and early-stage businesses that will directly improve the lives of low-income communities. In practice, this means we will invest in businesses able to deliver products or services that are competitive and affordable to low-income customers, while ensuring healthy returns. Typically, we look at housing, energy, clean water, sanitation, nutrition, education, healthcare and financial services.
Each business and entrepreneur is different and we ought to be a flexible partner, but our sweet spot is a credible and scalable business model validated by successful pilots, a clear social benefit which spreads as the business grows, and a capable and dedicated management team who knows their market inside out.
We usually enter into a business as the first institutional investor after a seed round or a grant-funded pilot to support the business through its first phases of growth, until the company is mature enough to attract larger, more risk-adverse pools of funding.
- How do you invest in a nascent industry in fragile economies?
Impact investing has just started to gain recognition as an “asset class”, it is still a nascent industry. Impact investors cover as many sectors as there are unmet needs at the bottom of the pyramid, in a number of diverse and fragile economies. Investors and entrepreneurs operating in this environment face the same obstacles as those operating in established markets, with the added dimension of exceptionally challenging frameworks. Lack of regulation, infrastructure and information make it an uphill battle. It requires patience and a deep sense of understanding and unity from investors and entrepreneurs alike, but the potential outcomes are highly rewarding.
Unfortunately, a number of social issues in various countries cannot be addressed by the private sector. We focus on business models that have the best chance of success in the local environment. The key drivers for us are regulation, customer behaviour and aspirations, efficiency and effectiveness of competition, and the existence of local “ecosystems” that can nurture businesses as they grow. We have different standards which are unique to each country, acknowledging that some economies are particularly challenging, expecting that the fund’s regional focus will enhance the scope of opportunities while mitigating risks.
The individual risk remains high, but once the above parameters are well understood, it is also partly offset by a potentially immense customer base, the lack of credible alternative solutions available today in the market, comparatively higher barriers to entry, and the existence of funding pools like grants that can be leveraged by social businesses.
- Where are your team members based at?
IIAF invests in India, Pakistan, Myanmar and Cambodia. Given our investing model, it is important for us to spend as much time there as possible, close to the markets in which we invest. Each senior team member has lived over six years in any of these countries, even though they are not born there. While Singapore was an obvious choice when deciding where to locate our fund management activities, we also leverage on a local team of senior professionals in each of our target countries and constantly travel ourselves.
- Can you share with us one of your most memorable investments in Asia?
IIAF’s history started in Cambodia in 2009 with Insitor. Our first investment was in First Finance PLC, a local home financing company. First Finance targets low and middle income Cambodian households seeking to invest in their first home, but do not meet the usual criteria set by commercial banks. Thus, we come in to provide them access to formal home finance solutions.
By developing a thorough understanding of their target customer base within the local market’s dynamics, First Finance was able to grow its loan portfolio from USD300 000 in 2009 to USD21 million today. With Insitor providing the first equity funding tranches, as well as operational and governance support, First Finance subsequently attracted over USD2.5 million in equity and USD20 million in debt from local and foreign investors such as Emerging Market Investments, Phillip Capital, Blue Orchard, Incofin and Deutsche Bank. Development Finance Institutions such as Finnfund and Norfund also came on board. The company is profitable since 2010 and we expect First Finance to be our first exit.
For more event information on the featured funds, travel arrangements and Swiss-Asia Financial Services, please visit http://www.swissasia-group.com/cap-intro/. Registration closes on 4 April 2016.